Yesterday my wife received a letter from the condo association for a complex she owns a rental in with “OWNER ALERT!!!!!!!” (yes, that many exclamation points) at the top of it in big letters. The reason for the “alert” was to let condo owners know that FHA certification for this condominium complex expired December 31, 2010 (as it did for many complexes across the country) and that, in order to be eligible for FHA-insured financing the complex would have to obtain re-certification.

Now, in this particular case, the board is using this as a scare tactic to try to convince the owners to vote to change by-laws to prohibit rentals (something they tried last year and failed at and something I have major issues with, but that’s a topic for another story..) but I realized this is a very real problem or concern for many condo-owners, boards and associations across the country so I thought I would gather and share some info on the issue.What is FHA Certification and why is it important to condo owners?

FHA Certification of a condominium complex means that the units in that complex or development are eligible for FHA-Insured loans giving purchasers access to an FHA-insured loan with a term of up to 30 years (up to FHA loan limits).

Why did the FHA certifications expire?

The Housing and Economic Recovery Act of 2008 (HERA), required the Federal Housing Administration (FHA) to implement an approval process for condominium projects and insurance requirements for mortgages on individual units, under Section 203(b) of the National Housing Act. Additionally, in 2009 FHA issued a letter stating that FHA approved condominium projects must be re-certified every two years.

What are the maximum loan amounts FHA will insure?

The maximum loan amount FHA will insure (which, depending upon the value of the condo will help you decide if FHA certification is important or not) is set annually and varies by region. The current loan limits for 2011 are:

The CY2011 basic standard mortgage limits for FHA insured loans are:
			One-family
	FHA		$271,050.00

 

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High cost area limits are subject to a ceiling based on a percent of the Freddie Mac Loan limits The ceilings for CY2011 are:
			One-family
	FHA		$625,500.00

 

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Section 214 of the National Housing Act provides that mortgage limits for Alaska, Guam, Hawaii, and the Virgin Islands may be adjusted up to 150 percent of the new ceilings. This results in new CY2011 ceilings for these areas of:
			One-family
	FHA		$938,250.00

To find the loan limits for a specific state or metro area, click here.

How can I find out if my condo development’s certification has expired or when it will expire?

FHA gives you the ability to search the status of FHA certification for condominium developments throughout the country by state, condo name, etc…to look one up click here.

What are the requirement’s for re-certification by FHA?

The requirements for certification of a condominium project or development by FHA can vary based upon factors that may be present necessitating additional requirements (such as flood hazards, environmental hazards, wetland issues, etc) but in general, here are the requirements:

1. Minimum number of units: Projects must consist of two or more units.
2. Insurance Coverage: Projects must be covered by hazard and liability insurance and, when applicable, flood and fidelity insurance (See Section VI, Insurance Requirements).
3. Right of First Refusal: Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation at 24 CFR part100.
4. Commercial Space: No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes. The commercial portion of the project must be of a nature that is homogenous with residential use, which is free of adverse conditions to the occupants of the individual condominium units.
5. Investor Ownership: No more than 10 percent of the units may be owned by one investor. This limitation also applies to developers/builders that subsequently rent vacant and unsold units. For condominium projects with ten or fewer units, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete.
6. Delinquent Home Owners Association (HOA) Dues: No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payments.
7. Pre-sales: At least 50 percent of the total units must be sold prior to endorsement of a mortgage on any unit. Valid presales include:
   1. Copies of sales agreements and evidence that a mortgagee is willing to make the loan
   2. Evidence that units have closed and are occupied; OR
   3. Information from a developer/builder that lists all of the units already sold, under contract, or closed (e.g. a spreadsheet, chart, or listing used for the company’s own tracking purposes) that is accompanied by a signed certification from the developer (Attachment F).
8. Owner-occupancy Ratios: At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units. For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units (the minimum presales requirement of 50 percent still applies).
9. Legal Phasing: Legal phasing is permitted for condominium processing. It is recommended that developers submit all known phases for initial project approval. FHA will not accept market phasing in lieu of legal phasing. For vertical buildings, legal phasing is acceptable if:
   1. The floors are legally phased in groupings of no less than five floors;
   2. At least a temporary certificate of occupancy has been obtained and all common areas and amenities have been completed; AND
   3. A third party completion bond has been obtained.
10. FHA Concentration: The concentration level will be based on case numbers assigned on units in a project; FHA will not issue new case numbers once the 30 percent concentrationlevel (plus a small tolerance to accommodate for some fall-out) has been reached in any particular development.
    1. Projects consisting of three or fewer units will have no more than one unit encumbered with FHA insurance.
    2. Projects consisting of four or more units will have no more than 30 percent of the total units encumbered with FHA insurance.
    3. Calculation of the level of FHA concentration in a project declared with legal phases will follow the same methodology as owner-occupancy, described above.
11. Budget Review: Mortgagees must review the homeowners’ association budget (the actual budget for established projects or the projected budget for new projects) for all projects. This review must determine that the budget is adequate meets additional requirements established by FHA.

To see the complete requirements and approval process as outlined in FHA Mortgagee Letter 2009-46 B, please click here.