CAI National Believes FHA Action on Condos, Transfer Fees in Pipeline
Here’s the latest from CAI National on expected revisions to the FHA certification requirements for condominium associations: “The Federal Housing Administration (FHA) is likely to take action in the coming months that will affect community associations. FHA is preparing new policies for condominium project approvals and will soon release guidelines on the use of transfer fees by community associations.
Condominium Project Approval Guidelines
Through contact with key FHA condominium staff CAI has learned additional changes to the condominium project approval process are in the works. Aspects of new FHA condominium guidelines could include the following:
● Assessment Delinquencies—CAI anticipates FHA will modify its standard on assessment delinquencies to allow flexibility for associations. CAI has argued the existing standard that no more than 15 percent of units may be 30 days past due on assessments is too strict. Many condominiums are immediately disqualified from FHA approval by the current standard.
● Certification Statements—
o CAI has voiced strong concerns over the broad and ill-defined obligations association board members take on when signing FHA’s required project approval certification. CAI anticipates FHA will make modest adjustments to its certification to clarify the duties imposed by signing a FHA project approval certification
o CAI does not anticipate FHA will modify the certification to protect signors from making legal determinations or attestations that the condominium is in compliance with all applicable local, state, and federal laws and regulations.
● Investor limits, FHA concentration, and commercial space—CAI anticipates that FHA will offer condominium associations additional flexibility on investor ownership limitations that prohibit ownership of more than 10 percent of units by a single entity. FHA is also studying its current limitations on the percentage of units in a condominium with FHA-insured mortgages. Further, FHA is considering an increase to the current limits on commercial space within a condominium.
● Fidelity Insurance Coverage—CAI continues to work with FHA on the requirement that an association’s property manager be named on the association’s fidelity insurance policy. To date, FHA has maintained that managers must be individually named on an association’s fidelity policy. This has led insurers to treat the matter differently with some insurers adopting FHA’s position, others adapting to the new guidelines but charging associations a fee for the change, while other insurers have strongly objected on the basis of their conclusion FHA’s requirement exposes associations to lapses in coverage.
CAI has remained in contact with FHA staff regarding the agency’s view of association transfer fees. FHA ruled in 2010 that all transfer fees violate its regulations and that any property subject to a transfer fee covenant is ineligible for FHA-insured mortgage financing. In response, CAI provided FHA information on the use of transfer fees by associations and the prevalence of transfer fee covenants in community associations across the country.
CAI anticipates FHA will release new guidelines on transfer fees through a mortgagee letter in the coming weeks. FHA has indicated the new policy on transfer fees will permit associations to charge a transfer fee, but with limitations. In general, FHA is likely to allow transfer fees that are used for “administrative” purposes, but is likely to disallow transfer fees that are based on a percentage of a property’s sale price.
CAI will continue to monitor FHA action to regulate the use of transfer fees by community associations to ensure that association homeowners have access to a broad range of housing finance options, including FHA-insured mortgages. Further, CAI continues to express concern that multiple federal regulations on transfer fees will cause confusion and increase regulatory risks for associations and mortgage lenders, which may limit access to mortgage credit for association homeowners.”