The Federal Housing Authority (FHA) insures many mortgages that secure loans made in relation to purchase of a condominium. FHA will only insure those mortgages in connection with units in a condominium that have been “certified” by FHA. A condominium’s certification expires two (2) years after it is granted. The condominium’s certification can be renewed via application with FHA. Condominiums and managers are often aware of the eligibility requirements (such as with regard to delinquency rates and owner occupancy). However, recently, FHA significantly changed the eligibility requirements. According to the FHA, the changes were made in response to circumstances of the current housing market. The changes were effective immediately in place and are in place now until August 31, 2014.
FHA made changes regarding: (i) delinquency rates; (ii) fidelity insurance coverage; (iii) commercial space; and, most notably, (iv) the required project certification. With regard to delinquencies, FHA decided that no more than 15 percent of units may be more than 60 days delinquent. This limitation applies to all units, including those that are owner occupied, bank or investor owned, and even vacant units. FHA contends that it will not consider any exceptions. The previous standard provided that 15 percent of units could not be more than 30 days delinquent.
Management companies servicing condominiums must obtain their own fidelity insurance policies that meet FHA standards. If not, the condominium must obtain fidelity insurance that names the management company as an insured.
While the FHA insurance program is designed for residential condominiums, FHA will certify condominiums that have between 25 and 30 percent of its area for commercial use. FHA will now consider certifying condominiums with a greater percentage of commercial space (up to 50%), but only after the condominium association has complied with substantial documentation requests from FHA.
Finally, the new project certification requires that a representative of the condominium certify: (1) to the best of the signatory’s knowledge, the information in the approval request is accurate; (2) he or she has reviewed the project application and upon the advice given by an attorney it meets all state and local laws; (3) he or she has reviewed the application and it meets all current FHA condominium approval requirements; and (4) he or she has no knowledge of circumstances or conditions that may have an adverse impact on the condominium project (including, construction defects, substantial operational issues, or litigation, mediation, or arbitration issues).