One of the most prevalent reasons FHA (re)certifications get rejected these days is centered on short-term rentals.  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.  This requirement has been the cause of many, if not most, rejections of recent FHA (re)certification applications.
HUD has been rejecting FHA (re)certification applications of communities whose covenants contain language authorizing rentals for terms less than 30 days.  Even in situations where covenants prohibit leases of less than 30 days, but provide exceptions for mortgagees, HUD has been viewing such provisions as violations of the above requirement and, therefore, cause for rejection.
For those condominium communities whose covenants contained such language, there was no choice but to go through the amendment process, which further delayed (re)certification and added costs to an already expensive process.  However, it is time to rejoice because FHA has just announced another option for condominium associations plagued by the mortgagee exception provisions!
Although condominium communities may still amend their declarations to remove first mortgagee exceptions, there is now another option.  Condominium boards may now provide HUD with written statements accompanying their applications affirming that no units in the community are currently leased for a term less than 30 days and further affirming that tenants are not being provided with services commonly associated with hotels.
Using the letter alternative will also require originating lenders to sign statements affirming they will not rent units for less than 30 day terms should they take ownership of such units.  Borrowers will also be required to sign similar statements prior to purchase. The full FHA announcement may be found here.
Although this alternative will save many condominium communities hours and dollars by removing the need for document amendments, keep in mind this alternative only applies to the mortgagee 30-day rental exceptions.  If your community has a declaration allowing rental terms of less than 30 days, you will still have to go through the declaration amendment process to remove or amend that provision.
For additional information about FHA, see, our article “FHA Condominium Certifications:  The Requirements and Prohibitions”.

Elina B. Gilbert
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