FHA Condo Approval Specialist

FHA Condo Approvals – PUD/Condo Project…What?!

During my time helping condominium projects to get approved with HUD, I run into many different types of projects…

…but this one left me scratching my head.

In the State of Connecticut, there used to be a form of common interest ownership called a Planned Urban Development – or PUD, for short – whereby the free-standing, single-ownership homes were units in an associated project.  The unit owners own the interior and exterior of the units and are responsible for the insurance and maintenance of both.  They own the land upon which the unit sits and commonly owned the front yard and back yard and were responsible for the insurance and maintenance of it as well.

[These projects still do exist but the state does not allow new projects to be developed with this form of ownership - they must be declared as condominiums.]

The common areas are maintained and insured by the Association and all of the unit owners own a fractional share of these areas.

I think that we all know what a condominium project is and many of us know what a “site” condominium project is.  Site condominiums are very much like PUD’s except that they exist as two separate types of legal ownership in Connecticut.

HUD used to maintain an approval list for PUD’s but decided it was unnecessary in 2004.  Therefore, FHA financing is available to all PUD’s without PUD projects having to be on an approval list.

HUD maintains an approval list for condominiums, but not site condominiums.  As such, FHA financing is not available to units in a condominium project without the project first being approved with HUD.  Site condominium projects do not need HUD project approval for FHA financing to be available.

Still with me?

Yesterday, I met with the Board President of an association in Connecticut and a lovely couple who is looking to obtain a reverse mortgage with FHA.  Because the project is not approved, they are unable to currently obtain their reverse mortgage.  In speaking with the husband, he initially told me that the project is made up of both attached and detached condominium units.  If this is the case, the project must get approved with HUD before FHA loans are available.

The Board President, Joe, clarified that the project is in two legal phases: the first of which is comprised of free-standing units with a PUD Declaration and the second phase had its own Declaration of condominium ownership and contained both attached and detached units.  They operate as one legal entity with one Association and under one set of By-laws.

Jackpot!  We pretty much just hit all three: condo, PUD, site condo.  But, wait!  It gets better…

The PUD unit owners and the detached condominium unit owners are not responsible for the exterior of their units; they are maintained by the association.

The PUD unit owners own the land around their units but the Association mows their lawn.  PUD unit owners are responsible for the exterior improvements made on their land which include patios, porches, decks and even swimming pools.

So, the question is: what the heck do we do with this?

The PUD units are not eligible for FHA financing because the project also contains condominium units.  However, is the project approvable with HUD since it contains PUD units?

So I called HUD and spoke with a very intelligent gentleman who gave us good news.  He said that from what he can tell from our basic description (granted, he hasn’t read the legal documents) the project should be approvable so long as the Declarations are fair to everyone and adhere to state law.

An example of being “unfair” would be if the PUD unit owners had greater access to amenities or the condominium unit owners bore more of the burden of the expenses of the project.

With that news, the topic of HUD condominium approval will be brought up at their next Association meeting.  A sizeable portion of the Association consists of those of retirement age so I am optimistic for the couple’s sake that this measure will be approved.  I wish them “good luck”!