New FHA condo financing rules squeeze sellers

Some real estate projects face resale challenges

By Inman News Feed
Add Comment Add Comment | Comments: 1 | Posted Jan. 28, 2011

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The onus had always been on the development to be compliant with FHA requirements, but in the past those necessities were minimal. Guidelines have since been considerably augmented.

For example, condo developments now have to have a reserve in the budget for maintenance and repairs equal to 10 percent of the budget. Also, new or established projects with more than 20 units are required to carry fidelity bonds/insurance for all officers, directors and employees of the association and all other persons handling funds.

There are some developments where it would cost too much money to be approved just because of the due diligence that would have to be performed in order to be compliant, said Tomaselli.

FHA-insured loans were not a huge factor in the condo market until relatively recently -- and then they became "the" major factor, Britt said. "Associations were not used to thinking about the FHA as being the only game in town. If you aren't FHA-certified, it's now something that makes your condo less attractive in terms of individual owners trying to sell a unit."

Look at this way: If you have two condo developments next door to each other and one is FHA-approved and the other isn't, the latter is at a severe disadvantage as far as marketing (and, by extension, value).

"When those condo owners want to sell their units and no one can finance," said Tomaselli, "when buyers can't get a mortgage because the development is not FHA- or Fannie Mae-compliant, that's when the pain will rise and everyone will start to scramble to become compliant."

Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade," has been ranked as a top-selling real estate investment book for the Amazon Kindle e-reader.

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1. Anonymous said... on May 18, 2011 at 02:34PM

“If the association has borrowed half a million to finance renovation, would that affect the sale of a condo in the building, since owners participating in the loan might stop paying on the loan at some point, leaving the burden to the association?”

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