Improving FHA’s Condo Loan

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WE’RE HEARING from the NAR who recently wrote to HUD’s assistant secretary of housing about the FHA certification and recertification process for condos. The letter was also on behalf of the National Association of Home Builders and two other organizations. The purpose of the letter was to recommend setting up a new less burdensome FHA condo program structure to improve the cert/recert process.

It turns out that only about 10% of condos nationwide are FHA approved (“certified”). More disturbing is the statistic that in 2013 approximately 60% of the 3,500 condo projects seeking FHA approval were denied. Surprisingly FHA condo mortgages are some of the strongest performing in the FHA portfolio by a large margin.

NAR’s letter goes on to outline three steps that HUD could consider to help ease FHA condo requirements. Currently, a condo has to get recertified by FHA every two years. This is an administrative burden and costly. NAR suggests a recert process of every five years. Other ways to reduce costs would be to only require changes to the existing condo documents be filed and setting up an electronic filing system. According to the NAR, this would increase the number of condo boards seeking FHA approval. Lastly the letter encourages coordinating with the GSEs and other federal agencies.

According to the NAR, these suggested changes would help lenders to unload their foreclosure inventory because it will increase the pool of eligible buyers. Easing the condo cert/recert process would also help unload vacant condo units which will increase the owner-occupied ratios in condos. This all sounds logical so hopefully HUD will be listening and implementing.

Next we travel to Utah where the state’s Supreme Court recently held that a national association may not foreclose by using the state’s simplified advertising method. Oddly this decision was the opposite of what happened in the great state of Georgia. Go figure. My bet is the lender in Utah will try to appeal to the federal court system.

Last week I wrote about the good news for storm-ravaged New York and the inflow of federal funds to help rebuild and improve. Well as it turns out, with natural disasters and money there is a need to keep an eye out for crooks. Over in New Jersey the attorney general’s website contained a few stories of the underside of human nature. Fortunately there is law in New Jersey and a means to discourage bad behavior.

According to the AG, Hurricane Sandy was also noteworthy for crooks in the form of a lot of insurance scams, fake charities seeking donations to help and price gouging. The insurance scams involved people with pre-existing home damage looking to blame the storm and get their insurance company to foot the bill. New York will need to keep an eye out for scam artists with $750,000 million in funds up for grabs.

Finally we close in Michigan. I have three different clients where the family home is being sold out of an estate. Each one involves a middle-aged child with limited means and low-wage employment having to vacate upon the home sale and split the net sales proceeds with a sibling. Well last week one such child calls to tell me they needed cash at closing so they could find a place to live. I told him cash does not happen at closing. To speed things up I had the sales agreement conditioned on the net sales proceeds be made payable to me as attorney for the estate. This way the funds would clear faster than by depositing them into a newly opened estate account.

Well the title company would not have it. They insisted the funds be payable to the estate. I guess they thought I would steal the money because I could disappear to Brazil with the $70,000. I was able to get the title company to certify the funds and the child’s bank was then able to expedite the clearance of the funds. Now junior has a place to live and with a $29,000 inheritance he could be a possible FHA condo purchaser someday.

Based in Chelsea, Mich., John McDermott is a real estate and elder care attorney who represents both consumers and businesses. He can be emailed at jamcd@comcast.net.

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