Tag Archives: FHA

Condo Let Lapse FHA and VA Certification

C.W. from New Haven County writes:

Dear Mister Condo,

Our complex has always maintained FHA/VA certification. This certification certainly can be viewed as either a positive or negative by some. As I understand it, last fall the government separated the two, requiring two separate certifications. My complex let the certification lapse and then chose only to renew the FHA certification. Now, the FHA cert costs about $1800 with attorney’s fees and is only good for a limited time (I believe 2 years), the VA certification is a lifetime certification and a one-time expense of approximately the same amount. There was nothing in our complex financials reflecting payment or budget for either. There was no notification from the board regarding maintaining or dropping either. I only found this out because I had put my unit for sale and was notified of the lack of certification. After going to the Board, they said they were unaware of the separation of certifications. I lost my first buyer because it was during the lapse of either, and then lost my second buyer because of the non-VA renewal. The board originally asked if I would front the cost and they would reimburse me at the closing, which I agreed. They then reneged and asked me to pay half, then they said they would not reimburse me at all but would supply the attorney with the paperwork. I have lost both buyers because of this. I am now 4 months later with no buyers and multiple price drops. Do I have some sort or recourse because of the lapse and non-renewal and no notification or owner vote regarding this? Certainly, I would think that this certification has a reflection on our unit value. Thanks.

Mister Condo replies:

C.W., I am certainly sorry that you have lost a few buyers for your unit while this debacle unfolds. I should point out that I am not an attorney and offer no legal advice in this column. You should speak with qualified counsel to see if you have any type of legal remedy worth pursuing. You are correct to point out that there are differences between FHA and VA certification. Generally speaking, FHA certification is required for the condominium association for any mortgages that are FHA insured (most are these days). VA certification is specific to the VA-backed loan program and has a different set of requirements. If your complex had VA certification at one time, I am not sure how they lost it. FHA certification is a renewable program so it does have to be sought and reapplied for from time to time as required by the FHA. To optimize mortgage opportunities, many condominium associations opt for FHA certification. Not all bother with VA certification as it is a much narrower pool of buyers who require such certification. Neither are required to be carried by the association, which is why I question your ability to claim an association-caused loss because of the lack of the certification. Your pool of potential buyers is certainly smaller without the FHA certification but you are still unencumbered by the association when you do sell. The Board should take the best interests of all unit owners into consideration when deciding to renew or let lapse FHA certification. Ultimately, if the unit owners want it and the Board refuses to get it, it is time for a new Board. All the best!

Condo Reverse Mortgage Woes

R.H. from Wisconsin writes:

Dear Mister Condo,

I am president of a condo association. Currently we have 11 existing buildings that are occupied (2 units per building). There still are 7 more buildings that will be built in the coming years. We basically have 58% of the project built and completed. I understand that you need a certain per cent of buildings completed before you can qualify for Reverse Mortgage as an association. What is that percentage?

Mister Condo replies:

R.H., there are a number of factors that go into determining if a Reverse Mortgage can be granted to a condominium unit owner. Since many reverse mortgages are also FHA backed, the entire association must be FHA approved before any one FHA backed reverse mortgage can be granted. That can be tricky enough when the project is completely built but it is even trickier when the association is still under construction as yours is. Have you sought FHA approval for your condominium association yet? There are pros and cons in doing so but my guess is that you will need to do so if you are getting requests for reverse mortgage eligibility. Rather than go it on your own, may I suggest you work with an industry professional to walk you through the process? Otherwise, I think you will spend an inordinate amount of time on the project and still may not get the approval you need. In your state, there is a local chapter of the Community Associations Institute (CAI). I found an interesting press release on FHA at their website you might want to read – https://www.cai-wi.org/news/cai-government-affairs/ The article deals with the shifting requirements for condominium associations. In other words, today’s answer may be different tomorrow.

If you are seeking a local resource to help, may I suggest you get in touch with them the Wisconsin Chapter of CAI and ask about companies that specialize in FHA approvals for associations like yours? That way you can get a local expert opinion on the feasibility for your association. Good luck!

