Archive for the ‘Information for Developers & Lenders’ Category
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In Mortgagee Letter 2011-22 dated June 30, 2011, the U.S. Department of Housing and Urban Development (“HUD”) consolidated and updated the requirements and procedures for its condominium approval process. The new requirements clarify, expand, consolidate, and update the preexisting guidelines and replaces exisitng mortgagee letters (2009-46a, 2009-46b, and 2011-03).
The new requirements will take effect 60 days after ML 2011-22 was issued for all project approval packages submitted to HUD for review.
New and existing condominiums ( meaning association board of directors as well as condominium developers) should take heed of these new guidelines. The status of a condominium as approved (or not approved) can have an impact on the ability of unit owners to sell units, as qualification for FHA conventional loans hinge upon whether the condominium is approved.
If you have questions or uncertainty about how this affects you, as a condominium unit owner, developer, or lender, we urge you to contact your legal counsel for further discussion.
Late last year the Federal Department of Housing and Urban Development (“HUD”) passed new regulations regarding their requirements for approving condominiums for FHA loans. (see previous posts below.) In the past, the obligation for obtaining approval generally fell on a developer or lender’s shoulders, but the process was also a bit simpler (with the ability to get spot approvals instead of entire project approvals) and was longer-lasting. Now, because of the changes, many previously-approved condominiums need to obtain re-certifications and all condominiums will need to be re-certified at the end of a two-year period.
This matters to condominium associations as the owners of units in condominiums which do not have a current certification will likely find it more difficult to sell their units. FHA financing already accounts for a majority of the financing of sales in condominiums.
If the condominium is not approved for FHA loans, then, as you can imagine, it will likely adversely impact a unit owner’s ability to close on the sale of his or her unit. Some owners may say “my unit is valued way above the FHA maximums”, but the maximums apply to the amount of the loan and not the value of the unit. What this means is that units that may be priced above the FHA maximums may still have purchasers that are interested in, and otherwise qualify for, FHA loans. Those purchasers may be bringing other money to the closing table that allows them to have a lower loan amount.
As mentioned above, in the past lenders and developers often handled the application for approval for condominiums, going through the entire approval process, or the less burdensome “spot approval” process for the condominium. Due to the changes in the regulations, though, and the need to routinely get the condominium re-certified, the burden of getting approval and monitoring to assure that approval is maintained is not one that lenders will necessarily want to take on. This is particularly true of lenders that may only have one or two loans in a particular condominium. As you can imagine, once a developer initially gets a condominium approved and sells out its units, they no longer have an interest in maintaining that approval status.
We are assisting our clients with looking into whether it makes sense for them to have their condominum association apply for FHA approval. We also provide the legal document review necessary for the approval process. Contact Amy H. Bray at firstname.lastname@example.org for further information.
Every economic downturn requires members of the bench and bar to become acquainted with the foreclosure confirmation process outlined in O.C.G.A. § 44-14-161. Georgia law allows non-judicial foreclosures of real property mortgages, but requires lenders to “confirm” the foreclosure sale in order to pursue a monetary judgment against a foreclosed debtor, through a judicial process enacted in 1935 during the midst of the Great Depression.
The foreclosure confirmation process rewards lenders and borrowers with counsel who are versed in the intricate and obscure foreclosure confirmation process. A lender can secure possession of the real estate collateral, and also obtain a money judgment in an expedited process if the lender carries its various burdens under the foreclosure confirmation statute. On the other hand, a borrower and the borrower’s guarantors can convert a large amount of liability into a “non-recourse” loan by prevailing in a confirmation proceeding.
The limited issues in a foreclosure confirmation proceeding include whether the property sold at a foreclosure sale brought its true market value, and whether the foreclosure sale was conducted with proper legal notice, advertisement, and legal regularity. The confirmation hearing/trial is a bench trial proceeding. Pursuant to O.C.G.A. § 44-14-161(c), the confirmation trial can be held with as few as five days notice.
Traps for the unwary abound for the lender as well as the borrower. The lender must file the confirmation petition and “report” the sale within thirty (30) days of the sale. Procedural requirements for the foreclosure, such as new notice requirements for residential foreclosures enacted in 2008 and codified in O.C.G.A. § 44-14-161.2, must be satisfied. The confirmation statutes are strictly construed. The lender must obtain a hearing date and personally serve the borrower and guarantors with notice of the trial.
