Published in the ECHO Journal, March 2011

This article has been printed previously in the February 2011 issue of Community Essentials, the newsletter distributed by Hindman Sanchez, and is used with permission.

Journal readers are already aware that the real estate crisis prompted the U.S. Congress to require the Federal Housing Administration (FHA) to revamp its entire process for insuring mortgages in condominium communities. The new process, which took effect on February 1, 2010, was developed by an under-staffed and under-funded FHA that faced tight deadlines. Thus, despite 3 revisions over the past 18 months, there are still may unanswered questions and confusion over the criteria for qualification and how to insure approval in condominium communities.

As a result of numerous submissions over the last year we have found most of the criteria to be straight forward and understandable. As a quick review, the major criteria that must be met for an existing condominium community are as follows:

  • No more than 15% of the units may be more than 30 days delinquent;
  • No more than 50% of the units may be non-owner occupied;
  • No more than 10% of the units may be owned by a single owner;
  • No more than 25% of the total square footage may be commercial;
  • At least 10% of the current budget must be allocated to reserves;
  • The budget must be adequate and show funds are available to cover insurance deductibles;
  • There must be fidelity insurance (if more than 20 units) equal to 3 months of assessments plus the monies in the reserve funds;

If your association doesn’t meet one or more of these, please don’t stop reading. First, call your attorney as there are many nuances and techniques we have discovered to address deficiencies. Second, we expect there will be discretion with respect to some of the criteria after June 30, 2011.

Based on a recent face-to-face meeting with Joanne Kuczma of the FHA, we know that FHA will be issuing an in-depth “Condominium Approval Process Guidebook” by June 30, 2011. This guidebook will provide additional protocol regarding submissions, the approval process and answer many questions regarding some of the existing criteria. While there will probably not be any changes to the basic qualifications, we do expect the following:

Some discretion to be given to the reviewers regarding delinquencies in excess of 15 percent if the community is financially strong. More documentation will be necessary regarding the financial condition of the association such as financial statements;

  • Clarification as to mixed use communities;
  • Clarification as to affordable housing units;
  • Clarification as to restrictions placed in documents to limit leasing and limit the number of units that a single entity may own;
  • Clarification as to lease term requirements;

As the entire country struggles with the bursting of the real estate bubble, we anticipate that the condominium approval process will continue to evolve. Our advice is simple—jump in as soon as possible because it won’t get easier to be approved, only harder. With over 40 percent of all new loans being insured by FHA, your community can only benefit by having FHA qualification.

Watch the ECHO Journal for updates on the FHA efforts. If you have previously been rejected or have not yet submitted for approval, contact your association attorney for help.


Loura Sanchez is the managing partner at the law firm of Hindman Sanchez in Arvada, Colorado.