Hardship Case Causing Condo Rental Cap Chaos

H.S. from outside of Connecticut writes:

Dear Mister Condo,

Our association passed an amendment to the CC&R’s capping the rental of units at 17. We have 66 units. This was done in 2006 to help us keep FHA funding. Our last management company let it slide, so our new management company has gone through the hoops and we are now FHA approved again. We have a clause that allows a temporary hardship case which allows renting of a unit out for 1 year and 2nd extension of 6 months. Someone has married and his wife has 3 kids and lives in a house. He bought the condo just before the big collapse in prices. Now he cannot sell it for what it is worth. His wife was laid off. He wants to claim hardship to rent for a year. He said we had until a certain date to give him an answer for a court filing. Well we finally decided to let him do it after conferring with our lawyer. But we waited past his deadline. We have a rental list that he could get on. He has not signed up. If the current person who is number 17 on rental list and cannot get his unit rented within 60 days, he falls to bottom of the rental list. The next person on the rental list moves up to rental position. This person with the hardship case, if he signed up, would now be able to rent the 1 bedroom unit as a regular rental now, if the other 4 folks on the list allowed him to skip over them to be 1st on the rental list. Then we would be back to 17 units rented and no hardship case. This way we won’t lose FHA funding. Some folks are saying FHA is now allowing up to 50%. We are considered the old school rule of condos. I don’t want to take a chance of going over 17 units if I can help it. Will we be in trouble being over the 17 units with this hardship case?


Mister Condo replies:

H.S., your adherence to FHA rules while trying to accommodate a unit owner who has fallen on hard times is admirable. However, since you have already involved the association attorney in these proceedings, my best advice is to continue to seek legal advice to guide you through these murky waters. While hardship cases tug at my heartstrings, condo associations are businesses and do not have the luxury of caring about individual unit owner’s unique situations. It sounds to me like you have some very reasonable rules in place about rental restrictions. They have been in place since 2006 and, I am assuming, are in compliance with your state laws on rental caps within community associations. The unit owner’s lack of ability to sell the unit for what it was purchased for is not the business of the association. The collection of common fees from that unit owner and the enforcement of the rental restrictions and other rules of the association are the concern of the Board. If your true concern is FHA funding eligibility, you would be wise to speak with an expert in that area. I am not an expert but I would agree that the current standard of 50% is accurate as of the time of this writing. As your question so easily points out, the FHA changes the rules so today’s answer may not be true tomorrow. There are other reasons for maintaining rental caps, including quality of life for unit owners. Additionally, if you do wish to change the rental cap restrictions, you will need to hold another vote on the matter.

FHA Certification for Condo Lapsed and Sought Again

J.S. from Hartford County writes:

Dear Mister Condo,

We are an over 55 condo complex with 39 individual homes. We were FHA certified several years ago. We missed the recertification period. Nobody knows who completed the original certification application. Where do I find the application/forms in order to submit for certification? We meet all of the requirements. Thank You!

Mister Condo replies:

J.S., I am glad your association is seeking to recertify itself with FHA approval. This will make it possible for unit owners to finance or refinance their mortgages with FHA-backed loans that would otherwise not be available. The FHA and HUD have published a guide that you can find online at https://portal.hud.gov/hudportal/documents/huddoc?id=11-22mlguide.pdf but be forewarned that it isn’t as simple as reading the guide, downloading a few forms, and getting certified. From my experience, it is almost always in the association’s best interest to hire an expert in this area as the guidelines have shifted over the years and that it can be money well spent in avoiding headaches and hassles for the association. I realize that with 39 homes, it may seem simpler and more cost effective to tackle the certification on your own, and you are certainly able to try, but I would be prepared to hire an expert to take you through the process and make sure the association maintains its certification once it is granted. All the best!

Lack of Condo FHA Certification Prevents Mortgage Approval


T.S. from Virginia writes:

Dear Mister Condo,

I am trying to sell my condo townhouse that I have owned for many years. I found a buyer and accepted his offer. Right before closing the lender said that they could not complete the mortgage for the buyer because the condo HOA is not FHA compliant. I have never heard of anything like this. Can you explain it to me?

Mister Condo replies:

T.S., I am sorry you find yourself in this predicament. It may be of no consolation to you but you are not alone in your struggle. The Federal Housing Administration (FHA) is the single largest underwriter of homeowner mortgages. Banks and other lenders that provide mortgages count on the FHA to back the mortgages they write as long as they follow the guidelines laid out by the FHA. Since maintaining FHA compliance is considered a best practice for mortgage-originating banks, you will find that almost all require FHA compliance when providing mortgage funds. Condominiums are different that single family homes when it comes to qualifying for FHA compliance. In order for any individual units within a condo association to be eligible for FHA-backed mortgages, the entire association must be FHA certified. This is a fairly simple process but it does require the association to seek this certification. The FHA does not simply grant it. The association must apply and it must also meet certain guidelines to be approved. The most common reason association either don’t qualify or choose not to try to qualify is an underfunded Reserve Fund. Current FHA guidelines require no less that 10% of the common fees collected each year be deposited into a Reserve Fund. While a great deal of associations exceed that amount, many do not and cannot qualify for FHA certification because of it. There is a myriad of other reasons associations choose not to get FHA certification but the bottom line is that without this certification, traditional mortgage lenders cannot offer individual unit mortgages to borrowers within the association. In this case, it might even cost you your sale unless your buyer can find another method of mortgaging the property or pay cash. You can and should petition your Board to get the association FHA certified as I am sure you are not the only unit owner facing this challenge when trying to sell or refinance their condo. Good luck!

