New  FHA  Condo  Guidelines  Issued:  What  You  Need  to  Know  

Presented  by:  Orest  Tomaselli,  CEO    Na7onal  Condo  Advisors,  LLC  

10/26/11  

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Na9onal  Condo  Advisors,  LLC:  The  na7on’s  premier  condominium  

project  approval  service  

Na7onalcondoadvisors.com  Ph.  888-­‐726-­‐6361  

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• Established  Condominium  Developments  

• New  Condominium  Developments  • Converted  Condominium  Developments  • FHA  Insurance  Requirements  

• FHA  Project  Cer7fica7on  

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New  FHA  Condo  Guidelines:      Presenta9on  Outline  

• History  • FHA  Overview  • Processing  Op7ons  • Submission  Requirements  

• General  Requirements  

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Established  Condominium  Developments:  Overview  

• Individual  ‘spot  loan’  approval  discon7nued  • Project  approval  is  required  for  any  FHA  financing  within  a  condominium  community  

• Mortgagee  LeZer  2011-­‐22  • Project  Approval  valid  for  2  years  

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Established  Condominium  Developments:  History  

• Approximately  30%  of  all  mortgage  loans  na7onwide  

• Reverse  mortgages  allow  homeowners  above  the  age  of  62  a  unique  op7on  for  financing  

• Allows  mortgages  with  lower  down  payment  and  reduced  credit  score  requirements  

• Recent  project  approval  withdrawal  has  recently  resulted  in  over  9200  developments  na7onally  that  were  removed  from  the  project  approval  list  

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Established  Condominium  Developments:  FHA  Overview  

• HRAP:    HUD  Review  and  Approval  Process  • Reviewed  and  processed  by  FHA  staff  

• DELRAP:  Direct  Endorsement  Lender  Review  and  Approval  Process  

• Reviewed  and  processed  by  Direct  Endorsement  (DE)  mortgagee  staff  • Must  have  uncondi7onal  DE  authority  

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Established  Condominium  Developments:  Processing  Op9ons  

• Current  balance  sheet  less  than  90  days  old  • Current  reserve  balance  evidence  by  bank  statement  from  last  30  days  

• Current  year  opera7ng  budget  • Previous  years  financial  statement  • Recorded  condominium  declara7ons,  master  deed,  by-­‐laws,  CCRs  • Recorded  site  plan  and  plat  maps  

• Signed  project  cer7fica7on  • Signed  management  agreement  • FEMA  flood  map  • HOA  Tax  ID  Number  

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Established  Condominium  Developments:  Submission  Requirements  

• Right  of  First  Refusal  is  permiZed  unless  discriminatory  under  Fair  Housing  Act  regula7ons  at  24  CFR  part  100  

• At  least  50%  of  the  units  are  owner  occupied  • No  one  investor  can  own  more  than  10%  of  the  units  within  the  development  

• No  more  than  15%  of  the  total  units  are  more  than  30  days  past  due  on  HOA  dues.    The  15%  includes  bank  owned  and  vacant  units  

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Established  Condominium  Developments:  General  Requirements  

• Pre-­‐Sale    • Transfer  of  Control  • Submission  Requirements  • Distressed  Asset  Purchases  

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New  Condominium  Developments:    Overview  

• 30%  pre-­‐sale    • Pre-­‐sale  remains  at  30%  for  1st  year  only  from  the  date  of  1st  unit  conveyance  

• 50%  pre-­‐sale  aeer  12  months  • 50%  maximum  concentra7on  

• Legally  phased  projects  accepted  • Pre-­‐sale  is  based  upon  total  number  of  units  annexed  in  to  the  site  

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New  Condominium  Developments:    Pre-­‐Sale  

• Transfer  of  control  of  the  Associa7on  must  occur  no  later  than:  

• 120  days  aeer  the  date  by  which  75%  of  the  units  have  been  conveyed  to  the  unit  purchasers;  OR  

• 3  years  aeer  the  comple7on  of  the  project  evidenced  by  the  first  conveyance  to  a  unit  purchaser;  OR  

