Special Assessments Proving Problematic for FHA Approval

If you serve on the board of directors or are a manager of a condominium association, you know that obtaining approval from HUD for FHA-backed loans really enhances the ability of owners to sell their units in your community. 

As I mentioned in myJune 30th blog posting, HUD launched the new Condominium Project Approval and Processing Guide (“Guide”) which outlines the criteria that condo associations must comply with in order for these communities to be certified by HUD to be eligible for purchasers of units to obtain FHA-backed loans. One of the many items that HUD reviews when analyzing an association’s submission, is whether the association has levied a special assessment. Here is the provision of the Guide that addresses special assessments: 

 

2.1.7 Special Assessments

The project submission documentation must include information regarding special assessments. A signed and dated explanation for any assessment must be provided by the builder, developer, sponsor, homeowners association or management company and must answer the following items:

●What is the purpose of the assessment;

●Does the assessment affect the marketability of any of the units;

●Have other special assessments been required (if the answer is yes, a complete

explanation regarding the purpose and timing of those assessments must be provided);

●When is the assessment to be paid (i.e., required to be pre-paid or is it payable over a specified

period of time);

●How is the overall financial stability of the project impacted by the assessment; and

●What impact will the assessment have on the future value and marketability of the property?

 

Note: The above list of items considered when reviewing and analyzing current or pending special assessments is not all inclusive; any additional items evidencing a negative impact on the project must be reviewed.

 

The community association industry has been noticing an alarming trend that HUD is rejecting submissions of condo associations where associations have levied a special assessment. While special assessments are not grounds for an automatic denial, HUD has been carefully examining whether these special assessments were necessary because of a lack of sound fiscal planning.

 

If your condo association is planning to apply for certification or recertification from HUD, it is important to carefully review the fiscal planning your association has undertaken for things like: (1) covering the costs associated with routine maintenance; and (2) covering the costs associated with repair and replacement of components the association is responsible for. 

 

Community Associations Institute (“CAI”) continues to work with HUD to educate the agency on the practical implications of their regulations and procedures. There is not doubt that the issue of special assessments is being addressed with HUD. We will provide you with updates on CAI’s progress as information becomes available. In the meantime, keep on eye on this blog for future postings on important issues relating to FHA-certification.

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