FHA Certification - Top 5 Things Condominiums Need to Know!

Good afternoon and welcome back to Association Nation! This is our third podcast, where you've got questions and we've got answers. So this is a podcast for unit owners, board members, and community managers who are interested in learning more about community association law and really about how to Master the Business of Your Association. I'm super excited! We'll take a couple questions first from our listeners. I will answer those questions first and I'll introduce you to our special guest today. We'll get into a really interesting conversation around FHA certification for condominiums and why that matters.

My name is Jane Bolin. I am a principal and founder of PeytonBolin. We are a real estate and association law firm in South Florida. I was a CAM before I became a licensed attorney. I was a community association manager while I was in law school. I owned my own management company and sold that back in 2010. Why does that matter? Because the way I answer these questions is based on my practical experience coupled with my legal knowledge. I think that gives the results of something you can take home and work with, rather than just a black and white legal opinion.

I pick two questions for each podcast.

Question 1- The first one came from a new board member in Pembroke Pines, FL. I am a brand new board member. I was just voted in as the president. The treasurer has been in the position for 25 years. I want to see the bank statements. Why won't the treasurer give them to me?


Answer - Any board member wears two hats. 1) Unit owner. 2) Board member. You have two positions that you are holding and at the very basis of all boards is this idea that a board is transparent. This is a not-for-profit entity that is a community association. Florida law provides for official records request. You can see everything that is used day-to-day with the exception of some redacted attorney client privilege documents. Something like the bank statements is absolutely available to a unit owner. 1) Explain to your board the transparency of the board inside of the Official Records request statutes. 2) Ask will you be giving me the bank statements or will I need to send in an official records request in order to request the bank statements which will take additional time, money, and resources?
Another nuclear option. When you become a new board member in Florida, you should be updating your annual report. Banks go to www.sunbiz.org to determine who is a director. When you go to a bank and and sit down with your banker and say I am a board member of XYZ Association, here is a copy of the meeting minutes where I was elected and the sunbiz report showing that I am a director, they will give you the signature cards and you will be able to become a signatory on the account.

Question 2- Unit owner in the Tampa area. The board member I speak to tells me that they will waive late fees but when I got an attorney involved that changed? Aren’t they on the hook? How can they change their minds?

Answer -Can they change their mind? Yes, they can. Until something is in writing, there is no agreement. Ask your attorney to contact their attorney and indicate that there was this promise and would they be willingly to go through with it? It is one place that the board could choose to waive late fees and interest, if they are in negotiations to settle, so it's not unreasonable. Speak with an attorney as soon as possible and allow communications to go counsel to counsel.

If you have questions contact me through our website www.peytonbolin.com or contact me directly at jane@peytonbolin.com.

FHA Certification for Condominiums

Today's objective is to get you very clear on what is the FHA certification for Condos! I am delighted to introduce Karlene Massey with Cornerstone Home Lending, Inc.

The Federal Housing Administration (“FHA”) is a government-owned insurance company that insures home loans for buyers who cannot afford a conventional down payment or prefer to use their available funds in other ways. In other words, a FHA backed loan allows a home buyer to purchase the home with a smaller down payment than other types of loans and, oftentimes, at a lower interest rate. FHA backed loans permit buyers to put down as little as 3.5% as opposed to the typically required 20%. Lower down payments tend to attract many first-time home buyers.
Until February 2010, FHA provided “spot approvals” (i.e. approvals for individual units in condominium associations), but now FHA requires the entire condominium project to be “certified” before FHA loans to purchase units in such project are authorized. No single condominium unit will be eligible for FHA financing unless the entire condominium project has been certified.
Being FHA certified means a condominium community meets the minimum guidelines established by FHA. Meeting these guidelines according to FHA will reduce risk of default on home loans which it insures, making such loans safer for banks and for the FHA.

Jane-
What are the requirements of an FHA loan?

Karlene-
-Borrower must have a minimum credit score of 620 or above.
-3.5 % down payment
-Qualifying income and assets
A major benefit for a FHA borrower, it allows them a higher purchasing power. Conventional loans debt to income ratio is 45% but with the FHA loan it is 55%.

Jane - This might affect property values- what you think?

Karlene - Correct!

Jane - There may be some legal requirements in their documents, CC&Rs, their declarations of covenants and restrictions. They have to comply with those requirements?

Karlene - Yes. In addition to meeting agency requirements, it opens the door for unit owners and prospective purchasers. Unit owners not only have the option to refinance via FHA financing, adults age 62 and over have the option to do an FHA HECM (aka reverse mortgage). For unit owners wanting to sell their condo, having FHA project approval allows additional financing options for their prospective purchasers.


Jane- So it's not just about prospective buyers but also about current owners and their ability to refinance.

Jane - How do associations get certified?

Karlene - 2 Methods – HRAP or DELRAP approval; however, FHA requires all Florida projects to utilize the HRAP method. HRAP (HUD Review & Approval Process) is reviewed and processed by FHA staff. DELRAP (Direct Endorsement Lender Review & Approval Process) is reviewed and processed by qualified Direct Endorsement staff. Cornerstone has DELRAP authority meaning the documents do not have to leave our company, we have qualified staff designated by FHA to review & approve condo projects. The condo doc requirements are the same regardless of the review option selected. For Florida projects, FHA will review all legal docs, plat map & site plans, the insurance policies, the budget, management company contract as well as a questionnaire completed by the HOA.

Jane - When the Direct Endorsement is done, is it per unit or for the entire association?

Karlene - For the entire association.

Jane - What is the most common reason you see for denials?

Karlene - The most common issue is the annual HOA budget not having a sufficient allocation going towards reserves. FHA requires that 10% of the annual assessments go towards reserves for capital expenditures. Probably the 2nd most common issue would be the HOA insurance policy not meeting guidelines.

Jane - What about unit owner occupancy?

Karlene - No more than 50% of the property can be investor owned or rentals.

Jane - Is that done by an affidavit or a survey?

Karlene - Yes, it's a questionnaire.

Jane - Do past due collections matter in FHA approval?

Karlene- No more that 15% of units can be delinquent for the last 60 days.

Jane- Associations have been improving since 2012 in terms of delinquencies. That is still an area that is challenging for associations. I certainly will be talking on Association Nation in the future about collection policies that work and would help us get to that FHA approval.

Jane - Anything else that we should know about?

Karlene - Leasing. There should be no transient leasing of units, which is defined as less that 30 days and no seasoning clauses as a restriction that requires a unit owner to occupy the unit for a specified time period before they could lease, some circumstances of hardship clauses could be okay, but it will be on a case by case basis.

Jane- We get request from associations for FHA approval. It comes back every time in terms of the declaration and leasing provisions. They have some very specific language that's required and I would say, anyone who is listening, if you are going to take on this FHA approval, you need to work with an attorney or reach out to these Direct Endorsers like Karlene at Cornerstone Home Lending, Inc.

Jane- Is there a listing of associations that are qualified for FHA loans?

Karlene - 5 in Broward County that are FHA approved and are not expired.

Jane- Is there a website that we can go to see that?

Karlene- Yes, go to www.fha.gov

Jane - Thanks everybody, have a great day! We appreciate you always learning and trying to Master the Business of Your Association.

Host
Jane F. Bolin, Esq
PeytonBolin, PL - Real Estate and Community Association Law
www.peytonbolin.com
jane@peytonbolin.com
(877) 739-8662

Guest
Karlene Massey | Loan Officer NMLS 1129640
Cornerstone Home Lending, Inc.
kmasse@houseloan.com
954-908-7098