New FHA Regulations Effect Condominium Unit Sales and Financing


Like all housing, the sales of condominiums have been significantly impacted by the state of the housing market. Also effecting sales are new rules and regulations applicable to government backed loans, as well as those adopted by conventional lenders. In particular, new requirements for FHA financing directly concern condominium sales. As of February 1, 2010, the FHA now requires that an entire condominium project be FHA approved, discontinuing the prior “spot approval” for the sale individual units. Significantly, these regulations preclude FHA financing where 15% or more of the units are delinquent in paying fees and assessments. Additionally, only 50% of the units in a project may receive FHA financing, and that ratio will be reduced to 30% after 2010.

HUD Section 234(c) of the National Housing Act provides for government insurance to lenders against losses on mortgage loans for purchase or refinance of condominium units. Condominium projects often had FHA approval at the time they were constructed and units were first offered for sale by the developer. If not, there was previously a “spot approval” process for the financing of sales of individual condominium units. As of February, however, the entire condominium must be an FHA approved project. Unless a project is already on the approved list, the condominium must apply for approval in order for FHA financing to be offered in connection with unit sales.

In order to apply, existing condominium must meet certain eligibility guidelines:

  –  The Council of Unit Owners must have a completed the HUD questionnaire.

   – The condominium must be completed, with no on-going or anticipated addition of common elements, units or other facilities.

   – At least 50% of the units must be owner occupied.

   – No more than 15% of the units may be delinquent for more than thirty days with respect to the payment of fees and assessments.

   – FHA insurance will be available to only 50% of loans in any Condominium until December 31, 2010, after which this limit will decrease to 30%.

   – The Council of Unit Owners’ insurance premiums and deductibles must be included as part of the annual operating budget.

   – The condominium must secure fidelity coverage in an amount equal to three months aggregate assessments plus reserve funds.

  –  The condominium’s insurance policy must cover 100% of the replacement cost exclusive of the land.There may not be any litigation, other than that related to assessment collection. However, the FHA will, on a case by case basis, consider requests for exemptions for pending litigation.


   – The condominium must not be a party to litigation, except for that related to the collection of delinquent assessments.  However, a request for an exemption for pending litigation will be considered on a case by case basis.

   – The condominium may not permit daily rentals.

Once approval is obtained, it is good for two years. Any community that is unsure as to whether it is on the approved list, or wishes to obtain information on applying for approval, should contact the local HUD office. Condominiums in Maryland can contact the Baltimore field office at The City Crescent Building, 10 South Howard Street, Fifth Floor, Baltimore, Maryland 21201, 410-962-2520. Condominiums in Montgomery and Prince George’s Counties can also contact the Washington field office at 820 First Street, NE, Suite 300, Washington, D.C. 20002, 202-275-9200.

A final note on pending litigation: The involvement of a condominium in litigation, except that relating to the collection of delinquent assessments, is always an issue in connection with financing for sales or refinancing of units. This is true for conventional loans, as well as government backed financing. However, commercial lenders and HUD will make exceptions, provided that they are given with sufficient information on the nature of the law suit, and its anticipated duration and outcome.


  1. my condo complex just was FHA approved without the board or association knowledge. the management company supplied the potential buyer or his mortgage lender all the information needed including a copy of the contractual agreement between the management company and the association, any required meetings of board minutes, etc, etc, without an board knowledge. i was under the impression that a condominium complex has the legal right to NOT supply required information as to NOT allow fha approval and that would NOT be housing discrimination. a board level discussion would have been appropriate before this ensued – minimally. also, do management companies have the legal right to give an outsider, a potential buyer or the lender, their contractual agreement between the HOA and themselves? this whole thing astounds me. i am on the board.

    1. Condominium’s must now be on HUD’s approved project list in order to make FHA financing available in connection with unit sales. A project not on the approved list would have to apply for approval and meet all of HUD’s requirements. Whether an unapproved condominium applies for approval would be board decision, unless a local regulation or agreement requires that efforts be made to provide FHA financing in that community.

      As to sharing the management agreement, a party to the agreement is generally not precluded from making it available to third-parties in the absence of an agreement to the contrary. It sounds as through your board needs to more clearly define the management company’s authority.


  2. I just lost a buyer for my condo who was denied a Fannie Mae or Freddie Mac warranteed loan despite having 50% cash down, excellent credit and steady employment with a sufficient salary. She was offered other financing from a large bank and portfolio lender but at much higher interest rates than she had pre-qualified for. The bank reneged on the original loan offer because our condo is not FHA approved and has two entities that own three units each (17 unit building). The two entities are non-profit; HOC of Montgomery County and Interfaith Housing Coalition of Interfaith Works. Both are original owners, owning since 1988, and provide housing for low income or homeless families. HUD calls HOC and Interfaith “investors” and says we can’t have “investors” owning more than 10% of the building if we wish to have full access to FHA loans.
    How can we remedy this situation? HUD regulations are limiting the pool of buyers and the financing available.

