FHA Condo Approvals – Questions About Legal Documents Part 2
Next week, I am attending a roundtable session regarding FHA Condo Approvals at the HUD Building in Washington, D.C. Attendance to this session is by invitation-only and I am honored to be one of the chosen project consultants to attend.
Because we will have the opportunity to ask questions and offer our opinions regarding project approvals, I sent an email to the many property managers and condominium attorneys with whom we work. The email requested questions and issues that they have run into with the project approvals. One of the attorneys sent to me the following email. Below, his questions are in green italics; my answers are in blue.
Congrats on being invited! If you know the answers feel free to tell me:
1. Number one complaint is that everything is subjective. When I used to file the applications I never knew what one underwriter would accept vs. what another underwriter would reject.
While they have become more consistent, there is a level of subjectivity in the approvals. (I also wrote an article about this.) Last year, I submitted two condominiums at the same time and both had outstanding loans. One reviewer asked for a payment history from the lender and the other didn’t. One was approved on the first attempt and the other was delayed by a couple of weeks so that we could obtain the loan payment history.
The worst is the review of financials. I submitted a package where the project is in good shape financially, having budgeted for capital projects and is properly funding the reserve account. They are contributing more than 30% to the reserve account annually and they are using reserve funds to reroof all of the buildings. The reviewer is asking for a reserve study because the reserve account balance is lower now than 12 months ago. FHA allows use of the reserve funds for capital projects but this reviewer flagged this project for using reserve funds.
2. I’ve had associations need flood insurance because a back corner of the lot is in a flood zone even though no buildings were in the vicinity. Can the guidelines be modified to allow for exceptions? Probably not but worth a shot.
I will ask about this because this one is also fairly inconsistent. I have had one reviewer tell me that if any piece of the plat map contains a Special Flood Hazard Area (SFHA) then the whole project needs flood insurance even if the SFHA does not intersect any real property.
Conversely, I have had some approved where it was clear that a SFHA intersected some of the building and the flood insurance policy was provided only for the affected buildings/units.
When I have run into issues, I have assisted Associations in obtaining a Letter of Map Amendment (LOMA) from FEMA that indicates that the buildings and units are not located in a SFHA. In these cases, the project was approved without the need for flood insurance.
3. Also if you know of any language in documents that you have seen flagged and/or rejected by FHA please let me know. I have had to amend documents in the past for the sole purpose of changing language to comply with FHA.
The primary offending language in legal documents concern leasing and conveyance restrictions (24CFR203.41). Another area of concern is Affordable Housing units. FHA does allow for these but they have to meet certain criteria. If the units don’t meet the criteria, the project as a whole can still get approved but the units are flagged in the system as not being eligible for FHA financing. Also, the developer is not allowed to retain ownership of the common elements once the project is complete.
Please also refer to FHA Condo Approvals – Questions About Legal Documents Part 1
Image courtesy of Stuart Miles/freedigitalphotos.net
Lower image courtesy of Grant Cochrane/freedigitalphotos.net
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!