COME JOIN US AT CA DAY ON MARCH 9
We hope the new year is going well for you all. We are looking forward to the Southeastern Virginia Chapter of CAI’s annual Community Associations Day which will be held on March 9, 2019 from 7:30 to 4:30 at the Virginia Beach Convention Center. Our CA Team will be there in full force. Mike Inman will be speaking on a new and unique topic – dealing with municipalities on such things as condemnation of property, rezoning of neighboring property, storm water management and enforcement of ordinances. Jeanne Lauer will be hosting a discussion on “Influencing Legislation that Impacts Your Community and the Importance of VALAC” (the Virginia Legislative Action Committee). Greg Montero will be hosting a round table discuss on “Almost Free Legal Advice.” Also, as usual, we will have our booth to give us a chance to greet you. We hope to see you there. Information on the event can be found at www.cadayvirginia.com.
WHY DOES MY CONDOMINIUM NEED FHA CERTIFICATION
Federal Housing Administration (FHA) loans currently account for a large percentage of the available financing options for condominium units in today’s market. Other than VA loans (which are only available to active or retired military), FHA loans offer one of the lowest down payments and interest rates available which makes them attractive to a lot of new buyers and current owners who wish to refinance.
Almost all condominium projects are required to apply for and obtain FHA certification for the entire condominium project. Units in condominiums without project certification are not eligible for FHA loans, yet more than half of the condominiums in Hampton Roads do not have FHA project certification. This means that a staggering number of buyers of condominium units in Hampton Roads cannot obtain FHA loans. We have seen many sales contracts withdrawn because buyers found out that they could not get a FHA loan. We frequently receive phone calls from condominium boards asking us to quickly obtain FHA certification AFTER an owner has entered into a sales contract and discovers that the condominium is not certified or that the certification has expired. Because of FHA processing requirements and timelines, most of the time these contracts cannot be “saved” in time for certification to be obtained before the buyer moves on to another condominium project.
Before 2011, once a condominium project obtained FHA certification, that certification never expired. In 2011 FHA drastically changed its guidelines to require that condominiums must apply for recertification every 2 years – even if certification was obtained prior to 2011. That means that even if you think your condominium is already FHA certified, it actually may not be.
Are you asking yourself why you should be concerned about your condominium obtaining FHA certification if you are not planning on refinancing or selling your unit anytime in the near future? Are you a board member wondering why your board should expend Association funds to obtain these certifications?
Everyone in a condominium needs to be concerned about this issue because the inability to obtain financing negatively affects everyone in a condominium project, not just the person who is trying to sell or refinance his unit and here’s why:
(1) When an owner is unable to sell his unit because the buyer can’t obtain financing or they can’t refinance, the result is often foreclosure or bankruptcy. Owners who cannot sell but are financially incapacitated can sometimes go many months without paying their assessments before foreclosure or bankruptcy takes place. Lenders are not responsible for the payment of delinquent assessments until they have actually foreclosed on the property. So who pays those assessments? The remaining unit owners do – either by way of increased assessments, special assessments or delayed maintenance and/or replacement of the common elements.
(2) FHA, Fannie Mae and Freddie Mac will not underwrite loans in condominiums when 10% or more of the units are delinquent in the payment of assessments at any one time. Your condominium would be shut out of more than just FHA financing if just 10% of the owners were unable to sell or refinance their units.
(3) If owners are unable to sell their units because buyers are unable to obtain favorable financing, they may also be forced to sell at below market prices in order to attract buyers which would, in turn, reduce the market value of all units in the condominium. Having foreclosed units in a condominium can also lower market values as lenders often resell foreclosed units at below market prices.
(4) The inability of an owner to sell his unit could also result in that owner having no choice but to rent his unit which, again, could prevent your condominium from getting other types of financing if there are a large number of leased units.
In order to submit a condominium for certification the governing documents must be reviewed to insure compliance with certain requirements of FHA. If they do not, amendments will be required. If amendments to the governing documents are required an attorney with experience in association document preparation is needed for that purpose. There is quite of bit of information gathering required in order to submit an application. FHA also wants to see evidence and certifications concerning other criteria they have established regarding such things as owner occupancy percentages, adequate insurance coverage, adequate reserves for replacement of common elements and the association’s overall financial health.
You can check the following website to see if your association is FHA certified or if that certification has expired or is about to expire – or give us a call and we will check for you: https://entp.hud.gov/idapp/html/condlook.cfm.
We are experienced in the preparation and submital of applications for FHA project certification. Please give us a call if you have questions. Don’t wait until: (i) you or another frustrated owner loses a sale because of a lack of financing options because, in the end, all of the owners in your condominium may be affected or (ii) your condominium’s overall financial situation erodes to the point that it’s ineligible for traditional financing options.