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FHA Update for Condominium Associations and Unit Owners Nicholas J. Meinert, Esq.

HUD has issued new FHA Condominium Approval Rules that will become effective for all applications filed on or after October 15, 2019. Previously, each condominium association was required to be FHA certified, before any unit could be purchased or refinanced using an FHA insured mortgage. As of October 15th, owners within condominium associations will be capable of obtaining FHA insured mortgages for units within condominium associations that are not FHA certified, if the condominium association would be eligible for certification based on HUD’s eligibility standards.  This does not permit individual owners who are not on the board to seek FHA certification on behalf of the association.  Rather, the new rule allows unit owners to obtain FHA insured mortgages for their specific unit.  Whereas 50% of the units’ titles can be subject to an FHA insured mortgage in certified associations, only 10% of the units’ titles can be subject to an FHA insured mortgage in associations that are not certified.

HUD’s new rules also loosen the requirements for condominium associations obtaining FHA certification in many ways. Associations that are certified after October 14, 2019 only need to recertify every three years, rather than every two years.  Additionally, HUD lowered the owner-occupancy requirement from 50% to 35% for associations with 10% or less of its units being over 60 days delinquent in paying assessments.  Associations with delinquency rates between 10% and 15% still require a 50% or greater owner-occupancy rate to qualify.  HUD also loosened requirements with respect to the percentage of the floor plan dedicated to commercial space.

One more restrictive rule that HUD is instituting as of October 15, 2019 pertains to leasing limitations.  Specifically, limiting the number of rental units is permitted, but associations will not be certified if the association limits rentals beyond the owner-occupancy requirements.  While excluding one unit from leasing restrictions used to comply with the FHA guidelines, now, associations cannot require that more than 50% of the units be owner-occupied without losing FHA certification eligibility.