The Federal Housing Authority, FHA, has issued a new Mortgage Letter, 2009-19, which purpose is to provide guidelines and instructions on options available to reverse mortgage lenders to receive mortgage insurance on condominium units which are located in a project. FHA will now allow reverse mortgage lenders to determine project eligibility, review project documentation, and certify to compliance of HUD’s regulations. HUD will continue to maintain a list of Approved Condominium Projects.
The applicable condominium developments which are allowed for processing are proposed/under construction; existing construction; or conversions. Eligible projects include the Condominium Projects which have been created and exists in full compliance with applicable State law requirements of the jurisdiction in this the Condominium Project is located, and with all other applicable laws and regulations. The ineligible projects include:
o Condominium hotels or “Condotels”
o Timeshares or segmented ownership
o Houseboats
o Multi-dwelling unit condominiums
o All projects not deemed to be used primarily as residential
The project eligibility requirements apply to all Condominium Project approvals are:
o Projects consist of two units or more.
o Projects must be covered by hazard and liability insurance and, when applicable, flood insurance.
o Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100.
o No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes.
o No more than 10 percent of the units may be owned by one investor.
o No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment.
o At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit.
o At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units.
o Legal Phasing is permitted for condominium processing.
o FHA Concentration, with a project of three or less units with no more than one unit with FHA insurance; and with a project of four or more units with no more than 30 percent of the total units with FHA insurance.
o Reserve Study which is a current reserve study that must be performed to assure adequate funds are available for the funding of capital expenditures and maintenance.
Manufactured housing condominiums are now eligible for FHA mortgage insurance. If you reside in a manufactured condominium then all outstanding and current FHA manufactured individual units requirements remain applicable for Home Equity Conversion Mortgages (HECM) including elevations in flood zones and foundation requirements. Unfortunately, manufactured housing condominiums are ineligible for the DELRAP processing.
For those individuals seeking to insure a condominium the FHA will require the completion and retention of certain documents for new project approvals. The FHA will not be accepting any temporary Certificate of Occupancy and all units within your selected building must be completed. Reverse Mortgage Lenders must adhere to all these requirements.