Is That Furry Condo Companion a Service Animal or a Pet?


P.M. from outside of Connecticut writes:

Dear Mister Condo,

Is a service animal considered a pet?

Mister Condo replies:

P.M., for the most part service animals or Emotional Support Animals (ESAs) are not considered pets as they are deemed medically necessary and condo associations have been forced to allow these animals residency within units as “reasonable accommodation” in the eyes of the Federal Housing Administration (FHA). Many associations have made the mistake of classifying service animals and ESAs as pets and have tried to enforce their “no pet” or “one pet” rule only to be taken to court by the unit owner with the service animal or ESA prevailing. So even though two dogs may look the same, if one is a service animal or ESA, that dog can pretty much live in any condo his owner desires, even one that doesn’t allow pets, because that dog isn’t a pet. All the best!

10% Condo Reserve Fund Just Isn’t Enough!


G.D. from Fairfield County writes:

Dear Mister Condo,

We have a Reserve account, which is more than 10% of our monthly income. It has been the association’s practice to use the Reserve instead of doing assessments. We now need to have a large project done and estimates are coming in for more then we have in the Reserve. Isn’t the Reserve account supposed to be used for large projects rather then for lots of small projects?

Mister Condo replies:

G.D., I am sorry that your association did not plan sufficiently to avoid a special assessment now that a major capital improvement project has come due at your association. How and when the association’s Reserve Fund is used is largely at the Board’s discretion. Projects, both large and small, can be paid for out of association Reserves. The “10% of our monthly income” is a telltale sign that your Board is following suggested guidelines set forth by the FHA, which requires that condominium associations allocate not less than 10% of their annual budget to be deposited in the Reserve Fund or the FHA will not approve any unit within the association for FHA-backed mortgage eligibility. While a 10% contribution to the Reserve Fund is better than no contribution to the Reserve Fund, your association is a strong example of why 10% is often nowhere near enough. FHA is not concerned with the true needs of your association’s Reserve Fund. They use the 10% number as a measurable guideline which indicates there is a minimal Reserve Fund for emergency use.

The proper method of calculating reasonable Reserve Fund contributions is to have a proper Reserve Study conducted where future replacement costs are fairly estimated. Once the true dollar figure is known, adjustments to the common fees can be made so that there is enough money available when capital improvement projects like yours become necessary. However, this will very likely mean a significant increase to common fees (imagine a 20% to 30% contribution to Reserves versus the current 10%). Unit owners may fight that type of increase, in which case, you will be left with the situation you currently face; the special assessment.

The bottom line is that Reserve Funds are only as good as the calculations used to derive their value. Blindly choosing a percentage value does not do the Reserve Fund justice although it will satisfy FHA requirements. I hope that explanation helps. All the best!

Selective Enforcement of Condo Parking Rules


S.H. from Litchfield County writes:

Dear Mister Condo,

My condo board seems to be selectively enforcing parking rules. The board has made it clear that condo owners may not use visitor parking for their own personal vehicles and have sent notices to some owners that do so, but the president and some others do not follow these same rules, stating that they were given permission by the board to not have to follow these rules. The problem is the rule does not provide for any exceptions, and unit owners are not provided with the reasons or criteria the board used in determining what and why these exceptions are granted, only stating they were given permission. Can the board just make what appears to be arbitrary exceptions to enforced rules?

Mister Condo replies:

S.H., in a word, “No”! If what you are saying is true, this Board could well find itself coming under a good bit of scrutiny in the not too distant future. Board members are volunteer members from within the community they serve. As such, they are subject to all of the same rules and regulations that all community members leave by. They are not members of the aristocracy who may exempt themselves from rules, parking or other, as they see fit. If they choose to enforce rules against some unit owners but not all, they have opened up themselves and the association to a discrimination lawsuit which could be quite costly to the community. Also, the Fair Housing Administration (FHA) does not look kindly upon associations that use discriminatory practices. A federal lawsuit could also be in their future if they don’t begin behaving properly.

