Lack of FHA Certification could Effect Condominium Owners

The Federal Housing Administration (FHA) is a government entity that insures mortgages for the benefit of a direct lender such as a bank or credit union. A mortgage being insured by the FHA limits the risk of default or non-payment to the lender and allows the lender to take greater risk when determining who and how much to lend to a particular person.

An FHA backed loan is considered easier to qualify for and often requires a lower down payment and gives those who typically would not qualify for a loan the chance at home ownership. Since the financial crisis of 2008, the number of FHA loans has increased dramatically. A preliminary issue when applying to receive an FHA loan is that the property must meet certain standards. One of the ways the FHA determines whether a property meets the certain standards in condominiums is through FHA Certification.

Certification is a risk management tool used by FHA to reduce the risk of default and foreclosure on FHA insured loans. Being certified by the FHA means a condominium meets minimum guidelines set forth by FHA and has many positive features for an owner in the condominium community. The Certification minimizes the threat of default and foreclosure within the community, both of which negatively affect the value of a condominium.

Without FHA Certification, a new owner cannot use an FHA mortgage to purchase a property within the non-FHA Certified community. Certification also allows current owners with FHA backed mortgages to refinance their existing mortgages. Without Certification, a lender or mortgage holder will not refinance the mortgage to benefit the property’s owner.

FHA looks at a condominium community as a whole, not individual units, therefore the lack of FHA Certification can have an impact on the condominium community as a whole. The lack of Certification could drive down the market value of individual condominiums within a community and in some cases the lack of Certification causes listing agents and potential buyers to completely neglect these condominiums. However, the lack of FHA Certification directly effects two types of owners in a community.

• The first is current owners with FHA backed mortgages. These members of the community cannot refinance through the FHA due to the lack of Certification and could be missing out on the benefits that go along with refinancing such as the lowering of the monthly payments and loss of the use of the equity already built up in the condominium.
• The second type of owner that is directly affected by the lack of FHA Certification are owners who are looking to or have placed their property on the market. Due to the smaller pool previously described, these owners do not have as broad a pool from which to draw potential buyers.

Some of the effects of this could be the owners being forced to rent the property rather than sell it, or simply having to take the property off the market due to low offers to purchase. This can also become a problem to the community as a whole, as it may force some owners who wish to sell to simply walk away from their property and allow the property to fall into foreclosure, which will in turn drive down the value of all the homes in the community.

Patrick Meighan is an attorney at Law Office of Miguel Palmeiro.