If you are thinking of buying a condominium, it might sound attractive to seek a commmunity without the politics of a HOA, but you should be aware that you might not be able to obtain FHA financing if there is no governing body to enforce the CC&Rs. Be sure to ask your REALTOR® to confirm that your chosen condo community is approved for FHA financing.
How Does FHA Handle "Cloud" Condominiums?
It appears that the “cloud” concept has spread wider than in the area of computing. A newer type of condominium community, called a cloud condominium, has been popping up and is already approved in certain large cities such as Denver, Orlando and San Diego.
A cloud condominium is a community under a declaration of condominium but there isn’t a Home Owner’s Association (HOA) because there are no common elements in the project. The community is governed by CC&Rs (covenants, conditions and restrictions) but does not maintain an HOA to enforce them.
The unit boundaries contain the interior and exterior of the unit and the adjacent land (front, back and side yards as applicable). The boundaries also contain the air space above the unit to about 50 feet and the footprint of the unit. The units can be attached (like townhomes) or free standing like “site condos”. The units are generally smaller than a standard single-family home which is seen as decreasing the maintenance for the unit owner.
The primary purpose of these communities to circumvent local zoning restrictions on lot size (as is the case typically with condominiums and planned communities) but without having the political structure of the HOA.
The major downside to not having an HOA is that there is no governing body within the community to enforce the CC&Rs. This means that if a unit owner is in violation of the rules or by-laws, a unit owner (or a group of unit owners) would have to take the matter to civil court to resolve it.
Because these projects do not have an HOA to enforce the CC&Rs, FHA has decided not to approve these condominium projects and, so far, it has made the decision to not lend in these projects either. If the project consists of attached units, it is not approvable. If the project qualifies as a “site condo”, it would not need project approval, but FHA has decided not to provide financing for these units.
Because this concept is still relatively new, I would expect that FHA would revisit this decision if the need becomes large enough or if there is more pressure from national organizations.
The FHA Condominium Project Approval Team at ReadySetLoan is dedicated to helping condominium projects across the nation to obtain their FHA approvals or become recertified with FHA. We can help your project.
Please contact us with any questions regarding FHA condominium project approvals. You can email me at firstname.lastname@example.org or call me at 404-433-4565. I will be happy to answer any of your questions.
FHA Condo Approval Specialist
404-433-4565 Cell Phone
860-644-3772 Fax Phone
Check out my article in the latest issue of Common Interest magazine on page 19!