• As  required  by  state  law  

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New  Condominium  Developments:    Transfer  of  Control  

• Phase  I  Environmental  Site  Assessment,  performed  in  accordance  with  ASTM  E-­‐1527-­‐05,  must  be  included  in  the  project  approval  package  submiZed  to  FHA  if  under  construc7on  or  proposed    

• Builder’s  cer7fica7on  of  plans,  specifica7ons  and  site,  form  HUD-­‐92541-­‐required  on  project  and  loan  level  

• Builder’s  warranty,  form  HUD-­‐92544  required  on  loan  level  • Building  permit  

• Current  site  photographs  

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New  Condominium  Developments:    Submission  Requirements,  Part  1  

• Final  cer7ficate  of  occupancy  • Temporary  CO  accepted  if  corresponding  state  guidelines  allow  for  site  inspec7on  

• Reserve  Study  can  be  u7lized  to  prove  accurate  reserve  requirements.  

• Reserve  Studies  are  not  required  for  new  construc7on  with  some  excep7ons  

• Current  budget  for  declared  phases  • Current  balance  sheet  • Bank  statements  may  be  requested  

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New  Condominium  Developments:    Submission  Requirements,  Part  2  

• Bankruptcy/Receivership/Foreclosure/  Deed-­‐in-­‐Lieu  of  Foreclosure  

• One  year  aging  required  for  eligibility  • Financial  document  review  to  determine  eligibility  

• Reserve  study  required  • Asset  Sale  

• 50%  of  declared  units  must  be  owner  occupied    • Reserve  study  required  • Addi7onal  financial  oversight  may  be  requested  

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New  Condominium  Developments:    Distressed  Asset  Purchases  

• Non-­‐Gut  Rehab  • Gut  Rehab    • Reserve  Study  Requirements  • Noise  Study  Requirements  

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Converted  Condominium  Developments:    Overview  

• Project  must  have  recorded  legal  documents  prior  to  submission  

• 51%  of  the  units  within  the  development  must  be  owner  occupied  

• Pre-­‐Sale  must  be  51%  of  the  total  number  of  units  within  the  development  

• No  single  en7ty/investor  may  own  more  than  10%  of  the  units  within  the  development  

• Developer/Sponsor  is  NOT  considered  an  investor  and  therefore  unsold  units  owned  by  the  sponsor  are  not  to  be  considered  in  this  calcula7on  for  the  first  2  years  from  recorda7on.  

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Converted  Condominium  Developments:    Non  Gut  Rehab  Part  1  

• The  units  may  be  vacant  or  tenant  occupied  • Sponsor/Developer  must  provide  a  comprehensive  marke7ng  strategy  for  units  currently  rented  with  the  excep7on  of  those  rentals  required  by  State  law  

• Reserve  study  required  • HRAP  processing  only  

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Converted  Condominium  Developments:    Non  Gut  Rehab  Part  2  

• 30%  pre-­‐sale  • Pre-­‐sale  remains  at  30%  for  1st  year  only  from  the  date  of  1st  unit  conveyance  and  50%  thereaeer  

• Reserve  Study  required:  Newly  Converted  • In  addi7on  to  monthly  contribu7on,  addi7onal  reserve  funding  

required  for  any  components  within  the  development  that  require  replacement  within  5  years  of  the  date  of  the  reserve  study  as  defined  by  the  reserve  study  

• HRAP  processing  only  

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Converted  Condominium  Developments:      Gut  Rehab    

• In  order  to  accurately  fund  the  reserve  account  for  a  condominium,  a  reserve  study,  that  is  compliant  with  FHA  guidelines,  can  be  u7lized.    

• Can  be  u7lized  to  provide  accurate  reserve  requirements  and  funding  overview.  Determina7on  of  reserve  study,  whether  higher  than  10%  or  lower  than  10%,  may  be  u7lized  as  a  line  item  for  reserve.    

