Federal Housing and Condo Housing

The National Housing Act authorizes the Federal Housing Administration (“FHA”) to insure any mortgage covering a one-family unit in condominium projects.

Owner occupied units are defined as principal residences, secondary residences, currently occupied units by the owners, or units that have been sold to purchasers who intend to occupy them as a primary or secondary residences.

At many Board of Directors and/or Association Meetings a question arises about what to do about becoming an FHA-approved condominium Association. This column

Here are the requirements to become FHA-approved.

Must have

IN existing condominium associations at least 50% of the Units must be owner-occupied

This 0% figure can be lowered to 35% if

10% f the budget is transferred each year into Reserves and no more than 15% of the Units are in arrears by sixty days or more.

• Commercial Space – No more than 50% of property can be used as commercial space

• Delinquent Dues - No more than 15% of units can be arrear in their assessments more than 60 days

• Any investor/entity (single or multiple owner entities) may own up to 50% of the total units IF at least 50% of the total units in the complex are owner occupied as principal residences.  (The previous limit was 10%)

• No more than 50%** of the units can be investor owned / rentals

◦ **10/26/2016 update – There is an exception to this rule, which reduces the required owner occupancy to 35%.  A special set of additional guidelines will apply.  The exception is only given to existing condo complexes with at least 3 years of very stable finances, and low delinquency rates.

• No more than 50% concentration of FHA Loans within the community

 Reserve Funding

• Reserve funding requirement – at least 10% of all budgeted income must go toward a reserve account

• Adequate reserve funds required – This is subjective, but in our experience this means:

◦ Funds to cover all insurance deductibles

◦ Reserve Funds to cover capital repairs and replacements for the next 2 years (as determined by a recent reserve study)

 Insurance Coverage

• Master or Blanket – Must be 100% of replacement cost of condominium, not including foundation or land

• General Liability – insuring all common elements, and public ways

• Fidelity Bond (aka Employee Dishonesty or Crime Insurance) – for communities with 20+ units.  Covers the Board of Directors and Employees that handle association funds.  Must be 3 months aggregate assessments of all units + Reserves.  Note: This type of insurance is different than D&O

• Flood insurance – Only required if located within 100 year flood plane

 Leasing

• Leasing Restrictions in the declarations / CCR's must comply with the following:

◦ No transient leasing of units (defined as less than 30 days)

◦ No “Seasoning Clauses” (A restriction that requires a unit owner to occupy the unit for a specified time-period before they can lease)  Some circumstances with hardship clauses may be OK, but its case-by-case.

◦ The Board of Directors cannot have the power to:

▪ Approve leases or deny leasing.  The unit owner must have the right to lease to any tenant

▪ Impose background checks, credit checks, or any other type of screening for prospective tenants.  The unit owner may impose these checks, but not the HOA.  Many of the condominiums that we review in Florida do not qualify for FHA approval for this reason.

New FHA guidelines. In 2009 FHA tightened its rules regarding approving condo associations for FHA-backed loans. No more 15% of unit could be delinquent for more than 30 days, and nor more than In 2012 they changed them, loosening them, in a bid to help spur condo sales, by noting by doubling the delinquency period so that still no more than 15% of Units could be delinquent, but they weren't considered delinquent unless they were behind by 60 days. The 2012 updates also allowed investors to own up to 50% of the Units and.

President Obama signed legislation in July easing the governmental restrictions further, by lowering the ower-occupancy requirements to 35% from 50% and “Owner-occupred” homies can also be secondary or seasonal residences of the Owner.