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Board Approval Not Required. There is no statute requiring boards to certify their condominium project as a whole for FHA insured financing. Certification can be done individually by a homeowner provided, however, a signature by an officer of the association or the manager (or management company) is required on the application to ensure  the information is factual. This is similar to a lender's condominium questionnaire. The board does not need to vote on it unless the association is seeking the certification.

Business Decision. Unless the governing documents provide otherwise, seeking FHA certification for the entire project is discretionary. Following are arguments that often come up when boards debate the issue.

Argument For Certification. FHA insured loans have become a significant percentage of all condominium loans in California. In 2007, they accounted for only 3% of the market. By 2012 they accounted for more than 50% of all new home loans and 80% of first time home buyers. Moreover, loan limits now go to $625,500 (and $765,500 in high-cost areas). As a result, failing to certify the project would eliminate a significant percentage of potential buyers. In addition, older condo owners sometimes rely upon reverse mortgages to remain in their homes and FHA is the best source for affordable reverse mortgages.

Argument Against Certification. Condominium associations might not qualify due to owner-occupancy rates, prohibited terms in governing documents, or similar issues involving the certification process. Some argue that FHA buyers may be financially unstable, because of the low down payment (3.5% of the purchase price vs. 20% for conventional loans). This is countered by arguments that FHA Insured loans are fully vetted by the lender and borrowers are, therefore, stable.  Also, there are conventional loan programs called "Conventional 97" that require only 3% down, so the low down payment argument is not a sound argument for avoiding FHA certification. Another argument against certification is the cost if done by a law firm. However, the certification submittal can be done by companies that specialize in offering this service. Most services charge under $1,000.

Recommendation: Boards can weigh the pros and cons of seeking certification for the entire project. Even if the board decides not to pursue certification for the project as a whole, it should cooperate with any homeowner seeking certification. The association does not need to absorb any costs but simply cooperate in the certification application.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

Adams Stirling PLC