As the struggle continues for condominium associations to become FHA certified or FHA re-certified, the FHA continues rejecting many condominium communities based on the leasing provisions in their governing documents.
The latest bout of rejections has been based on the FHA finding that certain leasing provisions, although not a problem with respect to prior applications, are now being viewed as opportunities for condominium associations to allow transient leasing.
Pursuant to Section 513 of the National Housing Act, FHA mortgage insurance may not be issued for any housing that will be or may be used for transient or hotel purposes.  Based on this language HUD will no longer grant any waivers to this requirement.  On the bright side, the FHA has also indicated it will not undertake a retroactive review of declarations for communities that are already certified.  Rather, this strict interpretation will be used for all current and future applications.
So what kinds of provisions have been viewed as “deal breakers” by the FHA?  Any provisions authorizing boards to approve leases for less than 30 days will be rejected.  An example of a common provision causing condominium associations to get rejected is as follows: “No lease may be for a term less than 30 days unless such lease has received the prior written approval of the board”.
Another common example is a provision exempting banks that have acquired properties through foreclosures from the 30 day minimum lease term.
What should you do if your condominium declaration contains this type of language? First and foremost,consult with your legal counsel about amending the leasing provisions and coming into compliance with this FHA requirement. For additional information about FHA, see What your Condominium Association Should Know About FHA Lending Guidelines

Elina B. Gilbert
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