There were two big pieces of news which made the rounds in the condo/HOA world over the past month that I want to touch on briefly.
FHA Rules Changes
Notable in these changes was the expansion of “owners” to include second homes and not just primary homes. In short, if there weren’t enough “owners” in a building (as opposed to investors), the building can’t get certified. Adding second homes eases this somewhat. Other changes included streamlined paperwork, and relaxation of certain insurance requirements. Collectively these provided some easing of the challenges of re-certification.
As many buyers know, the Federal Housing Administration (FHA) backs loans with very low down payments and competitive rates. What many people don’t know is that Condo buildings need to be “certified” by the FHA in order for prospective buyers to use an FHA loan at the building. This little bit of bureaucracy is something most owners aren’t involved in, but Boards and Management know far too much about. Maintaining your FHA certification is critical to enticing a broader buyer pool because it gives prospective buyers more loan options. The FHA recently loosened the rules somewhat. Many in the Condo industry have lamented the rules don’t go far enough, and that’s probably true. But a few things to keep in mind –
- The fact the government is doing ANYTHING is a great sign. The government tends to move slowly and incrementally, and the fact they’re moving at ALL is fantastic. It means there is a chance for continued change and that some bureaucrat is paying attention. This is a good thing in the long run.
- Those lamenting that the rules don’t go far enough often are realtors and industry associations. No disrespect to them, but their agenda is policies that move as much property as fast as possible. Good for them, maybe not always good for the big picture. See sub prime mortgage fiasco.
My bottom line opinion – the changes are a good start, and let’s hope there is continued evolution to the rules to make FHA re-certification easier – but let’s not rush to bring in unqualified buyers. Owners with financial troubles often stop paying their condo fees first because the recourse Associations have is comparatively limited than if you stop paying your mortgage.
Denver changes rules for lawsuits against Developers in new construction projects
The City of Denver passed a controversial ordinance designed to spur additional Condo construction by limiting the ability for an Association to sue for defects. Apparently Denver has a lack of new building, particularly affordable Condos. This ordinance is being pitched as a way to spur both regular and affordable housing projects. However, nothing in the ordinance actually encourages affordable housing construction – it is just a blanket shield for Developers regardless of what property they build. If the goal was to encourage affordable housing projects, the City Council could have only afforded the liability protection from projects that included a certain percentage of affordable units, for example.
I would also note there’s provision in there that a majority of “all Condo owners” must vote before legal action can be pursued. Based on the text of the bill this seems to mean a true majority, not a quorum majority. If you’re involved in a Condo Association, you know how tough a true majority can be to achieve, particularly if you’re a larger Association- you need half of ALL Owners voting yes. Many defects only directly affect a limited population of a building – say it’s a roof defect, and only 10% of your units are on the top floor, for example. The other 90% of the units won’t really care, but for the ones under the roof, life is miserable. It also hypothetically allows Developers to use it as a weapon against Associations – i.e., “You can’t even get half of your Owners to agree that the defect is a problem, so it’s probably not a problem.”
This ordinance is too favorable for Developers. On the one hand, frivolous lawsuits are bad in general, and our society tends to crank a lot of those out. That said, newly formed Associations are very fragile things. You often get “rookie” Board members, and they are busy making a number of tough decisions I’ll blog about in the future – stabilizing finances (particularly reserves), setting up initial rules, etc. If the Developer did in fact screw something up, the Association needs to have appropriate recourse. The last thing a new Association needs is to enter a lengthy battle with a Developer to get the money to fix a defect. My opinion – this is a bad change, particularly since it is being passed ostensibly to spur development of affordable units, which it is only tangentially related to, at best.