FHA Certification


This Article was on the  Davis-Stirling Newsletter this week. This is the first time I see a comment against FHA certification, but like everything thing in life there are always pros and cons:

There has been a debate for years about the wisdom of certifying a development for FHA loan guarantees. Following are the pros and cons of certification: 

Argument For Certification. FHA insured loans have become a significant percentage of all condo loans in California. In 2007, they accounted for only 3% of the market. By 2012 they accounted for more than 50% of all new home loans and 80% of first time home buyers. Moreover, loan limits now go to $729,750. As a result, failing to certify would eliminate a significant percentage of potential buyers.

Argument Against Certification. The cost to become FHA compliant may be significant or unachievable. In addition, FHA buyers may be financially unstable. An FHA-insured buyer has a low down payment (3.5% of the purchase price vs. 20% for conventional loans), low closing costs, and easy credit qualifications, which is why the loan must be insured by the federal government. Because FHA buyers are financially weaker, they are less able to handle special assessments and dues increases. As a result, they are more likely to become delinquent and slide into foreclosure. This would have a negative affect on property values and the association’s budget.

Lawsuit Over Refusal. Last week David Byrne of Herrick Feinstein LLP reported that an Ohio condominium association was sued when it chose not to seek FHA recertification. A single mother with a child wanted to purchase a unit using FHA insured financing. When the board declined her request for recertification, she filed a complaint with the Ohio Civil Rights Commission. The Commission, in turn, sued the association. The case is pending.

RECOMMENDATION: Although no decision has been handed down in the case, the fact that the Civil Rights Commission sued the association is troubling. As a defensive measure, boards should review their status as an FHA certified development. If their condominium development is not certified, boards should weigh the pros and cons and make a decision whether certification is beneficial or even achievable. The matter should be put on the board’s meeting agenda and discussed in open session. Any decision not to seek certification must be based on non-discriminatory reasons. The board’s decision and the rationale behind it should then be recorded in the meeting minutes

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