New FHA Approval Process Proposed for Condo Developments

The Federal Housing Administration (FHA) is proposing regulations to make project approval for single-family condominiums more flexible and reflective of market conditions.

On Sept. 27, 2016, the agency said the intent is to regulate “where necessary to ensure financial soundness and project viability” but “retain the ability to be responsive to the market.”

As set forth by the FHA, highlights of the proposal include:

• Minimum Owner-Occupancy Requirements
  At present, approved condominium developments must have a minimum of 50 percent owner-occupied units. The FHA believes too few such units can “detract from the viability of a project” and too many “can harm its marketability.” So the FHA is proposing a range of 25 percent to 75 percent.

• Commercial/Nonresidential Space Limits
  As it now stands, such space in an approved condominium development may not exceed 50 percent of total floor area. The FHA is proposing a range of 25 percent to 60 percent so the agency has flexibility to make adjustments.

• Single-Unit Approvals
  The FHA is proposing, in certain circumstances, to insure mortgages for selected condominium units in developments not currently approved. A single unit may be eligible for approval if the project is not on the FHA’s list of approved projects or is not in a project subject to adverse determination for significant issues that affect the project’s viability; the unit is in a completed but unapproved project; the unit is not a manufactured housing condominium project or located in a two- to four-unit project; the unit is not a manufactured home and is in a project of at least five units; or the unit is in a project in which the number of single-unit approvals is limited to a maximum of 20 percent of the project.

• Condominium Project Approval Eligibility
  The FHA and lenders would not approve proposed condominium projects or those under construction, but they could be approved in legal phases or on completion.

Read the FHA proposal here.

If you have questions about this topic or would like to discuss your land-use law needs, John Wisniewski may be reached at (732) 651-0040 or [email protected]