On Sunday, the Denver Post ran a story addressing the impact of FHA certification of condominium projects on the sale of units in those projects. The story, entitled Condos’ lapsed approval may slam door on future sales, touched on just a few of the challenges condo associations are facing in obtaining certification – including assessment delinquencies and the number of owner-occupied units.
Following the meltdown of the real estate market, HUD undertook an overhaul of the requirements that condominium associations must comply with in order for their condo projects to become FHA certified. This certification makes it possible for some purchasers of units in those associations to qualify for FHA-backed loans.
Understandably when tightening the certification requirements, HUD was attempting to shore up the FHA insurance program for mortgages on condominium units by ensuring that the condominium projects they were certifying are fiscally sound. However, HUD failed to obtain industry input prior to making sweeping changes to the certification requirements. Had HUD taken this essential step, they would have found out that they were essentially tanking a portion of the condo market in the United States at a time when the federal government was desperately trying to get the housing market back on track.
As a case in point, last summer HUD implemented a Project Certification which requires an “Authorized Homeowner’s Association Representative” to certify 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 the review and acceptance of this project is no longer true and correct.”
While many board members may not have the knowledge or information necessary to execute this Project Certification, insult was added to injury when HUD imposed the following associated penalties: “Title 18 U.S.C.. 1014, provides in part that whoever knowingly or willfully makes or uses a document containing any false, fictitious, or fraudulent statement or entry, in any matter in the jurisdiction of any department or agency of the United Sates, shall be fined not more than $1,000,000 or imprisoned for not more than 30 years or both. In addition, violation or this or others may result in debarment or civil liability for damages suffered by the Department.”
Given the requirements of the Project Certification and associated penalties, HUD has created a built-in barrier to certification for many condominium associations. In addition, one has to question whether HUD is attempting to get entirely out of the mortgage insurance market for condominium units. . .