12.11 CONDOMINIUMS AND PLANNED UNIT DEVELOPMENTS (06/04/18)

© RHS HB-1-3555 SFH Guaranteed Loan Program Technical Handbook

A. Condominiums

Condominium projects typically consist of multi-unit buildings governed by an HOA. Each unit is individually owned, and the common areas such as hallways and recreational facilities are owned by all the unit owners.Although less common, it is possible for condominium projects to consist of detached or attached single family dwellings. In these cases, it is the HOA and not the individual unit owner who is responsible for maintaining the exterior of the dwellings in addition to the common areas.HOA dues for dwellings in a condominium project must be included in total debt-to- income. Units in a condominium project are eligible for a guarantee if the condominium has been approved or accepted by HUD/FHA, VA, Fannie Mae or Freddie Mac. Lenders who meet the conditional authority and who have staff with knowledge and expertise in reviewing and approving condominium projects in accordance with HUD/FHA, VA, Fannie Mae or Freddie Mac, as applicable, may determine the acceptability of the condominium project. Lender representation and certification of project approval may be accepted as long as the lender meets the self-certification criteria set forth by HUD/FHA, VA, Fannie Mae or Freddie Mac and is done so consistently with standards and regulations set forth by each entity. By submitting the request for Conditional Commitment for Loan Note Guarantee, the lender represents the condominium project meets the requirements set forth by HUD/FHA, VA, Fannie Mae or Freddie Mac. Lenders must retain evidence they have reviewed condominium documentation that supports the project's approval or acceptance by HUD/FHA, VA, Fannie Mae, or Freddie Mac and that the documentation remains available in the lender file for verification purposes. When requested, the lender must provide such documentation to Agency staff for verification of compliance with HUD/FHA, VA, Fannie Mae, or Freddie Mac regulations.Applicants remain responsible to obtain individual homeowners insurance or flood insurance as applicable. The lender is responsible for ensuring that the HOA obtains and maintains adequate flood and hazard insurance for buildings in a condominium project located within a SFHA. A Condominium Rider must supplement the Mortgage or Deed of Trust.

1. Ineligible CondominiumsCertain types of condominium projects are not eligible under HUD, Fannie Mae, Freddie Mac, or VA guidelines. They are:

Condominium hotels;
Timeshares;
Houseboat projects;
Multi-dwelling unit condominiums that permit an owner to hold title to more than one dwelling by a single deed and mortgage;
Any project for which the owner's association is named a party to current litigation or for a project that has not been turned over to the association for which the project sponsor or developer is named a party to current litigation;
Condominiums that represent a legal, but non-conforming use of the land, if zoning regulations prohibit rebuilding the improvements to current density in the event of their full or partial destruction;
Investment Securities – A project in which ownership is characterized or promoted as an investment opportunity; and/or projects that have documents in file with the Securities and Exchange Commission;
Common interest apartments or community apartment projects – Any project or building that is owned by several owners as tenants-in-common or by a HOA in which individuals have an undivided interest in a residential apartment building and land, and have the right of exclusive occupancy of a specific apartment in the building.
A project with non-incidental business operations owned or operated by the owners' association such as, but not limited to, a restaurant, spa, health club, etc.

2. Site Condominium EligibilityProject approval may not be required for site condominiums if they meet the following criteria:

Single Family totally detached dwelling encumbered by a declaration of condominium covenant or condominium form of ownership;
The unit has no shared garage or any other attached buildings (i.e. archways, breezeways);
The condominium unit consists of the entire structure, site and air space and is not considered to be common areas or limited common areas.

Appraisal data will be collected on Individual Condominium Unit Appraisal Report (FNMA Form 1073/FHLMC Form 465). A Condominium Rider must supplement the Mortgage or Deed of Trust. Insurance and maintenance costs will be the responsibility of the unit owner. Site condominiums that do not meet the criteria must follow Section 12.11.A. above for condominium approval.

3. Underwriting with a Condominium Unit:For all loans secured by a condominium unit, in a condominium project, the lender must perform an underwriting review of the condominium project to ensure the unit is approved or accepted by HUD/FHA, VA, Fannie Mae, or Freddie Mac. Participating lenders may certify to Rural Development that they have reviewed the condominium documentation that supports project approval or acceptance, and that the condominium is in compliance with HUD/FHA, VA, Fannie Mae, or Freddie Mac guidelines. The lender may indicate compliance by stating the project classification on the Uniform Underwriting and Transmittal Summary (FNMA Form 1008, FHLMC Form 1077). The lender may utilize Rural Development's Attachment 12-B to this Chapter, “Rural Development Condominium Certification.” Use of the Condominium Certification Form is optional. Those lenders who utilize the Agency's automated underwriting system, GUS and receive an “Accept” underwriting recommendation may be requested to present documentation confirming the condominium unit meets the eligibility criteria of this section.Lenders may refer to HUD/FHA, VA, Fannie Mae or Freddie Mac for additional guidance in performing their underwriting review of the condominium project. Aside from the lender certification to Rural Development, all condominium documentation should remain in the lender's permanent loan file and should be available upon request. Full documentation will be requested if the lender fails to certify the condominium unit meets the requirements of HUD/FHA, VA, Fannie Mae or Freddie Mac project approval or acceptance.When there is an indication that a condominium unit or project does not meet the requirements of HUD/FHA, VA, Fannie Mae or Freddie Mac, the Agency will request additional documentation from the lender. If the condominium unit or project does not meet the stated requirements as certified or warranted by the lender, the Agency may refuse to issue a conditional commitment or loan note guarantee.

B. Planned Unit Developments [7 CFR 3555.207]

A planned unit development (PUD) is a project or subdivision that includes common property that is owned and maintained by a home owner's association (HOA) for the benefit of use by the individual PUD unit owners. A PUD can consist of condominiums, townhomes or detached single family homes that are served by a HOA.HOA dues for dwellings in a PUD must be included in total debt-to-income calculations.The mortgage industry, including other Government housing programs like FHA, now recognize that PUD dwellings do not pose any more risk than single family dwellings not part of a PUD. Loans may be guaranteed for PUD single family dwellings the same as for single family dwellings not in a PUD.