Monday, September 17, 2012

FHA Releases Condominium Update


U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mortgagee Letter: 2012-18

ASSISTANT SECRETARY FOR HOUSINGFEDERAL HOUSING COMMISSIONER
Date: September 13, 2012

 The following primary changes were made to the FHA Approval Process:

INVESTMENT UNITS
The requirements of Section 2.1.4, Investor Ownership are replaced by the following updated policy guidance.

A unit that is occupied as a principal residence is not considered as an investment property. When calculating the investor owned percentage, this unit will not be included in the calculation.

For all existing or non-gut rehabilitation projects, any investor/entity (single or multiple owner entities) may own up to 50 percent of the total units at the time of project approval if at least 50 percent of the total units in the project have been conveyed or are under a bona fide contract for purchase to owner-occupant principal residence purchasers.

Unoccupied and unsold units owned by a builder/developer are not considered as investor owned and subject to the requirements unless the unit is currently rented or previously been occupied.

DELINQUENT UNIT OWNERS
The requirements of Section 2.1.5 of the Guide are replaced by the following updated policy guidance.

This requirement must be reviewed as part of the analysis for project approval and must also be verified as part of the loan level requirements. No more than 15 percent of the total units can be in arrears (more than 60 days past due) on their condominium association fee payments (does not include late fees or other administrative expenses). The 15 percent includes all units (occupied, investor, bank owned and vacant).

There will be no exception requests granted.

INSURANCE
This section has only been updated to provide additional options for Fidelity Bond/Fidelity Insurance requirements for management companies. All other requirements of Section 2.1.9 remain unchanged.

Fidelity Bond/Fidelity Insurance – may also be known as “Employee Dishonesty” or “Crime Policy” (required submission for project approval)

For all new and established projects with more than 20 units, the homeowners association is required to obtain and maintain this insurance:

·         The homeowners association must maintain this insurance for all officers, directors, and employees of the association and all other persons handling or responsible for funds administered by the association;

·         The coverage must be no less than a sum equal to three months aggregate assessments on all units plus reserve funds unless State law mandates a maximum dollar amount of required coverage.

If the homeowners association engages the services of a management company, one of the following requirements must be met evidencing that Fidelity Bond/Fidelity Insurance – may also be known as “Employee Dishonesty” or “Crime Policy” is in place for the management company’s officers, employees and agents handling or responsible for funds of, or administered on behalf of, the owners association.

·         The management company has secured their own Fidelity Bond/Fidelity Insurance in an amount no less than the sum equal to 3 months aggregate assessments on all units plus reserve funds unless State law requires a maximum amount of coverage; or

·         The homeowners association’s Fidelity Bond/Fidelity Insurance policy specifically names the management company as an agent or insured; or

·         The homeowners association’s Fidelity Bond/Fidelity Insurance policy includes a “Covered Employee” endorsement that states that a person employed by an employment contractor (Management Company) performing services subject to direction and control by the homeowners association is covered under the policy.

COMMERCIAL SPACE
No more than 25 percent of the property’s floor area in a project or a unit can be used for non-residential/commercial purposes. The non-residential/commercial portion of the project must be of a nature that is homogeneous with residential use, which is free of adverse conditions to the occupants of the individual condominium units. A project can be approved with non-residential/commercial space less than or equal to 25 percent under the HRAP or DELRAP options.

Exception Requests: Percentage >25% but ≤ 35%

Exception requests will only be considered on a case-by-case basis by the jurisdictional HOC. FHA reserves the right to reject any exception request received. Based on the HOC review, additional information and/or documentation may be required. Granting an exception does not change the requirement that the project’s use remains primarily residential, homogeneous with residential use and is free of adverse conditions to the occupants of the individual condominium units.

Exception Requests for Mixed-Use Developments Unable to Satisfy the 25 and/or 35
Exception requests will only be considered on a case-by-case basis. All requests must be submitted to the Philadelphia HOC. FHA reserves the right to reject any exception request received. Based on the HOC review, additional information and/or documentation may be required. Granting an exception does not change the requirement that the project’s use remains primarily residential, homogeneous with residential use and is free of adverse conditions to the occupants of the individual condominium units.

Mixed-use developments are defined as developments with a combination of any of the following: commercial, residential, retail, office or parking space.