    1. It appears that HUD is interpreting the percentage requirement too strictly, given that the units are owned by non-profits that provide housing to low income and homeless families. I suggest that you seek to have HUD reconsider these circumstances, and contact your Congressional representative when doing so. You may also want to employ an attorney to assist you with this.

  3. As it turns out my issue was not FHA related, but rather Fannie Mae. The buyer’s bank (who was not a DE authorized lender) turned down the loan saying, “the property is not Fannie Mae warrantable”. They did this in response to the project questionnaire which revealed the two non-profit entities owning more than 10% in the building.
    Their response to the questionnaire was immediate and was rendered the same day they received the questionnaire answers. They did not take the necessary time to take advantage of the PERS process, likely because, not being DE authorized, they did not have the personnel or authority to do so. I have since shown that the property is indeed Fannie Mae warrantable by going to another lender who used PERS to get permission to do a Fannie Mae spot loan.
    By shutting down the first loan the original bank was irresponsible costing both myself and the buyer time and money. All the first bank had to do was consult the Fannie Mae website where there is a direct response in the FAQ section that addresses the exact situation in which they found themsleves. In the FAQ’s (Q 16) Fannie Mae says they will consider situations on a case-by-case basis when considering exemptions from the investor ownership limit. Rather than admitting their own shortcomings and performing due diligence the bank blamed the property thereby lowering its value and costing me a sale to a good buyer who wished to purchase here.

  4. I forgot to add that the original bank is not endorsed by Fannie Mae as a Fannie Mae lender partner which reinforces my point that they had no business stating whether or not a project was “Fannie Mae warrantable”.

  5. Update on my situation:
    During my nightmare described above I found out my project was not FHA approved either. So back on June 29th my condo project applied for FHA approval.
    After 14 weeks we still have not received an answer from HUD on our FHA approval application. HUD had told me that it would be a 60-90 day process. A telephone conversation this past Monday with a HUD employee revealed that HUD had lost and then found our application materials thereby causing the delay. Meanwhile my place is still up for sale and no one is even looking at it. I did a study of similar properties within a one mile radius of my place that sold within the past year. 42% used FHA financing. That’s the percentage of an already slim pool of buyers walking past my place without even looking while HUD plays Three Stooges with my FHA approval application.
    What a farce.

  6. Thought I’d drop another update on all three people reading this blog: No answer yet from HUD. Application has now returned to Philadelphioa HOC were our condo will receive a full condo review (I do believe we have been granted a waiver on the 10% investor concentration regulation).
    Day 139 of our endless wait for FHA approval…was supposed to be 60-90 days.

  7. The property management company will not give out their agreement without a confidentiality agreement from my mortage company. The mortgage company was advised by their lawyers not to sign because that would place unnecessary liability on them. Fha will not approve my loan without the agreement and now we’re at a standstill. Is it legal to withhold the agreement and would I be able to legally get the agreement from the HOA under protest from the management company? I’m having a real hard time with this watching a third party come in between seller and buyer. We offered accepting an ammended agreement without the money in there but they would not accept giving that up without the confidentiality agreement also. Is there anything I can do at this point like call fha direct and see if they’d sign confidentiality? The excuse the management is using to not hand it over is that they don’t want their terms getting out because they don’t want competition nto get a hold of it. Thanks

    1. Under Section 11-116 of the Maryland Condominium Act, all books and records of a condominium must be made available for inspection by unit owners, a unit owner’s mortgagee, or their respective agents or attorneys. The specific exceptions for items that may be withheld are set forth at Section 11-116(c)(3):
      (i) personnel records, not including information on salaries, wages, bonuses and other compensation paid to employees; (ii) an individual’s medical records; (iii) an individual’s personal financial records; (iv) records relating to business transactions that are currently in negotiations; (v) the written legal advice of counsel; or (vi) minutes of a closed meeting of the board of directors or other governing body of the council of unit owners, unless a majority of the board or other governing body approves unsealing the minutes or a recording of the minutes. A contract with a management company is not covered by any of the exceptions, and is part of the records of a condominium that should be made available to the unit owners and their mortgagee.

  8. update – On November 30th our condo association received was granted a waiver by HUD of the investor concentration regulation. It took 154 days to process.
    I then had to file a formal FHA approval application with the Philadelphia HOC which I did on Dec. 16th.
    Hopefully we’ll have an answer within the next two weeks and this mess will be behind us.

  9. Last update – On January 6th our condo project was granted FHA Approval. Along with the granting of the waiver the entire process took 191 days, though the actual FHA approval only took 21 (and that spanned the xmas holidays).

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