Over the past few months we have experienced some push back from FHA regarding some communities seeking FHA approval or recertification where the Association has a pending loan or where the association has pending repairs in the community resulting from a construction defect claim.
While there are no written guidelines or restrictions prohibiting pending repairs within the community, FHA informed those in attendance at a recent training seminar they will not approve or recertify any community where there are any pending or incomplete repairs within the community which are a result of construction defect claim, regardless of whether the litigation has been resolved and regardless of whether there are funds in the bank paid by the developer to pay for the repairs. Communities submitting for FHA approval must disclose any maintenance or repairs that are pending on Page 4 of FHA’s Condominium Approval Cover Letter/Document, which is set forth in Appendices E-1 and E-2 of the FHA Condominium Processing Guide. FHA states any incomplete repairs within the community could detrimentally impact the owners and put FHA insured loans at risk should those repairs not be completed or should the funds not be sufficient to pay for the repairs.
Additionally, while there are no written guidelines prohibiting an association from obtaining a loan, FHA informed those in attendance they will be closely reviewing any community where a loan is in place. FHA has recently denied a community for having a loan, stating the community was a financial risk should the loan go into default and a special assessment be required to pay the loan in full. While FHA representatives did not go so far as to state any community with a loan would be denied, they indicated all of the following must be provided upon submitting for FHA approval when a loan exists, or the project will be denied:
- Copies of loan documents (i.e. loan agreement with terms) must be provided.
- What was the purpose of the loan?
- Did the loan require special assessments?
- Why funds were not previously budgeted for the item(s) for which the loan became necessary?
- The start date of loan was __________________?
- The end date of the loan is __________________?
- The work for which the loan was taken have been completed or will be completed on or around ____________________?
- Provide an explanation whether the Association has or has not ever been delinquent on loan payments.
- Provide copies of the bank statements showing payment history on the loan.
- Provide evidence the loan is included in the association’s budget.
If your association is currently FHA certified, or if you desire to be eligible for FHA insured loans, we recommend you review these issues within the community and that you clearly identify the same when seeking approval or recertification.
Should you have questions regarding the FHA certification process or desire assistance obtaining certification, please contact us at 303-991-2070.