FHA Loans – So Many Questions –So Many Issues

FHA Loans – So Many Questions –So Many Issues


I get a lot of questions from readers and requests for opinions that relate to FHA financing and certification. Boards want to know if they have to apply for certification, even when they know it’s futile, and owners complain that boards are not responsive to requests for lenders to fill out certification papers.


Here is one such question:


“Our association recently lost its approval over something in regards to first mortgagees not providing transient housing for hotel purposes for 30 days or less. This seems silly since first mortgagees are certainly not in the rental business. The board is saying our CC&R’s address mortgagees and their right to vote for CC&R amendment changes. Its stays we would need 2/3 of all first mortgagees of units to vote yes.  The CC&Rs state the owners must pass an amendment by 75%. I got this information from a board member. I am not sure if these are absolute only options, and contacting and waiting on first mortgagees seems impossible to do along with locating all homeowners. The problem is 70% of all our loans in here are thru FHA, so this will negatively impact homeowners greatly. Do you have any suggestions?”


I do have suggestions. It would help if everyone would educate themselves – there is a lot to learn, but it is good to know a lot – but that doesn’t tend to happen. That is why they pay us the big bucks. We are willing to read the long, complicated, convoluted reports the federal agencies put out. We are willing to follow the changes and to talk to other lawyers and industry leaders about what can be done when an agency is being unreasonable or requires compliance with some new rule that does not seem to be well thought out.


The truth from the Association’s perspective is that there are costs attached to seeking FHA Certification and there are lots of difficult requirements to meet. Associations aren’t anxious to spend money frivolously or engage in difficult exercises without a legal responsibility to do so. There is not really a legal responsibility to seek compliance by FHA. And if you know you are not likely to pass “the test”, is it worthwhile to take it? There are other sources of funding. It used to be easier to qualify because the FHA allowed spot certification. When the agency went to association certification instead, everything changed. Just trying costs associations upwards of $1500, without guarantees.


The awful truth from an owner’s perspective is that it’s not that easy to qualify for conventional financing and often, FHA is the only viable option. If it is not allowed for any reason, it can make it much harder for seller to sell, owner to refinance, or buyer to buy. Many sales fall through and then owners are out not only the sale, but the cost of document production, so they are mad, or at the least – exasperated.


Sometimes it is only a small problem to get certified and that problem is that there is no minimum rental period in the documents. While the board would like fix the problem it involves amending the documents. In addition to the critics who don’t want a minimum lease term stated (because it would cause a loss of that vacation rental income they are getting), the board finds that in order to make an amendment to leasing, they need a high percentage of owners to approve, and sometimes they even need a certain percentage of first mortgage holders to approve.


Ugh. It gets complicated, and Owners don’t fully understand the problem – they just know they are having problems selling or refinancing their units and believe the board can fix it.


The Board can’t always fix it, but if it is even a possibility, I think they should try. That is not based on any legal authority, just a sense that it is an advantage in most developments to be able to have access to FHA financing. But then again, an expenditure of $1500 or more to seek certification should not be made before a board educates itself as to what the requirements are for certification.


The information is available at no cost on the web, with some creative inquiry, but maybe it’s more cost effective to pay someone for it, that is if time is money.

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