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Another condo crisis brewing

You need to make sure your condo association is on the FHA approved list, even if you aren’t selling anytime soon. 

Bivens CondosWant to buy a condo?  Can’t pay cash?  Well then you need to buy an FHA approved condo.  If a condo association isn’t on the FHA approved list there are only a few loans you can get, they are hard to find and they are expensive.

Want to sell a condo?  Do you want to exclude 80% of buyers?  No?

Then you need to help your association get onto the FHA approved list.

FHA Approvals Expiring Soon

You do not have to wait for FHA approvals to expire.  In fact FHA encourages a request for re-certification 60-90 days before expiration date (that was why they granted the extension).  It is completely clear that Direct Endorsement Lenders CANNOT APPROVE a project.  It must be done at Atlanta HUD.  The regulations regarding the re-certification process are a bit murky.  The actual “Transition Strategy’ issued by FHA says we need to follow the re-certification process as defined in Paragraph XIII of the project approval section.  But there is no Paragraph XIII.   Sort of like being told to go the 13th floor of an office building.  Setting aside the Cheshire Cat paragraph, I have spoken with several FHA DE Lenders and none of them so far have indicated they will do project re-certs, which means it should be applied for by Condominium Association directly to HUD Atlanta.

Specifically, my suggestion is that you contact the Condo Assn president and explain the situation. Use phrases like “ Grave potential negative repercussions” from losing FHA approval.  You could even talk to them in terms of values dropping by 25% overnight.  Hopefully that would get their attention.  Tell them you would like to assist them, and have the President contact the management company and order them to assist you.

If this is confusing ask your Realtor to help you convince your association President.

What Condos are Affected?

FHA established rules last year limiting FHA condominium approvals to two years at a time.  All of the old condo approvals were given an expiration date, and those (few) approved over the past year now automatically show an expiration date.   When the approval expires the project it now required to be either re-certified or re-approved before any new FHAs can be done there.  Early this year they announced an extension of many of these expiration dates to give folks a chance to re-certify, but the extension policy expired on 5/31.

So ….  On May 31st, 4 local condo projects lost their FHA approval (Casablanca East, Southfork Oaks  (which was already suspended for investor concentration),  Somerset Village and Sparrow.

While losing those projects hurt, I think the next scheduled expirations are even more significant, as it contains some pretty popular projects:  On July 31st (4 weeks or so from now) seven more projects will expire.  They are: Casablanca West, Cedarwood, Mill Pond, Palmetto Villas, University Terrace Phase 1, Woodshire Villas and Woodside Villas.

Adding insult to injury, one month later, August 31st, we will lose Countryside at the University, Rockwood Villas and University Terrace West.

Doing the math, over a 3 month period, (May 30th to September 1st) 65% of our local condominiums will lose their FHA approval, unless recertified.

Here is the complete list of local condos:

Bellamy Forge                                     Expires 12/08/2012
Casablanca East:                           EXPIRED 5/31/2011
Casablanca West (Phases 1-6):      Expires 7/31/2011
Cedarwood:                                           Expires 7/31/2011
Charleston Place:                                Expires 9/30/2011
Chase Hollows:                                     Expires 7/28/2012
Countryside at The University:     Expires 8/31/2011
Creeks Edge:                                          Expires 6/14/2012
Creekside Villas:                            EXPIRED 12/31/2010
Hailey Forest:                                       Expires 5/13/2012
Isabella Park:                                        Expires 9/30/2011
Magnolia Place:                                    Expires 6/16/2012
Mill Pond                                                 Expires 7/31/2011
Oaks Condominium                             Expires 12/7/2011
Palmetto Villas                                      Expires 7/31/2011
Rockwood Villas                                   Expires 8/31/2011
Somerset Village                                   EXPIRED 5/31/2011
Southfork Oaks                                       EXPIRED 5/31/2011
Sparrow                                                     EXPIRED 5/31/2011
Stonewood (Alachua)                          Expires 12/7/2011
The Gables                                                Expires 2/5/2012
The Greens at West End                      Expires 2/17/2013
University Terrace West PH I-IV   Expires 8/31/2011
University Terrace West PH 4,5,6 Expires 8/31/2011
University Terrace Condo PH 1      Expires 7/31/2011
University Terrace Condo Phase 1 Expires 7/31/2011
Woodshire Villas                                    Expires 7/31/2011
Woodside Villas                                      Expires 7/31/2011

SO WHAT CAN YOU DO???   Help the Condo Association apply for re-certification.

FHA Re-certification Requirements

It appears FHA is looking for some specific things in the re-certification – They want to know

a) if there are any pending assessments

b) is there any pending legal action against the association, officers or directors

c) is there adequate hazard, liability and (if applicable) flood insurance.  (This last subject can get odd – FHA will likely need to see the budget for that.  It will show reserves on deposit, and one of the insurance policies protects against someone embezzling the reserves sitting in the bank.

d) they will want to know that the owner occupancy-to-investor ratio. (The management company has the data)

e) An overall statement that there are no known existing conditions which would make the project an unacceptable risk.

f) I am not certain this will be required for re-certification (that pesky missing paragraph XIII), but an FHA underwriter will require on every loan done in an FHA condo that no more than 15% of the homeowners are 30 days delinquent on their dues.

I know I’m not being much help here.  If you want assistance with one of these condos, please call.

I would be happy to provide something that explains to the folks the nuts and bolts of FHA financing and why it is important, outline the process, provide the Atlanta HUD address, tell them what I think they will need, and generally be a resource if they have questions.  If they absolutely wanted someone to speak to them, no problem.

Happy to help.  Beyond that I can’t do much, other than be a cheerleader.