FHA Implements New Approval Process for Condominiums   Leave a comment

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This June, the Federal Housing Administration (“FHA”) announced that, pursuant to the Housing and Economic Recovery Act (“HERA”) of 2008, it is implementing a new approval process for condominium projects.  This new program will allow lenders to determine project eligibility, review project documentation, and certify compliance with applicable U.S. Department of Housing and Urban Development (“HUD”) regulations.

HUD further issued guidelines and instructions on the options available to lenders for this review along with the guidelines for approving condominium projects.  It is important to note that lenders will have responsibility for obtaining and keeping all the project legal documents, contracts, conveyances, plats, plans, insurance coverage, presale and owner occupancy conditions and any other documentation necessary in the review and approval of the condominium project.  Lenders are further required to provide this information to HUD staff upon request for verification of compliance.

Keep in mind that this will mean that lenders will need to have some knowledge of, or obtain assistance with, how condominiums are formed and function.  Phasing of condominiums will be a particular issue, along with occupancy requirements.  Keep in mind that phasing can drastically affect the way owner-occupancy is calculated for approval purposes.  Other issues to note are the requirement to have a current reserve study.  Depending upon how complete the project is, an environmental review may be required.  There are also particular requirements that apply to condominium conversions only.

Finally, lenders will be required to provide certifications on company letterhead, signed by a company authorized representative that the project complies with applicable FHA requirements, all condominium legal documents meet HUD regulations, state, and local condominium laws, and that the pre-sale and owner occupancy rations per loan are met.  Obviously, this is a tricky certification for a lender to make, as it requires knowledge of the condominium laws in the jurisdiction where the condominium project is located, and compliance with those laws.  HUD itself suggests that lenders may want to obtain an attorney certification for these issues.  We also recommend that you get an attorney certification and, further, have an attorney assist you in drafting the certification to HUD so that it is based off the attorney’s certification to protect the lender.

Finally, keep in mind that there are severe penalties for making false certifications, with potential fines of up to $1,000,000 and/or imprisonment of up to 30 years.  There may also be disbarment (for attorneys making false certifications) and civil liability for damages suffered by HUD.

For obvious reasons, it is important to have a strong system for reviewing and retaining documentation for condominium projects that will be subject to HUD-insured loans.  We can help with setting up your internal controls and provide the certifications described above.

By Amy H. Bray, partner in our Commercial Real Estate Department

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You may, as long as you include this complete bio with it:

 Amy H. Bray is a Georgia attorney, focusing her practice in community association and real estate law matters. 

 Her firm, Andersen, Tate & Carr, P.C., works with all manner of clients in business and personal matters, providing “big firm” sophistication with suburban law firm attention and service.

Website: www.atclawfirm.com

Blog: www.andersentatecarr.wordpress.com

 Copyright © 2009 & 2010, Amy H. Bray & Andersen, Tate & Carr, P.C.

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