Florida Condo & HOA Legal Blog : Florida Condo Lawyer & Attorney : Becker & Poliakoff Law Firm : Condominium & HOA Law Blog

Board members are often asked to decide whether to approve or deny a request to keep an animal in a "no-pet" community.  Those decisions are highly scrutinized.

The Philadelphian Owners' Association (POA) faces discrimination charges filed by HUD over its process for evaluating requests for accommodation or service animals.  The charge seems to ignore differences between service animals as defined by the Americans with Disabilities Act (ADA) and emotional support animals required as accommodations under the Fair Housing Act (FHA).  If you are not familiar with those distinctions, please refer to a previous post titled "Lions, Tigers & Bears, Oh My ....The Difference Between Service Animals & Emotional Support Animals".  The Firm's Community Update addressed distinctions between ADA and FHA recently as well.  Please read "Do You Have to Build a Ramp?  Fair Housing Laws Collide".

In this new charge HUD contends that the POA:

• required burdensome and invasive medical documentation before requests for accommodation would be considered,
• severely limited access to the complex's facilities for residents accompanied by assistance animals, and
• failed to address several instances of harassment of residents requiring assistance animals.

 This charge alleges that the Association's requests for verification are improper - more than improper, illegal.   The charge specifically says:

Respondent POA‟s pet policies discriminate against persons with disabilities in need of an assistance animal in many ways. For example, persons with disabilities who use an assistance animal may not enter the following areas when accompanied by their assistance animal: passenger elevators, lobby, lobby sitting rooms, library, art room, social rooms, swimming pool areas, fitness rooms, library, mailroom, common areas, management office or laundry room. In addition to its denials of valid reasonable accommodation requests, Respondent POA‟s pet policies seek private medical information from a resident requesting an accommodation, to which it is not entitled.

Will this charge result in a finding of discrimination and fines, penalties or damages assessed against the association?  The board was entitled to request verification of the disability and need for accommodation in Hawn v. Shoreline Towers Phase I CAI, but that case did not involve claims that the association facilitated a hostile environment for persons with disabilities by failing to stop intimidation and harassment by other residents.

I encourage your association to adopt a policy for handling requests for reasonable accommodations under the FHA.

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Over 40% of the Home Loans Issued in Two Major Florida Cities in February are Government-Insured FHA Loans. 

The marketability of the homes in your community is highly dependent upon the availability of mortgage financing.  We've included several posts on this site regarding purchase money financing issues over the past 2 years, including reporting on the changes to federal underwriting guidelines. Since mortgage financing (or lack thereof) severely impacts community association operations, Community Associations Institute (CAI) announced it is "stepping up its Congressional and federal regulatory advocacy on behalf of American homeowners, home buyers and common-interest communities."   CAI issued a statement on behalf of its 30,000 members that included the following quote:

"The stakes for homeowners, home buyers and communities are enormous,” says CAI Chief Executive Officer Thomas M. Skiba, CAE. “Rules being developed today may likely govern mortgages for the next several decades. If you live in an association or work in the community association industry, you need to understand the magnitude of these issues, keep abreast of the latest developments and weigh in when such opportunities are available.”  

You can learn more about CAI's new initiative at Mortgage Matters.

The mortgage crisis is also evident by comparing the percentages of FHA backed home loans.  FHA project approval has proven to be a significant factor in home sales. DataQuick Information Systems reports the following increases in Florida:

The future of GSE (Government Sponsored Enterprise) financing is also up-in-the air.  However, Fannie Mae announced an incentive program it says will help stabilize communities.  Purchasers of Fannie-Mae owned HomePath properties are eligible for financial assistance to help pay up to 3.5% of the closing costs.  Fannie Mae-owned HomePath properties are listed on HomePath.com and most listings include detailed property descriptions, photographs, information about local schools and more.

Proactive community leaders have taken steps to ensure their communities are approved for favorable purchase financing.  You may want to discuss project approval or certification with your community association attorney.