• 10%  Line  item  for  reserves  • In  the  absence  of  a  specific  guideline  requiring  a  reserve  study,  a  10%  line  item  within  the  budget  is  to  be  u7lized  

• Mandatory  for  newly  converted  gut  rehab  and  non  gut  rehab  condominium  

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Converted  Condominium  Developments:    Reserve  Study  Requirements  

• HUD  requires  that  a  disclosure  be  completed  by  the  sponsor/  developer/HOA  that  outlines  the  property’s  loca7on  rela7ve  to  noise  hazards.    

• Required  for  newly  constructed  and  newly  converted  gut-­‐  rehab  developments  

• Proximi7es  for  proposed,  under  construc7on,  newly  constructed  or  newly  converted  gut-­‐rehab  condos:  

• 1000  feet  from  a  heavily  travelled  road  • 3000  feet  from  a  railroad  or  railway  

• 1  mile  from  a  civil  airfield  

• 5  miles  from  a  military  airfield    

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Converted  Condominium  Developments:    Noise  Study  Requirements  

• Hazard,  Unit  Owners,  &  Liability  Insurance  • Fidelity  Insurance  • Flood  Insurance  

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FHA  Insurance  Requirements:  Overview  

Hazard  

• HOA  Requirement  • 100%  Replacement  Cost  Unit  Owners  Insurance  

• Walls  In  Coverage  –  “All-­‐  In”  Coverage  Liability-­‐  $1,000,000  • HOA  Requirement  

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FHA  Insurance  Requirements:  Hazard,  Unit  Owner,  &  Liability    

• For  developments  with  more  than  20  units  

• HOA  maintained  • If  managed,  insurance  must  specifically  name  the  management  company  within  the  policy  

• 3  months  assessments  plus  reserve  funds  

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FHA  Insurance  Requirements:  Fidelity  Insurance  

• Coverage  equal  to  replacement  cost  

• HOA  required  to  maintain  coverage  • Borrower  or  individual  unit  owner  may  not  obtain  coverage  

• LeZer  of  Map  Amendment  (LOMA)  or  LeZer  of  Map  Revision  (LOMR)  must  be  provided  for  all  developments  in  lieu  of  flood  insurance  

*if  in  flood  zone.  

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FHA  Insurance  Requirements:  Flood  Insurance*  

• Updated  Compliance  Requirements  

• Poten7al  Landmines  • Lender  Affidavits  

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FHA  Project  Cer9fica9on:  Overview  

• Signing  the  project  cer7fica7on  • State  and  local  law  compliance  cer7fica7on  

• Whom  is  qualified  to  make  this  representa7on?  • Ongoing  cer7fica7on  obliga7on  

• What  are  the  risks  in  cer7fying  to  ongoing  compliance?  • Up  to  $1,000,000  fine  and  30  years  imprisonment  for  false  or  fraudulent  statements  

• Knowing  penal7es  for  fraudulent  cer7fica7on    

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FHA  Project  Cer9fica9ons:  Updated  Compliance  Requirements  

• Community  Associa7on  Loans  • Are  you  automa7cally  rejected  if  your  community  has  a  loan?  

• Special  Assessments  • What  will  you  have  to  submit?  

• Pending  Li7ga7on    • What  has  to  be  disclosed?  • Statement  must  be  signed  by  aZorney    

• Transfer  Fees  • Restraint  on  Aliena7on  (203.41)  

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FHA  Project  Cer9fica9ons:  Poten9al  Landmines  

• Cer7fica7on  For  Individual  Unit  Financing  • Lender  Requirement  For  Financing  • Loan  Level  Cer7fica7on  • Investor  Ownership  • Units  in  Arrears  • Owner  Occupancy  Percentage  Verified  

• Pre-­‐Sale  Cer7fica7on  • Required  for  New  Construc7on,  New  Gut  and  Non-­‐Gut  Rehab  Conversions  

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FHA  Project  Cer9fica9ons:  Lender  Affidavits  

Join  us  for  our  webinar  Wednesday,  November  9,  to  discuss  new  Fannie  Mae  Condo  Guideline  

Changes  

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Fannie  Mae  Guideline  Changes  

Thank  you  for  your  interest!  

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Comments  &  Ques9ons  

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