FHA Condo Approval Specialists – Update on Non-Residential Space
In Mortgagee Letter 2012-18, HUD issued new guidance for condominium processing and approvals regarding a number of criteria.
One such modification pertains to non-residential (commercial) space located within a condominium project. HUD is not opposed to having such space in a condominium but limit how much space can be utilized for this purpose.
Previously, HUD had limited non-residential space to 25%. This space must also be in a manner that is homogenous with residential use and be free of adverse conditions to the occupants of the other units.
Exception for up to 35% commercial space
The new guidance allows for exceptions of up to 35% non-residential space on a case-by-case basis. However, this does not waive the requirement that the space must be used in a nature that is homogenous with residential use and free of adverse conditions to the occupants of the other units.
The following requirements apply:
· Exceptions must be submitted with the submission package and must be sent to HUD for HRAP. Exceptions cannot be processed via DELRAP.
· Project must be complete for at least one full year. Proposed, under construction and newly converted projects are not eligible.
· Voting control has been transferred to the unit owners.
· Exceptions may be considered for Mixed-Use Developments.
Exception for Mixed-Use Developments
HUD also created a means whereby requests for exceptions to the 25 and/or 35 percent requirement for Mixed-Use Developments. These exceptions must be sent to the Philadelphia Home Ownership Center (HOC) to be reviewed via HRAP. There is no DELRAP processing option.
Mixed-Use Developments are defined as those which have a combination of any of the following: commercial, residential, retail, office or parking space.
Being granted an exception does not waive the requirement that the non-residential space must be homogenous and free of adverse conditions to the occupants of the other units.
There are certain additional requirements needed for the submission package that include:
· Cover letter requesting the exception that include reasons for the request for the exception, description of all of the uses in the project and breakdown of the uses by building and floor area and the commercial space percentage.
· Explanation of how the percentages were calculated – calculations included.
· Market analysis, including neighborhood analysis.
· Photographs of project and surrounding neighborhood.
· Spreadsheet that contains non-residential leased space information.
· Must be Mixed-Use projects ONLY.
· Commercial space must not have a negative impact on the residential character of the project.
· Commercial space may not exceed 50% of the floor area unless specifically approved by the Commissioner or his/her designee.
The requirements for Live/Work Projects remain the same as in ML 11-22.
As in the past, HUD has been working to modify the guidance for condominium approval. In speaking with those at HUD, their goal is to provide a common-sense approach to the approval process.
These modifications make good sense in that so long as the project has a “residential feel” to them, why would a slight commercial aspect have a negative impact on the property values?
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 firstname.lastname@example.org or call me at 404-433-4565. I will be happy to answer any of your questions.
FHA/VA Condo Approval Specialist
404-433-4565 Cell Phone
860-644-3772 Fax Phone
Check out our article in Common Interest magazine on page 19!