On October 26, 2016, the Federal Housing Administration (FHA) changed the owner occupancy requirements under the FHA certification process for condominiums, effective immediately. This was done in response to general guidelines for changes provided by federal bill H.R. 3700, the Housing Opportunity Through Modernization Act, which was signed into law earlier this year. Follow this link to read our prior blog post regarding H.R. 3700.

We and others throughout the U.S. who work with condominiums were hopeful that the FHA would implement changes that would make it easier for condominiums to qualify for FHA certification, especially with respect to lower owner occupancy requirements. However, under the recent FHA changes, even though an exception to the 50% owner occupancy requirement has been created which would allow as little as 35% owner occupancy in certain circumstances, the requirements to qualify for that exception are extremely difficult to meet, as follows:

“Existing projects (greater than 12 months old) with an owner occupancy percentage of at least 35 percent and less than 50 percent are eligible for approval under the following circumstances and subject to the following conditions:

  • 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.
  • 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.
  • Three years of acceptable financial documents must be provided.”

The Chicago Tribune interviewed several industry professionals for their article on this subject, all of whom agree, as we do, that few associations will be able to take advantage of these revised requirements: “…the 20 percent reserves requirement alone is a deal killer.” For the time being, it will be relatively easier for a condominium association to be certified by FHA with an owner occupancy at or above 50%.

The FHA still has time to consider and implement other changes as directed by H.R. 3700, and we will report on them as they become effective.

By Mark Petrie, Legal Assistant

Interested in learning more about the benefits of FHA approval for your condominium association? Contact us at 248.644.4433 for more information.