News & Articles

The Federal Housing Administration (“FHA”) announced much-anticipated revisions to the condominium project approval process in two Mortgagee Letters (Nos. 2009-46A and 2009-46B) dated November 6, 2009. The second letter sets forth the new approval process for condominium projects and insurance requirements that are generally effective on or after December 7, 2009; the first letter contains temporary waivers or modifications of some of those new guidelines that are generally effective from December 7, 2009 through December 31, 2010.

Some key elements of the new guidelines and temporary modifications include the following:

• Pre-Sales. The 50% pre-sale requirement has been reduced to 30% for new construction projects.
• Owner-Occupancy Ratios. The 50% owner-occupancy ratio will be 50% of the number of pre-sold units for new construction projects. Temporarily, vacant or tenant-occupied REO properties (including those that are bank-owned) may be excluded from the calculation of the owner-occupancy percentage.
• FHA Loan Concentration. The maximum number of loans FHA will insure in a project is 30% but is temporarily increased to 50%.
• Legal Phasing. Legal phasing is acceptable for vertical buildings if: a) floors are phased in groupings of no less than five floors; b) at least a temporary certificate of occupancy has been obtained and ALL common areas and amenities have been completed; and c) a third party completion bond has been obtained. So-called “marketing phases” are not acceptable to FHA.
• Budget Review. The homeowners association budget is to be reviewed to determine whether it is adequate and includes, among other things, a reserve fund in an amount at least equal to 10% of the budget.
• Ten-Year Warranty. If a building permit and certificate of occupancy have been issued by a local jurisdiction that performs at least three inspections, neither an “Early Start Letter” nor a HUD-approved ten-year warranty plan is required.
• Site Condominiums. Project approval is not required for site condominiums (i.e., single family totally detached dwellings encumbered by CC&Rs). To qualify, there may be NO attached shared buildings, including garages.

This is a summary of some of the highlights of the new regulations, but is by no means a complete list. Many of the new regulations raise additional questions. Contact any of the attorneys in our Common Interest Development Group with any questions you may have regarding FHA project approval.