Many HOA boards have not sought approval from the FHA because three major barriers. However, things could be changing. According to the LA times, “the Federal Housing Administration is readying changes to its controversial condominium rules that have rendered large numbers of units ineligible for the agency’s low-down-payment insured mortgages.”
Furthermore, the FHA is expected to clarify the personal liability language and make other modifications in its forthcoming rules. Under current FHA regulations, “individual condo units in a building cannot be sold to buyers using FHA-insured mortgages unless the property as a whole has been approved for financing.”
FHA requirements are burdensome so few associations seek FHA approval. Some of the most criticized limitations are:
- Non-owner occupancy. The FHA requires that no more than 50% of the units in a project or building be non-owner-occupied. In California, this limitation will become more burdensome with the recent implementation of Civil Code Section 1360.2 that prohibits community associations from implementing CC&R amendments that restrict rentals.
- Delinquent condominium association fee payments. The FHA refuses to approve a project where more than 15% of the units are 30 days or more behind on payments of condo assessments to the association.
- Nonresidential space usage. The FHA has set a cap of 25% of the total floor space in a project for commercial use.
The FHA has imposed additional requirements, including those related to insurance and reserves which produce rules that can create harsh legal liabilities for condo board officers if applications for FHA approvals contain inaccuracies. Let’s hope relief is on the way.