The borrower and guarantors must act quickly to catch up with the lender in being prepared for trial. They must engage counsel, engage an appraiser and obtain an appraisal to rebut the lender’s case regarding the fair market value of the collateral, and request the Court for an opportunity to conduct discovery and prepare for trial.
An uncontested foreclosure confirmation trial can take less than five minutes, while a contested trial can take days, with a battle of experts and lay witnesses testifying about real estate values and various aspects of the foreclosure. The potential outcomes are a confirmation of the sale, which will allow the lender to file a subsequent proceeding to pursue a deficiency judgment; a denial of confirmation, which will relieve the borrower and guarantors from further financial liability on the loan; or a resale of the foreclosure if there are errors in the foreclosure and the lender can persuade the Court to permit a “do-over.” The high stakes of a foreclosure confirmation proceeding allow good lawyering to occur in bad financial times in one more type of legal proceeding.
Authored by Matt Reeves , the Vice President of the Gwinnett County Bar Association. He practices business, real estate, and probate litigation and represents banks and borrowers in foreclosure confirmation proceedings and other complex matters.
*This article is reprinted with the author’s permission from the March 2010 Gwinnett County Bar Newsletter*
With the recent changes in FHA requirements regarding condominium approvals (see prior discussions from our archives), it may be in the best interests of condominium associations to consider taking the steps to ensure that their condominium is approved by FHA.
Being on the approved list will assist unit owners within the condominium in their sale of their units, as the units will then be eligible for FHA conventional loans.
Even condominiums that have been previously approved need to consider whether they should take steps to preserve their approved status, as projects that received approval prior to October 1, 2008 will need to be recertified on or before December 7, 2009. The requirements in this context have been and continue to undergo significant review and modification, so in attempting to obtain approval it is best to get the assistance of experts that are following the evolution of these requirements.
As we have been reporting, the ongoing saga regarding the oversight and approval of condominiums continues . . .
On November 6, 2009, the Fair Housing Administration (“FHA”) published Mortgagee Letter 2009-46B regarding the implementation of a new approval process for condominium projects and insurance requirements for mortgages on individual units within condominiums. The new Mortgagee Letter will be effective for all case numbers assigned on or after December 7, 2009. This new letter replaces the guidance provided in Mortgagee Letter 2009-19.
In summary, lenders will be allowed to determine project eligibility, review project documentation, and certify compliance with FHA’s regulations. FHA will still maintain a list of approved condominium projects, too. However, lenders will need to retain ALL project legal documents, contracts, conveyances, plats, plans, insurance coverage, presale and owner occupancy conditions and other documentation in connection with their review and approval of the condominium project.
More guidance will be provided by FHA on this front, but projects that received approval between October 1, 2008 through December 7, 2009 will need to be recertified. Projects older than October 1, 2008 must be recertified before December 7, 2010.
Hopefully, lenders will be aware of the significance of the liabilities they have in this process. They will be responsible for “material deficiencies associated with” project approval and any loan they originate or underwrite. Even relying on another lender’s approval will have some responsibility in this process and will be required to have a loan level certification (which includes reviewing and verifying the condominium’s continued compliance with the initial approval requirements). Each lender will be required to submit their first five “DELRAP” approvals for review by the Homeownership Center. In addition, lenders need to keep in mind that there are fines
(up to $1,000,000.00) and imprisonment (up to 30 years) that can arise from making false, fictitious or fradulent statements, as well as civil liability.
Implementation of the Fair Housing Administration’s new policy for condominium project approval and unit financing will be delayed until December 7th, 2009, as announced on October 21, 2009.
According to the notice to real estate professionals from FHA, when released in two weeks, the new guidance will:
1) offer additional leniencies to address the difficult market conditions and
2) augment some portions of FHA Mortgagee Letter 2009-19, providing additional information and clarification.
Until the new guidance takes effect on December 7th, 2009 lenders are allowed to continue to use the Spot Loan Approval guidance issued in Mortgagee Letter 1996-41. The notice also points out that site condominium and manufactured housing condominium project changes that have already been implemented are not affected by the delay.
Note our previous post on the evolution of these policy requirements and their implementation.
By: Amy H. Bray, a partner in our Commercial Real Estate department.
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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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Amy H. Bray is a Georgia attorney, focusing her practice in community association and real estate law matters.
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