Really Big Deal or No Big Deal Challenge
The Real Debbie Reynolds posted a very cool challenge for December called “A Really Big Deal or No Big Deal”. She has a knack for creating challenges that are fun and thought-provoking and this is no exception.
I have been helping condominium projects to get approved with FHA since the end of 2009. During this time, I have helped more than 70 condominium projects to get approved. Every approval package that I have submitted to FHA has been approved or will be approved soon. I am quite proud of my track record but it took a LOT of work to get here.
HUD changed their condominium approval guidelines in 2009, which began to take effect in 2010. It didn’t offer any training on the changes until the middle of 2011, when it published its Condominium Project Approval and Processing Guide (the “Guide”).
For the first year and a half of working as a project consultant, I was learning as I went along. I would compile a file according to the published documents (Mortgagee Letters) and send it to FHA with my fingers crossed.
The files would get Rejected, which was no big deal. I would collect the missing documents or provide additional information, send it to FHA and they would subsequently get approved.
The condominium project that posed the biggest challenge is located in Connecticut and we will refer to it as “Phase II”. I began working with them in 2011 and the package was submitted just prior to the release of the Guide. I had submitted several packages at that same time. Some of them were reviewed based on the old guidelines and some of them were reviewed based on the new ones in the Guide.
Unfortunately, Phase II one was in the latter group. It also didn’t help that the file was placed with what turned out to be the strictest project reviewer in the Philadelphia office. Double Whammy!
The condominium did have its issues. Some of the small ones included the name of the HOA. It is part of a three-phase condominium development where each phase is its own legal entity and each has a very similar name. The property manager and some of the documents called the project “Phase II” which is not its legal name. So we had to clear that up.
The Guide made it a requirement to submit copies of the recorded legal documents. The documents cost me over $300 to obtain because of all of the amendments and that they restated the declaration and by-laws.
It was originally under a land lease to the developer. The HOA purchased the land from the developer in 1987 so I had to go back to town hall to locate and copy the transfer of title.
The HOA has an ongoing 10-year pending special assessment for which we needed to provide loads of documentation.
There were also a couple of bigger issues.
For one, the HOA moved funds from the reserve account to the operating account. If you have read any of my articles about the financial requirements, you would know that this is a HUGE “no-no”. This is where I initially learned it.
Other projects with whom I had worked had moved reserve funds into the operating account and were approved without issue. I went back and forth with this reviewer noting that the reserve funds were used for a paving (capital improvement) project, which is allowed. He said that CIP’s should be on a different ledger.
I relayed to the property manager and the HOA that they must stop moving money from the reserve account to the operating account. They were nearing the end of their fiscal year so they must account for CIP’s separately from their typical operating expenses. I want to stress that the Board wasn't doing anything wrong; it just wasn't accounting to FHA's liking.
The second major issue is that the original flood map shows a brook and a special flood hazard area (Flood Zone AE) where there is an existing building in the project (picture located to the right). There is a Letter of Map Amendment (LOMA) from 2009 that shows that the brook and Zone AE were moved when the buildings were constructed but Zone AE was still on the site plan.
The reviewer said that the entire project needed flood insurance even though it was clear on the LOMA (not pictured) that the Zone AE did not intersect any of the buildings. Flood insurance would cost the HOA over $30,000 per year.
What else can we do?
Finally, he said that if we can get a LOMA from FEMA stating that every building is not in a special flood hazard area, that would satisfy FHA.
I discussed this with the property manager and the HOA and they decided to try to get the LOMA and asked me to do it. I had never done this before but agreed to help as best I could.
So….long story short (too late!), we received the LOMA from FEMA which noted that none of the real property in the project was located in a special flood hazard area.
The HOA finally modified their budget and accounting practices regarding capital improvement projects and the reserve account.
A little over 2 years after we began the process, the condominium project is now on FHA’s Approved Condominium List. The property manager and the members of the Board of Directors were absolutely thrilled and thanked me for my diligent efforts to get it approved.
This was by far and away the most difficult project I have worked with and also one of the most gratifying. It was one of the first projects with whom I functioned as a consultant in that I helped them to modify their accounting practices.
I gained so much knowledge from this experience regarding FEMA flood maps and LOMA’s (I have since helped other projects to obtain LOMA’s), about budgeting and proper accounting of the reserve accounts and many of the finer details like the name of the condominium project as it appears on all of its documents.
I have worked with many other challenging projects but because I muscled through this one, the other ones were much easier.
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!