FHA condo approval is a requirement for any borrower that wishes to purchase a condo with FHA financing. The approval process goes through the HUD Review and Approval Process and could take up to 30 days to complete. Once the condo receives approval, however, it is only good for 2 years. After that time, the condo must get recertified. This process can start up to 6 months prior to the condo’s approval expiration and is available for up to 6 months after the expiration. If the condo association does not get reapproved during that time, they must go through the full approval process again.
Why is FHA Condo Recertification Needed?
Many people wonder why condos would need to be recertified once they already receive approval. The answer is simple – things change. The requirements for condo approval have to do with the following items:
- The number of owners occupied properties
- The number of units one investor owns
- The number of vacant properties
- The budget of the association
- How the association spends their money
- The number of homeowners that are delinquent on their homeowner’s association dues
- The amount and type of insurance the association holds
- The legal action taken against the association
Each of these things can change over a period of time, which is why the FHA requires condos to get certified again after 2 years. If they find that there are issues with any of the above topics, certification might not be reissued for the association, which would mean new potential homeowners for that building could not obtain FHA financing.
What is Needed for Recertification of FHA Condos?
In order to get recertified, condo associations need to provide the following information to HUD:
- Legal name of the project
- Address of the project
- Name of the association
- Contact information for the association
- Whether or not the project is 100% complete and if it is, the date that it was completed
- Whether or not the association is in the homeowner’s control or still under the builder’s control
- The total number of units for the property
- The number of units that are owner occupied
- The number of units that are primary residences
- The number of units that are secondary residences
- The number of units that are vacation properties
- The number of units owned by an investor
- The number of units that a bank owns due to foreclosure
- The number of units that are late on their homeowner’s association dues beyond 60 days
- Any amendments that are recorded with the county since completion of the project
- Any financial documents for the project including the current budget
- Any management agreements in place
- Proof of proper insurance coverage
- Documentation surrounding any litigation the project is involved with at the time of recertification
The HRAP will then review each of these documents to ensure that the association still meets the FHA standards.
If the project is involved in any type of litigation at the time of recertification, it does not mean that the building is not eligible for certification by the FHA, but there will be additional scrutiny surrounding the events. HUD will need to know what the litigation is about and how the association is affected. Generally, they will need to see that there are adequate funds in the reserve account of the association to cover the cost of the litigation, should the association lose the case. This means that the anticipated amount of the judgment must also be provided. In addition, the way the current owners are affected will help to determine if the FHA will recertify the project or not in the face of pending litigation.
Why Condo Associations want to Recertify
It might seem like a lot of work to get recertified, which makes many people wonder why the association would even bother. Because the housing industry is heavily concentrated with FHA financing, though, this is the primary reason. Projects that do not allow FHA financing cut their pool of potential buyers down significantly. Rather than taking that risk, most associations attempt to recertify unless they know that they have issues that HUD will not allow. The largest issues are homeowners that are more than 60 days past due on their association dues, investor-owned properties, and litigation against the property.
If the association is unable to obtain recertification within the designated time period, they are not incapable of obtaining FHA approval ever again; they will just have to go through the process in its entirety again. Similar documents will be required; however, the project will undergo further scrutiny than it would during the recertification process.
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