Part 2-FHA Updates to Condominium Approval Qualification Requirements and Process

Written By: Stacey Sprain

Mortgagee Letter 2011-22 dated 6/30/2011 clarifies, expands, consolidates, and updates existing condominium approval guidance while also replacing Mortgagee Letters 2009-46b, 2009-46a and 2011-03. Included with the new Mortgagee Letter are an attached Condominium Approval Implementation Schedule and 95 page Condominium Project Approval & Processing Guide. The revisions listed in this newest Mortgagee Letter are effective starting 08/31/2011.

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Because of the length of content included within the Mortgagee Letter and attachments, this article is presented in multiple parts. This is Part 2 of an ongoing weekly analysis of the content of FHA’s recent condominium updates. Environmental Review Requirements for Condominium Projects
The way HUD has written this section in the new Guide, it is VERY confusing so I’ve broken down these requirements in a format that I believe is easier for everyone to follow.

HRAP-Proposed or Under Construction Project Status
The lender must obtain and submit a Phase I Environmental Site Assessment (ESA) performed in accordance with ASTM E-1527-05 “Standard Practice for Environmental Site Assessments” with all other processing package documentation. The ESA or an update to a prior ESA dated within 12 months must be no greater than 180 days old at the time of the condominium approval submission.

HUD will perform/obtain Environmental reviews for those projects that, at the time that condominium project approval is requested, have not progressed beyond a stage of construction where HUD has any influence over the remaining uncompleted construction. This occurs when:

o A condominium plat or similar development plan and any phases delineated therein have been reviewed and approved by the local jurisdiction and, if applicable, recorded in the land records, and
o The construction of the project’s infrastructure (streets, storm water management, water and sewage systems, utilities), and facilities (e.g., parking lots, community building, swimming pools, golf course, playground, etc.) and buildings containing the condominium units has proceeded to a point that precludes any major changes.

DELRAP- Proposed or Under Construction Project Status
The DELRAP lender must obtain a Phase I Environmental Site Assessment (ESA) performed in accordance with ASTM E-1527-05 “Standard Practice for Environmental Site Assessments”. The ESA or an update to a prior ESA dated within 12 months must be no greater than 180 days old at the time of the condominium approval submission. If the appraiser identifies an environmental condition or the mortgagee is aware of an existing environmental condition through remarks provided on the Builder’s Certification, Form HUD-92541, the appraisal or other known documentation, the mortgagee must avoid or determine that there are mitigants to address the following conditions before completing its review process:

1. The project is located in a Special Flood Hazard Area designated on a Federal Emergency Management Agency flood map.
2. Potential noise issues, where the property is located within 1000 feet of a highway, freeway, or heavily traveled road, within 3000 feet of a railroad, or within one mile of an airport or five miles of a military airfield.
3. The property has an unobstructed view, or is located within 2000 feet, of any facility handling or storing explosive or fire-prone materials.
4. The property is located within 3000 feet of a dump or landfill, or of a site on an EPA Superfund (NPL) list or equivalent state list, or a Phase I ESA indicates the presence of a Recognized Environmental Condition or recommends further environmental site assessment (Phase II ESA) for the presence of contaminants that could affect the site.
5. The property has any hazards or adverse conditions listed in Section 1.f. of the Builder’s Certification, including, but not limited to, high ground water levels, unstable soils, or earth fill.
6. The project is located in a wetland designated on National Wetlands Inventory maps or designated by State or local authorities.
7. The project is on the National Register of Historic Places or is within a historic district listed on the Register. A request should be made to the State Historic Preservation Officer (SHPO) who has a right to comment on the proposal. The request should consist of a narrative explaining the proposal and it should be made as early as possible in the development process.

HRAP-Existing Construction Project Status
An environmental review is not required.

DELRAP- Existing Construction Project Status
An environmental review is not required.

However, if the appraiser identifies an environmental condition or the mortgagee is aware of an existing environmental condition through remarks provided on the Builder’s Certification, Form HUD-92541, the appraisal or other known documentation, the mortgagee must avoid or determine that there are mitigants to address the following conditions before completing its review process:

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1. The project is located in a Special Flood Hazard Area designated on a Federal Emergency Management Agency flood map.
2. Potential noise issues, where the property is located within 1000 feet of a highway, freeway, or heavily traveled road, within 3000 feet of a railroad, or within one mile of an airport or five miles of a military airfield.
3. The property has an unobstructed view, or is located within 2000 feet, of any facility handling or storing explosive or fire-prone materials.
4. The property is located within 3000 feet of a dump or landfill, or of a site on an EPA Superfund (NPL) list or equivalent state list, or a Phase I ESA indicates the presence of a Recognized Environmental Condition or recommends further environmental site assessment (Phase II ESA) for the presence of contaminants that could affect the site.
5. The property has any hazards or adverse conditions listed in Section 1.f. of the Builder’s Certification, including, but not limited to, high ground water levels, unstable soils, or earth fill.
6. The project is located in a wetland designated on National Wetlands Inventory maps or designated by State or local authorities.
7. The project is on the National Register of Historic Places or is within a historic district listed on the Register. A request should be made to the State Historic Preservation Officer (SHPO) who has a right to comment on the proposal. The request should consist of a narrative explaining the proposal and it should be made as early as possible in the development process.
8. The appraiser or DE lender is aware of any other condition that could adversely affect the health or safety of the residents of the project.

Unique Projects

Site Condominiums
No change with these types of condominium projects other than HUD has expanded a bit on their definition of true site condominiums:

• Single family totally detached dwellings (no shared garages or any other attached buildings or e.g. archways, breezeways); and
• Are encumbered by a declaration of condominium covenants or condominium form of ownership; and
• The condominium unit consists of the entire structure as well as the site and air space and are not considered to be common areas or limited common areas; and
• Insurance and maintenance costs are totally the responsibility of the unit owner; and
• Any common assessments collected will be for amenities outside of the footprint of the individual site.

Manufactured Housing Projects
No substantial changes. MHCPs must be submitted to the applicable Homeownership Center (HOC) for review and approval (HRAP). MHCPs are ineligible for DELRAP processing and may not be processed as site condominiums.

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

Projects that are Held in Leaseholds
HUD has expanded eligibility requirements to include the following:
• A leasehold interest shall be under a lease for not less than 99 years which is renewable, or under a lease having a period of not less than 10 years to run beyond the maturity date of the mortgage.
• The Homeowners Association must be the lessee under the ground lease.
• The Mortgage must be secured by the Borrower’s ownership interest in the project including but not limited to the leasehold interest in the ground lease.
• The leasehold must provide that the mortgagees receive notice of any monetary or non-monetary default by the Homeowners Association and be given the right to cure any defaults on behalf of the Homeowners Association.
• The leasehold must provide that the Homeowners Association will pay taxes, and insurance related to the land in addition to those being paid for the improvements.
• The Homeowners Association must not be in default under any provisions of the lease.
• The leasehold agreement must not include any default provisions that could result in forfeiture or termination of the lease except for nonpayment of the ground lease rents.

Part 3 will follow and will address Requirements for Projects Where the builder, developer, construction lender or other party Holding Title Has Bankrupted, Foreclosed or Experienced Deed-in-Lieu of Foreclosure


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About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.


Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.