This post was first published on LinkedIn Pulse and reprinted with permission.
Changes to pre-sale disclosure packets in California become effective in July and will require all California condominiums to disclose to potential buyers if the condo association is approved for mortgages backed by the Federal Housing Administration (FHA) or by the Veterans Administration (VA). This change reflects the important role FHA and VA have played in condo financing since the housing crisis in 2009. Changes to the FHA and VA approval process now require the entire association to get approved prior to any FHA or VA backed mortgage being issued to any potential buyer. Rather than face a disappointed unit owner who has lost a sale, condominium association boards should consider exploring how to become FHA and VA approved in time for peak sales season this spring.
Last year the California legislature passed the bill AB 596, which requires condominium boards to disclose, to prospective purchasers, if the association has project approval by FHA or VA. This requirement is a reflection of the import role both these agencies play in the condominium mortgage market and reflects changes to the pre-approval process of associations. Prior to 2009, if a condominium purchaser wanted to obtain an FHA backed mortgage, they would work directly with their lender on qualification. Since the housing crisis, and particularly affecting FHA mortgages, policies have been re-written that now require condominium boards to obtain approval for the entire association prior to any FHA backed mortgages being issued to any buyer. The VA has taken a similar path. Even though this policy has been in place for some time, many boards are unaware that the burden of approval falls to them, not the lender. The approval process can take up to 30 days once the application is submitted, so seeking approval after a potential buyer expresses interest usually results in a lost sale and an angry resident.
There is no legal obligation for boards to obtain FHA or VA approval. A common excuse is that FHA backed mortgage buyers are less qualified than other buyers. The veracity of that belief is no longer relevant to seeking FHA approval. FHA is one of the few entities that have established criteria for lending in condominium communities. Many private lenders and realtors see FHA approval as a sign that the community is well governed and managed. While there is no legal obligation for the board to obtain either FHA or VA approval, the market and the new disclosure requirements provide strong incentives to consider applying.
Fortunately, many condominium management companies, including Associa, provide FHA and VA approval services to its clients. The application and approval process itself, which may be perceived as cumbersome, can be expedited with assistance from your community manager and Associa FHA Assist. It requires that the association provide documentation that shows it has adequate budgets, funding for reserves, a low assessment delinquency rate, at least a 50% owner occupancy rate and certain insurance requirements. For Associa clients, this process can be initiated by contacting Natalie Ayers at Nayers@associaonline.com. For each approval sought, there is an initial deposit required and final payment is only due upon agency approval of the association. If the approval is rejected, no final payment is required. If you are interested in finding our more about Associa FHA/VA approval services, please reach out to Natalie.
ABOUT THE AUTHOR
Andrew S. Fortin is the Senior Vice President of External Affairs for Associa. He works to engage government officials, the media and clients in building stronger community associations and help shape laws that support vibrant community associations.