In 2010, the Department of Housing and Urban Development (HUD) turned the financing of FHA mortgages upside down by announcing the end of spot approvals for condominiums and a new requirement of biannual community-wide certification for FHA mortgages. Many condominium associations went through the process of obtaining initial FHA approval, but the two-year recertification period has now come and gone – or is approaching expiration – for many of those communities.
WHEN TO SEEK RECERTIFICATION: Condominium associations can seek recertification up to six months before and six months after the expiration date of their FHA certification, which is good for a two-year period. This process is essentially identical to the process of obtaining the initial FHA certification – with minor tweaks in HUD’s documentation requirements.
Associations should calendar the expiration dates of their certification to ensure that recertification can be obtained without a gap. When associations wait to seek recertification until a potential buyer discovers that s/he cannot obtain an FHA mortgage, unit sales often fall through due to the typical six to eight week approval process. Since many industry commentators suggest that 30% to 40% of condominium mortgages are FHA-backed, FHA certification should increase the potential market for buyers of condominiums in an association.
BARRIERS TO CERTIFICATION: Whether an association is seeking initial certification or recertification, the following issues are the most common barriers that prevent associations from obtaining FHA approval:
- Delinquencies are in excess of 15% of the membership.
- There is ongoing litigation that is not covered by insurance – especially litigation involving construction defects.
- Rentals exceed 50% of the total number of units.
- There is inadequate reserve funding – less than 10% of the annual budget.