HUD Commits to Revisit Provisions of the FHA Project Certification

I just returned from an excellent training provided by the U.S. Department of Housing and Urban Development (“HUD”) on the new and revised requirements for FHA condominium project approval found in the Condominium Project Approval and Processing Guide.

The 800 pound guerilla in the room was the new Project Certification requirement. Beginning on August 31, 2011, any application for a new certification or recertification submitted to HUD for FHA approval requires the condominium association, or an agent of the association, to sign the Project Certification which says the following:

     

      “The undersigned hereby certifies that:

  1. They have reviewed the project and it meets all State and local condominium laws and all FHA condominium approval requirements thereto applicable to the review of condominiums;
  2. To the best of his or her knowledge and belief, the information and statements contained in the application are true and correct; and
  3. The submitter has no knowledge of circumstances or conditions that might have an adverse effect on the project or cause a mortgage secured by a unit in the project to become delinquent (including but not limited to: defects in construction; substantial disputes or dissatisfaction among unit owners about the operation of the project or the owners association; and disputes concerning unit owners rights, privileges, and obligations). The submitter understands and agrees that the submitter is under a continuing obligation to inform HUD if any material information compiled for review and acceptance of this project is no longer true and correct.”

Joanne Kuczma, Housing Program Officer at HUD Headquarters, told the attendees that this Project Certification was created as the result of association representatives knowingly providing false information to HUD in order to qualify for FHA approval. This willful production of misinformation is a serious matter since it directly impacts the number of claims made on the FHA insurance fund.

 

The penalties associated with knowingly and willfully signing a Project Certification or submitting associated documentation with false, fictitious or fraudulent statements or entries are as follows: a fine of not more than $1,000,000 or imprisonment for not more than 30 years or both. In addition, the violation may result in disbarment for lawyers and civil liabilities for damages suffered by HUD. 

 

Ms. Kuczma informed the attendees today that HUD will be revisiting the penalty provisions and the actual language in the certification. In addition to relaxing the penalty provision, other issues that were brought to HUD’s attention for reconsideration included:

 

  1. Whether all of the items in the Project Certification must be signed by one individual;
  2. Under what circumstances an individual signing the Project Certification is required to inform HUD of changed circumstances in the association;
  3. Whether the individual signing the Project Certification is responsible for investigating the association on a routine basis for changed circumstances; and
  4. Whether the requirements to report the changed circumstances still apply after the condominium project has received approval.

Ms. Kuczma did tell the attendees that it is not the intent of HUD that an individual signing the Project Certification must continually investigate what is happening in the association in order to discover and report changed circumstances. Instead, the requirement to report to HUD would only arise if the individual signing the Project Certification became aware of a known condition that may affect the approval of the condominium project.  In addition, while there is no question this is the standard that Ms. Kuczma and others at HUD are applying, this standard must be included in a document from HUD that is binding and can be relied upon. 

 

Ms. Kuczma told the attendees that changes to the Project Certification may be published in late 2011 or early 2012. We will continue to follow this issue and will report on any new developments. 

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