New FHA Regulations

NEW
FHA
REG
ULA
TIO
NS

While this may not have been important four years ago, when only five percent of mortgages were FHA insured, it is estimated that FHA eligibility will now affect as much as 60 to 70 percent of all condominium refinances and sales.

If fewer than 50 percent of the project units are insured by FHA, the requirements are somewhat relaxed.

However, it is estimated that most projects will eventually exceed that proportion, in which case the new regulations become important. If you do not already have in place a package showing compliance with FHA eligibility, you need to begin the process now, not later after the calls start coming in from irate homeowners, Realtors and board members.

This flier is only intended to highlight the current state of the regulations which, unfortunately, are changing daily in response to feedback received by the FHA.

1. A “mixed use” project in which more than 20 percent of the space is commercial is disqualified from FHA financing.

2. Units may not be rentable for periods of 30 days or less. If that provision does not already appear in the governing documents, consider whether a rule can cover the situation.

3. At least one-half of the project must be owner-occupied and no single person owns more than 10 percent of the units in the project, and in projects consisting of 10 or fewer units, no single person owns more than one unit. Note: bank-owned units (sometimes referred to as “REO properties”) are considered owner-occupied for this test.

4. Not more than 15 percent of the owners are more than 30 days delinquent in their homeowner dues (assessments.)

5. The budget must show that the anticipated income is adequate to meet the maintenance and preservation obligations of the Association, and 10 percent of the budget goes to capital expenditures and deferred maintenance.

6. Hazard insurance in the form of a master or blanket policy provides coverage equal to 100 percent of the project replacement costs exclusive of land, foundation, excavation and other items normally excluded from coverage. Alternative: The homeowner applying for an FHA-backed mortgage may provide “gap” coverage.

7. If the project or portions of it are in a flood zone, proof of flood insurance in coverage amounts specified by the FHA is required.

8. Your association may already be qualified without you knowing it! The larger lenders are eligible to certify an entire Association under the Direct Endorsement Lender Review and Approval Process (DELRAP). Alternatively, the Association may apply directly to HUD (www.hud.gov). Decisions take approximately four to six weeks. Information is also available at www.fha.gov.

2016 Pending Changes to FHA Financing for Common Interest Developments Including Condominium Associations:

Under the Housing Opportunity Through Modernization Act of 2016 (HOTMA), the Federal Housing Administration (FHA) will insure mortgages in entry-level condominium projects with reduced owner occupancy requirements in some cases. It is still 50% for existing projects, but may be reduced to as little as 35% if the HUD Review and Approval Process (HRAP) is followed and it can be demonstrated that the project has adequate reserve funding and low (less than 10%) delinquent owners. The owner occupancy percentage for new projects, including apartment conversions, is reduced to just 30%.

Homeowner Association Disclosure and Notice Deadlines

Annual Budget Report and Policy Statement to be provided to HOA members
30 to 90 days before the beginning of fiscal year:

Information	Civil Code Section
An Annual Budget Report, which shall include: (1) a pro forma operation budget; (2) a summary of the reserves; (3) the reserve funding plan; (4) whether major repairs are to be deferred and why; (5) details of any anticipated special assessment; (6) the plan for funding reserve deficiencies; (7) the methodology for calculating needed reserves; (8) details of any outstanding loans; (9) a summary of all insurance in place together with the notice required under Civil Code §5300(b)(9); (10) if applicable, whether the condominium project is FHA-approved together with the statement required by Civil Code §5300(b)(10); and (11) if applicable, whether the project is a Veteran’s Affair approved project together with the statement required by Civil Code §5300(b)(11).	§5300
An Annual Policy Statement, which shall include: (1) the contact information for official communications to the Association; (2) notification to Members that they may have up to two different addresses for notice purposes; (3) if applicable, the location designated for posting general notices; (4) that a Member may opt to receive general notices by individual delivery; (5) and to receive copies of meeting minutes; (6) the assessment collection policy; (7) a description of the Association’s policies and practices regarding liens and legal remedies for default in payment of assessments; (8) a description of the discipline policy including any schedule of penalties; (9) a summary of dispute resolution procedures; (10) the procedure to obtain Association approval for a physical change to property; (11) a mailing address for overnight payment of assessments; and (12) any other information required by law or the governing documents that the Board determines to be appropriate for inclusion in the annual policy statement.	§5310

Other common notice and disclosure timelines:

Information	When Due	Civil Code Section
Delivery of annual election ballots	At least 30 days before the deadline for voting	§5115(a)
Production of records regarding current fiscal year, when requested by homeowner	10 calendar days from demand	§5210(b)(1)
Production of records regarding prior 2 fiscal years, when requested by homeowner	30 calendar days from demand	§5210(b)(2)
Notice to Secretary of State regarding Association and manager contact information, cross street, etc.	Biennially and within 60 days of change of information	§5405
Notice of an assessment increase	At least 30 but not more than 60 days before the increase goes into effect	§5615
Notice of proposed rule change	At least 30 days before effective date of change	§4360(a)

The foregoing list is not intended to be exhaustive and is subject to change by the legislature.