Utah HOA Law Blog

By Curtis G. Kimble.

The Federal Housing Administration (FHA) today released a revision to its condominium project certification requirements.  There are a few changes to certain requirements that have been preventing or hindering associations that I’ve helped from obtaining FHA certification.

One change will certainly help regarding delinquencies.  Now, no more than 15 percent of all units may be more than 60 days delinquent.  Previously, the requirements prohibited 15 percent of the units from being 30 days delinquent, which was far too strict.  The change to 60 days is much more realistic and logical.

The fidelity insurance requirements have been adjusted slightly for professionally managed associations and may make it a little easier to comply with these requirements.

Finally, the requirement that no more than 10% of the units could be owned by one person or entity has caused difficulty for many associations.  That requirement has been changed for established projects.  A single person or entity may now own up to 50% of the total units as long as 50% of the units in the project are owner-occupied, principal residence units.

So, the changes provide some limited and welcome relief, but not much, and they definitely don’t provide the broader changes or relief many associations were hoping for.

Remember, certification expires every two years and you’ll want to plan ahead a couple of months at least to arrange for applying for re-certification.  Contact us to help your condominium association obtain certification or re-certification of your project.  While it can be challenging to obtain certification, it’s certainly possible for just about every association, and the benefits are well worth it.

By Curtis G. Kimble

I thought I’d share this article from the Salt Lake Tribune so that any of you out there feeling frustration over the difficulties the FHA certification process is causing to buyers and sellers of condominium units, as well as the boards of condominium associations, can commiserate knowing you’re not alone:  Thousands of condo owners stuck in condos they can’t sell | The Salt Lake Tribune.

A few years ago, a condominium board may have never heard of certifying their condo project under the Federal Housing Administration (FHA).  The FHA insures private sector loans used for the purchase of a home, so that, under an FHA backed loan, the government helps cover losses to the lender when the borrower can’t pay his or her mortgage.  A few years ago, these loans could be obtained on a unit by unit basis.  Additionally, only about 3% of condominium mortgages were FHA backed five or six years ago.

Now, FHA backed loans have become one of the only options for many borrowers.  But, the whole condominium project must be certified with the FHA before any units within it can be bought with FHA loans.  And today, more than half of new condominium mortgages are FHA loans, making FHA certified status extremely valuable for a condominium project.  Even for buyers not interested in an FHA loan, FHA certification tells a buyer that the condominium association has met certain standards which help ensure the long-term financial viability of the association.

The problem is that the process to get FHA certified is rarely easy.

We routinely help condominium projects throughout Utah obtain FHA certification.  The problems we see the most are inadequate fidelity insurance coverage (not enough coverage or the policy doesn’t name the specific property management company as a covered entity), not enough reserves, too many delinquencies, and having a transfer fee in the governing documents.  If the association has a pending special assessment, is involved in major litigation or has a bank loan, these issues may also prevent the association from becoming certified.

The process for obtaining certification can take anywhere from a couple of months to a year or more.  To make matters worse, the certification expires every two years requiring the association to go through the certification process again and again.    However, obtaining FHA certification can have dramatic benefits to the salability and property value of the units within a project.

The possibility of obtaining FHA certification should at least be examined by every condominium board to determine if it’s feasible for their association.  If the association becomes FHA certified, it will make all the difference in the world to the buyers and sellers of units within the association, as well as to owners of units wishing to refinance with an FHA loan.

Contact us if you’d like help certifying your association with the FHA.