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FHA project certifications - Is there a duty to pursue?

Over the past few years we have worked on obtaining FHA project certifications for many condominiums in the area. Many have received certification which allows its unit owners to refinance and buyers to finance their purchases via FHA loans. Some did not receive certification due to not meeting all of FHA’s criteria. In the current lending environment FHA loans are a major source of funding of new loans largely because of the low down payment permitted compared to other loan programs. In our area FHA loans top out at $417,500.00 so many purchasers can utilize this source of funding. There is a cost to obtain the certification in that the condominium documents must be reviewed to determine if they comply with a host of requirements imposed by the federal regulations promulgated by the FHA. Many of the agency’s requirements have changed over the past few years. We are completely up to date on all the requirements and regularly provide the service to condominium communities in southeast Virginia. Some boards of directors have chosen not to proceed with applying for FHA certifications due to cost. Some have not proceeded because we advised them that they fail to meet certain criteria (such as owner occupancy percentage or financial issues) and would not be successful. We have encouraged associations to pursue certification when they can qualify even though they may need to undertake document amendments first in order to qualify. This, of course, is yet another unbudgeted expense. Now we learn from an article in the latest edition of the CAI national publication, Common Ground, that the Ohio Civil Rights Commission recently filed a discrimination suit against a condominium association for failing to apply for FHA certification which caused a single mother to be unable to complete a purchase of a unit. Consider also whether or not the board has a fiduciary duty to the unit owners to obtain the certification when it can. Having FHA financing available may avert a foreclosure by facilitating a sale or help pay delinquent assessments via a refinance. Boards need to consider the impact on the unit owners of not having the availability of FHA financing – it makes that condo uncompetitive in the market place with others that do have the certification. We have been told by real estate agents that they will avoid showing units that do not have FHA certification to most prospective purchasers because of the number of sales that have been lost when the condominium project is not certified. If the board at least seeks advice about being certified but is not qualified for one or more reasons then it can systematically go to work on curing the problems and ultimately achieve certification. We can also advise boards on steps to take to achieve certification.

(Excerpt from Common Ground Magazine – May/June, 2013)

A condominium association and its management company were found liable in March for the accidental death of a 9-year old boy and ordered to pay his parents millions in damages.

Andrew Curtis was biking with his father past the entrance of the Villas on the Green condominium association in Jupiter, Florida, in January 2011 when Helen Bygel pulled out and fatally struck Andrew with her car. Bygel says she couldn’t see the boy because the association’s overgrown hedges impeded her view.

Andrew’s parents sued Bygel, Villas on the Green and the association’s management company for negligence. At trial, a jury discovered the association’s hedges were nearly two times taller than city code and that the 37 inch stop sign at the association’s entrance was poorly placed and nearly 4 feet shorter than Florida Department of Transportation requirements.

The jury determined these violations prevented Bygel from seeing Andrew and found Bygel 10 percent liable, the association 30 percent liable and the management company 60 percent liable for the boy’s death. Andrew’s parents were awarded $12 million for pain and suffering.

Helio De La Torre, a Florida attorney and CCAL member, says this tragedy highlights the need for associations to ensure their grounds are safe and comply with regulations.

“I think (this case shows) how commonplace scenarios can cause people injury or death,” says De La Torre. “It reminds every one of their fiduciary and moral responsibilities to protect their communities.”

He recommends associations have adequate insurance coverage in the event of a catastrophe. He also advises associations to negotiate the terms of their management company contracts’ indemnity clauses. Most are written to hold only the company liable for damages in the event of gross negligence.

Should you have questions about any issue, please do not hesitate to give us a call!

Best regards,
The Community Associations Law Team