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FHA Condo Loan Approval: New Glitches Arise


Under rules issued in 2009, the Federal Housing Administration guarantees loans for condo purchases only if the entire association has been approved for FHA financing. That’s required many condo associations to go through the FHA’s “recertification” process.

“Every condo has to get recertified with the FHA so we’re handling a lot of recertifications,” says Elizabeth White, a shareholder and head of the community associations practice at the law firm of LeClairRyan in Williamsburg, Va. “Every two years, they also have to apply for recertification. That doesn’t have to go through a bank or law firm. HOAs can apply for those themselves. But we’re finding they struggle because there’s an awful lot of data that has to be compiled. Unless they have a particular skill set, they’re better off going with one of the organizations that has sprung up to handle those.”

Here’s an example of the complexity: “The recertification includes an application that requires you to certify your delinquency rate and how many units are in arrears,” says White. “HUD also has a rule that you have to certify that your accounts receivable doesn’t exceed 15 percent and the number of owners delinquent doesn’t exceed 15 percent. Yesterday, we had an association that had 15.2 percent delinquencies, and we wondered: Does HUD round up or down? In this situation, we’ll ask the association to ensure that to the extent there are bad–debt writeoffs, those are in the numbers submitted to us. We don’t want them to do anything fraudulent. But some associations drag their feet in writing off bad debt. This is one of those situations where they’re going to have to do it sooner rather than later.”

You’ll also have to submit your HOA’s governing documents to HUD, and that’s where our reader’s problem seems to have emerged. To learn more, see our new article, FHA Approval Twists for HOAs: Discussion Forum Follow–Up.

Best regards,
Matt Humphrey

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