I would alert the Board in writing that these practices are unfair and that they are breaking the law. If they do not cease this behavior you should get together with fellow unit owners and seek relief by filing suit against them. Of course, a far simpler solution is to remove them from office, either at the next annual election or by an emergency meeting of the membership for the purpose of recalling the Board members. Of course, you need to have new volunteers from the community ready to step forward and serve for that to happen. I wish you good luck in resolving this potential nightmare within your association as soon as possible.

Minimum Payment to Association Reserve Fund Law?


R.B. from Litchfield County writes:

Dear Mister Condo,

Is there a state of Connecticut law which requires a minimum payment to the Association Reserve account?

Mister Condo replies:

R.B., at this time, there is no state law mandating that common interest communities like condominiums, co-operatives, time shares, or homeowner’s associations (HOAs) make minimum annual contributions to their respective Association Reserve funds. And that’s probably a good thing as most common interest communities would not welcome additional governmental interference into how they conduct their business affairs. However, as more and more common interest communities age, there will be more and more cases where the association did not make large enough contributions to their Reserve Funds over the years and when the time comes to replace common elements like siding, roofs, roads, and such, the associations will find themselves needing to raise cash which they will do by either taking a loan if they are eligible or levying significant special assessments against unit owners. In the worst of scenarios, the unit owners of record at the time of the special assessment may not be able to afford the assessment which could lead to foreclosure on their units by the association. You can see where this is a patently unfair scenario. Depreciation of common elements begins as soon as the community is built. Unit owners from that time forward should be paying their fair share of the depreciation in the form of adequate contributions to the Reserve Fund. After all, they are the ones who are benefitting from the use of the common elements as they deteriorate. Flash forward 20 years and a newer owner is the one who gets stuck with the bill. If this happens enough and lawmakers get wind that this unfair practice is running rampant in the state, I wouldn’t be surprised to see legislation that mandates a minimum amount (perhaps 10%, which is the current FHA guideline for common interest communities) but that number is just one that is easily measured and truly does no justice to the unit owners who will likely find that to properly fund their Reserve Fund a complete Reserve Study should be performed and adhered to so that there is money available for capital improvement projects when the time comes. It also assures the community of sound fiscal standing which is a great advantage to unit owners when they wish to sell when presented properly to prospective buyers. Thanks for the question!

FHA Condo Accounting Question


R.C. from New Haven County writes:

Dear Mister Condo,

The FHA requirement for associations to put 10% of the common charges into a separate Reserve account creates a problem with using a spreadsheet. The agency we are using to assist with our FHA compliance explains that the 10% value must be based on Common Charges, (what is collected in fees); that is what the FHA looks at.

Setting up the Expenses column to contain a line item for the 10% FHA Reserve, creates a “circular reference” in a spreadsheet by attempting to calculate the 10% line item in the expenses while referencing total common charges to create the 10%. Do you have an example of how a spreadsheet is set up avoid this problem?

Mister Condo replies:

R.C., I am not a CPA but I think you are just looking for a simple “how to” tip here. If I understand your issue completely you are using a spreadsheet program like Excel or such to produce your report to demonstrate your FHA eligibility compliance and you have included a line item for your Reserve Fund contribution that is based upon the total common fees. Since the total common fee includes the Reserve Fund contribution of 10% (entered as a percentage rather than a dollar figure) it creates a circular reference that continually compounds the 10% by 10% over and over again. Is that correct?

Well, the good news is that you are practicing due diligence by contributing a healthy amount to your Reserve Fund each year and that you are practicing good governance by keeping your association FHA eligible.  The only issue here is that the spreadsheet program is proving a bit tricky. I can tell you of the technique that my association uses that you may find useful.

We have our annual budget spreadsheet broken down by sections for each of the expense items. There are sections for insurance, common utilities, vendor contracts for landscaping and snow removal, legal and management fees, and any other fees that we anticipate for the upcoming year. Then we subtotal that section and base our Reserve Fund contribution as a percentage of the subtotal. That way we simply add 10% to the subtotal (which changes every year) and still make a proper contribution to our Reserve Fund that will keep us FHA compliant. If you were to follow the same formula, your spreadsheet might look like this:

Insurance                              $50,000.00

Utilities                                   $  5,000.00

Landscaping                         $12,000.00

Snow Removal                    $12,000.00

Management Fees               $ 5,000.00


Subtotal                                 $84,000.00


Reserve Fund at 10%         $ 8,400.00


Total Fees                             $92,400.00


This would solve your circular reference problem and also allow you to adjust your Reserve Fund contribution based on its percentage of common fees collected. This is an oversimplified example but I think you get the idea. All the best!