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Community Association's Institute (CAI) is petitioning Congress to host oversight hearings examining the Federal Housing Administration (FHA) and its management of the FHA condominium insurance program in an effort to highlight many of the problems faced by condominium associations across the country.

The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), administers various single family mortgage insurance programs. These programs operate through FHA-approved lending institutions which submit applications to have the property appraised and have the buyer's credit approved. These lenders fund the mortgage loans which the Department insures. HUD does not make direct loans to help people buy homes.

Proposals to revise FHA guidelines may make it more difficult for lenders to offer FHA backed loans for condominium unit purchases.   Additionally FHA is changing its mortgage insurance costs for the third time in the past year.   Annual mortgage insurance premiums (MIP) will increase 25 basis points on April 18, 2011. 
 

CAI reports that FHA currently accounts for one in three condominium mortgages. The criteria FHA has adopted and FHA’s administration of the approval process have become more problematic for condominium associations seeking to qualify for FHA mortgages.  Consequently, CAI advocates for better Congressional oversight of FHA and for FHA to engage in public notice and stakeholder input prior to issuing regulations governing the condominium program.  CAI also advocates for changes in FHA's current criteria on assessment delinquencies, rental restrictions and other issues that do not impact the financial health of the association or the value of the property.
 

If you have struggled with FHA certification or recertification, please take a moment to complete CAI's survey  .  

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The Federal Housing Administration (FHA) implemented a new approval process for condominium projects and insurance requirements for mortgages on individual units in November, 2009.  FHA also announced certain exceptions to its standard criteria.  Please note the following:

The November 2009 guidelines temporarily increased the number of permitted FHA insured loans in a particular project from 30% to 50%.  100% of the loans can be FHA insured if the project meets all of the basic condominium standards and the additional items: 

• The project is 100 percent complete and construction has been completed for at least one year;
• 100 percent of the units have been sold and no entity owns more than 10 percent of the units in the project (for projects with fewer than 10 units, single entity may own no more than 1 unit);
• The budget includes a line item (10%) for funding replacement reserves for capital expenditures and deferred maintenance; 
• Home owners are in control of the Association; and
• At least 50 percent of the owners occupy the property.

Project Eligibility Requirements - The following requirements apply to all Condominium Project approvals:

Minimum number of units: Projects must consist of two or more units.
Insurance Coverage:  Adequate hazard and liability insurance and, when applicable, flood and fidelity insurance.
Right of First Refusal:  A right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act.
Commercial Space:  No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes. The commercial portion of the project must be of a nature that is homogenizes with residential use.
Investor Ownership: No more than 10 percent of the units may be owned by one investor. For condominium projects with ten or fewer units, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete.
Delinquent Home Owners Association (HOA) Dues: No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payments.
Owner-occupancy Ratios: At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units
FHA Concentration: From 30% to 50%, with exceptions available.
Budget Review:  This review must determine that the budget is adequate and:
• Includes allocations/line items to ensure sufficient funds are available to maintain and preserve all amenities and features unique to the condominium project;
• Provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget; and
• Provides adequate funding for insurance coverage and deductibles

In cases where the budget documents do not meet these standards, the mortgagee may request a reserve study to assess the financial stability of the project. The reserve study cannot be more than 12 months old. When reviewing the reserve study, consideration must be given to items that have been replaced after the time that the reserve study was completed. 

FHA approvals expire according to the schedule published in Expiration of FHA/Fannie Mae Approvals: Will Your Condominium Units Qualify for Mortgage Financing? 

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The United States Department of Housing and Urban Development (“HUD”) announced recertification deadlines for condominium projects that had received approval for FHA-backed mortgage insurance prior to October 1, 2008.    

