As we previously blogged in August, the Housing Opportunity Through Modernization Act of 2016 (HOTMA) was signed into law on July 29, 2016, which, among other things, required the Secretary of HUD to provide further guidance and clarity regarding the percentage of owner occupied units required to obtain project approval for condominium communities.

In response to HOTMA, HUD issued Mortgagee Letter 2016-15 effective October 26, 2016, which establishes a 50% owner-occupancy requirement for Existing projects and a 30% owner-occupancy requirement for Proposed, Under Construction projects.  However, a notable change is that HUD has now provided that owner-occupancy requirements for Existing projects may be lowered to as low as 35%, if the project meets the conditions outlined in Mortgagee Letter 2016-15.

In order for an Existing condominium project to be approved with the lower 35% owner-occupancy requirement, the following circumstances must be met:

  • The project must be an Existing project (fully completed, over one-year-old, and not new construction or a gut rehab project).
  • Applications must be submitted for processing and review under the HUD Review and Approval Process (HRAP) option.
  • Financial documents must provide for funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 20 percent of the budget (vs. 10% as required for Existing projects trying to qualify with a 50% or greater owner-occupancy).
  • No more than 10 percent of the total units can be in arrears (more than 60 days past due) on their condominium association fee payments (vs. 15% as required for Existing projects trying to qualify with a 50% or greater owner-occupancy).
  • Three years of acceptable financial documents must be provided (vs. fiscal year end and previous month’s financials typically required for Existing projects trying to qualify with a 50% or greater owner-occupancy).

In addition to the lower owner-occupancy requirements set forth above, Mortgagee Letter 2016-15 also clarifies the definition of “Owner Occupancy” and sets forth the documentation required to evidence owner-occupancy.

Associations should consider these new requirements when planning for future FHA certifications, particularly if rentals have been an issue in the past.  Please contact us at (303) 432-9999 if you have any questions regarding the FHA certification process.

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