As we all know from our recent blogs as well as media stories in the past month new condominium projects in Colorado are at a pivotal point.  Economic development goals are pushing for more condominiums to be built, especially in urban, mass-transit focused areas.  Stable, vibrant condominium associations need well-built, good quality condominiums.  Thus, some may say this has produced a conundrum for us…can we have both?  Do we need legislation to ensure both? Maybe, but there is a more pressing conundrum in our condominium market according to Kenneth Harney of the Washington Post Writers Group. In his story, picked up by several national newspapers, he discusses the financing conundrum.

The FHA has been the go-to source for mortgages for many first time buyers including buyers of condominiums.  But currently, the FHA is only insuring mortgages in about 7% of the country’s estimated 150,000-plus condominiums according to Mr. Harney.  Why this decline in FHA insurance of condominium mortgages?  This all stems from the 2010 change in process where spot approvals were no longer granted and instead condominium associations were required to be certified every two years.  And, more importantly, stringent guidelines were imposed on certification. For more information on these guidelines see our article on FHA Certification.

While the need for new condominium construction may be pressing, the need for financing for existing condominiums is hitting our market every day.  In Colorado only about 475 condominium communities are approved for FHA financing.  If more condominium communities were approved then perhaps there would not be the need for legislation deterring litigation of shoddily built ones?  If your community is approved it is likely you’ll be able to take advantage of the ever growing demand for condominiums in the Denver market!  We have helped over 150 condominium communities get certified since 2010 and are happy to explain what is needed, how the process works and complete all the paperwork for you.  Contact Elina Gilbert or Jennifer Keenan if you have any questions.

2 responses to “The Condo Conundrum
  1. Well, 4 years ago, I stated that I felt FHA was out to eliminate the condo market, and this is what appears to be happening. The requirements are simply too stringent for most communities. It was a knee-jerk reaction to a problem that was created by mortgage companies and banks, and so the government punishes the very people that FHA was put in place to help. Go figure! So now, what we have is a situation in which the majority of buyers in lower-priced condo communities are foreigners, because, apparently, they can pay cash. That and HUD sells certain units to first-time, low-income buyers for next to nothing. These actions certainly will not help create stable, financially-viable communities. Here in the community where I live, half of the owners are foreign. They do not understand, nor do they want to, what it takes to own a home in this country or what it means to own a home in a common-interest, covenant-controlled community. They are more prone to violating rules, and feign not being able to understand why they are being harassed. And, on the other hand, they demand more and more from the manager, the board and the association in general. They are less likely to purchase HO-6 policies, and then, when a casualty occurs, demand that the HOA take care of everything. Of course, all of this does nothing to help move the association into a position in which it might someday be able to apply for FHA approval. And then there are the increasing number of tenants. Owners who were unable to sell their units when the market was down, chose instead to rent them, and they do so to anyone whom they think will be able to pay the rent. The result is an increased number of tenants who are also more prone to violating rules and not respecting the property. Neither of the above groups is the least bit interesting in being neighborly or in contributing to the betterment of the community. Indeed, most feel that we no longer have a community in terms of the social definition of the word. Everyone keeps to him- or herself and is suspicious of neighbors, so this has become an unwelcoming place to live. Add to all of this the fact that whiney developers seem to think they should be immune from construction-defect claims, and intend to hold the new-condo market hostage in order to force its way. Crossroads? Heck, we passed that a couple of years ago. This type of ownership is headed for a full-on collision with reality. We’d all be better off selling now, while we still can.
  2. Hi Loura – this article is spot on. FHA certification is crucial to many condominium associations, especially those with unit values under $250,000. MLS sales data in our area (CT-RI) shows a great disparity in condo unit sales in this price range in FHA-approved condominiums versus those which are not approved with FHA. In some towns/cities, units listed for sale in FHA-approved condominiums have nearly a 4:1 chance of selling (versus expiring) where units in non-approved condominiums have less than a 50:50 chance of selling. In fact, we have never seen an instance where units in FHA-approved condominiums had worse sales data than those which are not approved. FHA certification directly impacts the sales of units in condominiums. Period.
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