Is a Right of First Refusal Acceptable to FHA?

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Is a Right of First Refusal Acceptable to FHA?

fha condo approvalIn processing applications for FHA condominium project approvals, it is not uncommon to find legal documents that have a Right of First Refusal.  Often, I have been asked by Board members and property managers if this deed restriction is acceptable to FHA.  Most of the time, it is.

A Right of First Refusal is a restriction on conveyance of a unit in a condominium project.  It provides the association with the first option to purchase a unit that is being sold.

The Right of First Refusal mandates that upon entering into a bona fide contract for purchase, the unit owner would have to notify the association through the Board of Directors of the contract.  The Board, on behalf of the association, would have the right to purchase the unit under the same price, terms and conditions contained in the purchase agreement.

This is not to the detriment of the seller because the association would have to purchase the unit on the same terms and price of the original contract to the third-party buyer.  Because of this, FHA does not take issue with a Right of First Refusal.

However, the language has to be very clear as to what the Board is allowed to do under this clause.  If the Board only has the right to deny the purchase to the third-party buyer so that the association can purchase that unit that is OK.

But, if the Board, on behalf of the association, has the power to accept or reject purchase contracts for any other reason, this is not acceptable to FHA.  FHA does not allow for a Board to approve purchases or buyers.  This violates “free assumability” as stated in 24CFR203.41.

To date, every condominium project with whom we have worked that has had a Right of First Refusal clause has been approved with FHA.

As an aside, Fannie Mae also allows Right of First Refusal.  The VA does not.


Image courtesy of Stuart Miles/

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The Condominium Project Approval Team at ReadySetLoan is dedicated to helping condominium projects across the nation to obtain their approvals with FHA and the VA or become recertified with FHA.  We have assisted nearly 200 condominiums and we can help your association.


ReadySetLoan is an active member of the Connecticut and New England chapters of the Community Associations Institute (CAI) and is a frequent contributor to Common Interest Magazine as an expert in FHA/VA condominium project approvals.


Please contact us with any questions regarding FHA or VA condominium project approvals.  You can email me at or call me at 404-433-4565. I will be happy to answer any of your questions.


FHA/VA Condo Approval Specialist

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David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggressive & 560 FICO - OK, Colorado Mtg

Yeah I never got the "Association" wanting to buy back units but whatever I guess its their call.

I have an issue right now where a 40yr old document that called a townhome a condo and had some condo association verbiage (even though it is clearly a townhome and even the county recorder sent us a letter stating the same thing and having a hard time getting FHA to accept it???

You never know and thats why its always good to ask

Thanks for the post!

Jul 08, 2014 12:04 PM #1
ReadySetLoan Condo Approval Team
ReadySetLoan Condo Team LLC - South Windsor, CT
The FHA/VA Condo Project Approval Specialists

That is very interesting, David.  Typically, if the legal documents declare it to be a condominium, it's a condominium.  Sounds to me like an attorney needs to be involved.

Jul 08, 2014 12:22 PM #2
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Good morning Eric. The flip side of this is pretty important as well, does a seller realize that the association has this right and what if it is not offered? I ran into this issue a number of years ago, but eventually the association signed off, but all got delayed for a month.

Jul 08, 2014 06:44 PM #3
Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

Hi Eric.  I"ll bet very few agents know about this covenant.

Jul 08, 2014 08:27 PM #4
ReadySetLoan Condo Approval Team
ReadySetLoan Condo Team LLC - South Windsor, CT
The FHA/VA Condo Project Approval Specialists

Hi Joe - I can see that happening.  So many folks don't reaad their legal documents that it must come as a surprise when they go to sell them.

I would agree, Conrad.

Jul 09, 2014 01:46 AM #5
Doug Kleine

Veterans Affairs Dept has softened its stance. realizing that many documents go way back and are hard to amend, VA will accept a right of first refusal if it was in place before 1976.

Jul 09, 2014 05:17 AM #6
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