Must boards of Condos apply for and keep up certification for FHA loans? Here is an email from a frustrated reader:
“I have my condo for sale, and found out that our Homeowner’s Association’s FHA certification expired 12/31/2010. I have had two offers to purchase which need to be FHA…I understand that our property manager has filled out the forms, and all information needed for re-certification has been sent, but if we do receive another number of years of certification, it will undoubtedly be too late for my buyers. I would like to know who is responsible for keeping the certification active…do you know if notification is sent to the property manager, or to our Board of Directors informing them that the certification was due to expire ?? I believe that this issue is important to my fellow owners, since there are two other condos for sale at this time. And do you know how long it takes to reinstate the certificationn ?? Any information you can provide for me will be greatly appreciated. Thank you in advance.”
First of all, there is no legal duty on Condo Boards to seek FHA Certification, or renew, but of course if a condo association has it – it benefits the sellers and the potential buyers and I believe encourages owner-resident purchasers.
The issues are:
1. The certiication standards are high, given the current state of the economy. The new rules adopted in early 2009 were very tough on condo associations caught in a downturn economy where foreclosures and “walk aways” were more prevalent than ever. The problems come in the area of allowable delinquencies of assessments and reserve funding balances. And some associations don’t meet the insurance requirements, fidelity bonding seeming to be one of the issues I see raised in emails. In the past 3-4 years, assesment income has been hampered seriously and this has affected the ability of many condo associations to qualify for the certification given the maximum percentage delinquency and the reserve funding levels allowed. The foreclosures, collection issues and “walkaways” have hurt the condo associations.
2. The certification process is kind of a moving target. Different certication vendors claimed different criteria, based on their experiences in working with FHA reps. The FHA did in the beginning have to loosen the standards right away after announcing the 2009 criteria and the stories circulating now indicate that FHA has or is going to have to lower standards even more in able to prove a viable option for condo financing. And different vendors claim different criteria when it comes to calculating delinquencies. Some say the FHA is only concerned about delinquencies more than 30 days old and some say only those in foreclosure need to be calculated in the percentage figure supplied in the certification application.
3. Condo boards have to grapple with the cost issues. There is a cost involved in seeking certification and renewing and depending on who you hire to do it, it varies considerably – I have heard that some banks assist at no cost and some vendors charge more than $5000. And some vendors claim to have a larger success rate in getting the certification than others. Some are more realistic in their assessment of the condo association’s chances so some associations end up spending money and getting nowhere, and with tighter budgets than ever, and more owner awareness, many are wary of spending money for something that does not come with a guarantee.
4. The time for responding is not set in stone. Some claim the application process for new applications is a month or less and some say there is no standard. The renewal criteria application is less onerous than for original certification and the timing should be less, but I do not know if there is a maximum timing requirement for response by the FHA. I do not believe there is. It may be that the ‘squeaky wheel gets the grease.” As with any large overburdened entity, one who has direct commnication with someone within the organization that has influence can get things done more quickly. A vendor who has more experience usually has more viable contacts. The trouble is that vendors who claim they do, don’t always. There is little oversight when a cottage industry of providers rises to such a lucrative commercial opportunity.
Given the issues, I believe is it likely that the status of the law will NOT change. Faithful “fiduciary duty” may come into play, even though there is no legal requirement that boards at least try. My guess is that the courts will defer to board decisions on this one if an association is challenged for not seeking approval or working harder toward meeting the minimum requirements, at least if the Board is able to show it (1) did some kind of due diligence, (2) investigated the options, and (3) chose an alternative. This, I believe, is consistent with the board deference standard clearly set by the Lamden case mentioned in earlier blogs and E-newsletters. True, Lamden dealt with maintenance issues but deference is deference and the courts want to see that boards did some kind of due diligence in making decisions about important issues that affect the property values and marketability.