As we reported yesterday, FHA released Mortgagee Letter 2012-18 on September 13, 2012.  A summary of the changes, that are most important to existing condominium associations, are discussed below.  Now is a good time to reevaluate whether your community meets the threshold requirements:

  • The delinquent assessments requirements have been changed to set forth that no more than 15% of the total units (including ALL units regardless of whether occupied, investor, bank owned or vacant) can be over 60 days delinquent on assessments (excluding late fees or other administrative expenses) instead of 30 days.  This could have a positive impact on many communities.
  • The Fidelity Insurance requirements have been changed to provide that associations with over 20 units that are managed by a management company can provide either (1) a separate fidelity policy secured by the management company which meets FHA’s requirements; (2) the association’s fidelity policy specifically naming the management company as an additional insured, meeting FHA’s requirements; or (3) the association’s fidelity policy containing a “Covered Employee” endorsement that specifically states that a person employed by the management company is covered under the policy. This is a major shift to the benefit of associations as most polices list “management company” in general instead of the specific name of the management company which was previously being required by FHA.
  • The Investor Ownership limitation has been increased from 10% to 50% for all existing projects and eligible non-profit and/or eligible governmental housing projects are now subject to such requirements (they were previously excluded).
  • Guidelines regarding Non-Residential/Commercial Space have been changed to:
    • Clarify non-residential/commercial space must be less than or equal to 25%.
    • Clarify exception requests shall apply for projects that are greater than 25% but less than or equal to 35%.
    • Add extensive submission package requirements for exception requests for mixed-use developments that are unable to satisfy the 25 and/or 35% space requirements.
  • Appendix A, the Project Certification Statement, has been revised to allow more flexibility; however, for non-attorney parties signing the Project Certification, it specifically states that such party has obtained advice from counsel with respect to the project’s compliance with all State and local condominium laws.  Additionally, the statement placing the signor under a continuing obligation to inform HUD of any changes of material information relating to the community has been removed.
  • Owner occupancy requirements have been revised to require legally phased projects to meet a 30% presale and 30% owner occupancy requirement.

In addition there are changes that apply to new projects or conversions which we are happy to discuss you with one on one. Just give us a call.

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