Improved Condo Loan Guidelines

community managers h o a homefront Sep 17, 2012

In 2009, the Federal National Mortgage Association (FNMA, aka “FannieMae”), and Federal Housing Administration (FHA) imposed new requirements for condominium loans. Administered by Housing and Urban Development (HUD), the rules required that henceforth an entire project would need to receive approval in order for any units to obtain FHA/FNMA condominium loans.

Some of the requirements were problematic. Member delinquency limits were too strict. Managers were required to obtain a type of employee dishonesty insurance which was unavailable. Worst of all, the signer of the certification application had to make sweeping promises (more on that below). Many managers and HOA law firms, including mine, shied away from these certifications because they exposed the signer to unacceptable responsibility. Some banks and other service providers assisted with FHA/FNMA certifications, but thousands of associations could not qualify even if they had a representative willing to sign the HUD application.

On September 13, 2012, HUD announced new guidelines in its “Mortgagee Letter: 2012-18”. The changes are good news for condo owners. [This column, for space reasons, can only address highlights of the new guidelines. Developers or sellers of condominiums should review the entire document at or] Here are the changes:

Mixed–use projects

The new guidelines give more flexibility regarding non-residential condominiums. As before, 75% of the project must be residential, and exception requests may be submitted if no more than 35% of the space is non-residential. Now, an exception may be requested even if the project has more than 35% non-residential space.

Investor ownership

Previously, no one owner could have more than 10% of the units in the project. Now, investors can own up to 50% of the units.


Previously, no more than 15% of the members could be 30 days delinquent (unless an exception was granted for up to 20%). Now, the standard has been eased – no more than 15% of the members can be 60 days delinquent (but no exceptions will be granted).


Previously, the management company was required to obtain employee dishonesty insurance naming the HOA as “obligee”. However, insurance companies did not issue dishonesty insurance covering someone other than the insured’s employees. Now, the management company may have its own insurance, or the HOA may have insurance naming the management company as also an insured, or the HOA may have a “Covered employee” endorsement.

Old Certification

Previously, among other things, the signer had to certify that the project complied with all applicable condominium laws (!), and that the signer had no knowledge of anything that “might have an adverse effect on the project or cause a mortgage … to become delinquent” such as “substantial disputes or dissatisfaction among unit owners” or “disputes concerning unit owner’s right, privileges, and obligations”). Lastly, the signer had to update the information for two years if anything changed.

New Certification

The new certification is more acceptable. In it, the signer promises that the: Information given is correct; application meets all applicable condominium laws; project meets all current FHA condominium approval requirements; and signer has no knowledge of anything which might have an adverse effect on the project (including construction defects, “substantial operations issues”, or litigation). The two year update requirement is also dropped.

This is great news for thousands of condominium associations throughout the state, and should help many thousands of homeowners obtain the best loans available.

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at All rights reserved®.