In the past many association leaders viewed FHA financing negatively.  The decline in real estate values and banking crisis has eliminated many options from conventional lenders.  Lenders will not finance properties if the loan is not acceptable to the secondary market (Fannie Mae, Freddie Mac and the like).   FHA requires a minimum down payment of  only 3.5%, but it also requires proof of affordability and satisfactory credit scores. FHA guidelines limit housing costs to 31% of income which means a new buyer must earn 3 times the monthly mortgage and association dues.

Whether you think the economy is on its way to recovery, or gearing up for a double dip recession, having your community approved as a FHA/Fannie Mae eligible project is one way to increase the marketability of units in your condominium.

Fannie Mae is a government-sponsored enterprise (GSE) chartered by Congress with a stated mission to provide liquidity, stability and affordability to the U.S. housing and mortgage markets and to increase the amount of funds available in order to make homeownership and rental housing more available and affordable. Fannie Mae works with mortgage bankers, brokers and other primary mortgage market partners to help ensure they have funds to lend to home buyers at affordable rates.

If your unit owners are experiencing difficulty in selling or refinancing their units, and your community is not a Fannie Mae or FHA approved project, you may want to investigate whether it would be worthwhile for your project to become approved. Fannie Mae or FHA approval just may bring more buyers to the table for those units “for sale” because financing will be more readily available. Additionally, the increased marketability of those units currently for sale in a Fannie Mae or FHA approved project not only helps the current sellers, but also serves to increase the value of all units in the condominium. This will not only help owners currently looking to sell or refinance, but will also help those unit owners who may wish to sell or refinance their units in the future.
 

While there are fees associated with the application for Fannie Mae or FHA project approval and the securing of an attorney review letter in support of same, the unit owners of your condominium, whether or not their units are on the market at the current time, might agree that such costs and fees are worthwhile to assist in the free flow of funds to be lent to homebuyers in your condominium at affordable rates.

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HUD Implements New Approval Process for Condominium Projects to Qualify for FHA Insured Mortgages.

Website Allows Users to Search for FHA Approved Projects.

On June 12th the Department of Housing and Urban Development (HUD) published Mortgagee Letter 2009-19 announcing the new process for approval of condominium projects.  As previously reported on this Blog, Fannie Mae, a federally backed lender, announced several changes to its standards, including the imposition of PERS review.

Lenders are now permitted to determine FHA project eligibility, review project documentation and certify compliance with HUD regulations in furtherance of the directives contained in the Housing and Economic Recovery Act of 2008 (HERA).   In order for a condominium project to be eligible for FHA insured mortgages:

• Hazard and Liability Insurance must be in place.  Flood insurance is also required where applicable.
• Any right of first refusal in the declaration of condominium or other governing document cannot violate prohibitions against discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100.  Many projects have been rejected as a result of the provisions granting the Association the rights to "screen" and "approve" purchasers.
• Commercial use cannot consist of more than 25% of the floor area and commercial uses must be homogeneous with residential use.
• A single investor cannot own more than 10% of the units.
• The owners of no more than 15% of the units may fall into arrears (defined as more than thirty days past due in maintenance fees or assessments).
• At least 50% of the units must be sold, although pre-sales apply.
• At least 50% of the units must be owner-occupied or sold to owners that intend to occupy the units as a primary or secondary residence.

HUD provides resources for home-buyers to determine whether projects are FHA approved.  You may search by location, name or status.  The website also reveals which projects have been rejected by FHA or whether approval is currently pending.  Click here to search whether your condominium is FHA approved.

FHA loans are advantageous for purchasers as generally there is less money required for the down payment,  lower closing costs and lower interest rates than sub prime loans.  FHA loans are a good option for borrowers that cannot qualify for conventional financing, as other alternatives generally include large pre-payment penalties.  FHA limits have increased as a result of the stimulus package as well.

Condominium project approvals expire two (2) years after the initial approval and re-certification to determine whether the project remains in compliance with HUD guidelines is required for continued approval.  

Community associations may want to consult with counsel to determine whether it is worthwhile to take action to qualify for FHA and/or Fannie Mae approval, especially if recent sales have slowed.

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