New FHA condo rules cutting owners' loan options

Editor's note: The following article has appeared in several major newspapers recently. It is very relevant to the readers of this blog...Thanks to Evan McKenzie for his post about this article.

"...the new rules put board members into legal jeopardy by requiring them to sign certifications attesting that the condo documents comply with all local statutes and that they have no knowledge of situations that could cause any unit owner to become delinquent later. The mandatory certification carries a maximum penalty of $1 million in fines and 30 years imprisonment if found to be incorrect."

By Kenneth R. Harney, Special to the Times
In Print: Sunday, October 23, 2011 

WASHINGTON — Condo industry leaders, from the 30,000-member Community Associations Institute to individual unit owners and realty agents, say a series of rule revisions by the Federal Housing Administration has caused thousands of condo projects to become ineligible for FHA mortgages. This, in turn, has abruptly shut off loan money for condo buyers and refinancers, forcing them to pursue conventional bank loans requiring much higher down payments.

FHA says the rule changes — which focus on project budgets, insurance and financial reserves — have been prudent and are designed to avert losses from delinquencies and foreclosures. But the agency confirms that thousands of condo projects have failed to obtain or apply for recertifications under the new rules. Out of about 25,000 condo projects nationwide with expiration dates for FHA eligibility between December and Sept. 30, 2011, only 2,100 (8.4 percent) have been approved or recertified by the agency, according to Lemar Wooley, an agency spokesman.

Bernard Robinson, an owner of a unit in District Heights, Md., says that because of delinquencies on homeowner association payments in his development that exceed the FHA's limit, he and his wife have not been able to refinance. "We are qualified to refinance personally," he said in an interview, but because the development is not certified, "our unit isn't. We've exhausted all our options. They're going to force us to walk away."

City in a Salt Pond Revisited

OP-ED: Future salt pond residents, left holding the (sand) bag

October 13, 2011, 02:39 AM By Tyler P. Berding

As an attorney who has defended Redwood Shores homeowners and who has represented homeowner associations battling over responsibility for flood protection — and the resulting damages when it fails — I have watched Cargill’s proposed new city-in-a-salt-pond moving forward in Redwood City with growing alarm. Hearing the developer claim that new Bay Area sea level rise plans are somehow good for their scheme is like rubbing salt in a wound.

As they tout the “benefits” for Redwood City, proponents of this development always carefully imply no costs to “current” city taxpayers. Because the fact is that future residents of any Cargillville will be left with massive, unrecoverable costs. This is particularly true given Cargill’s plan to build a levee that will not only have to be maintained in perpetuity, but also raised significantly even to meet their optimistic estimate of sea level rise.

All of this is at homeowners’ expense, long after Cargill has taken its profits and left town.

Flooding around San Francisco Bay has happened many times, and the riskiest areas are locations where the Bay margin was filled to create housing and commercial developments. San Mateo County already is the top county in the state with the most people and infrastructure threatened by sea level rise.

But what is different today from developments built three or more decades ago is that most are built as community associations which are then given responsibility for the expensive engineered facilities. Levees, berms, pumps, riprap and retaining walls will have to be maintained and repaired by the homeowners in those associations.

Developers avoid long-term responsibility and deflect opposition from existing cities with the claim that the huge tax burden for this expensive new infrastructure will not fall on them. Eventual property owners within these new developments are obviously on their own.

Maintenance and repair obligations start immediately, and as Cargill’s own plans anticipate, the facilities will eventually prove inadequate to forestall the coming rising seas. Eventually, the costs to these new Redwood City residents will be enormous. The costs of inaction are worse. Failure of private associations to maintain landscaping or potholes is one thing — imagine the consequences of neglecting critical levees and retaining walls essential to keeping the waters of San Francisco Bay from flooding thousands of homes, businesses and Highway 101.

There are plenty of places in the Bay Area available for the necessary higher-density infill, away from the shoreline on land not threatened by rising tides. And the eventual homeowners would not inherit the potential for both fiscal and physical disaster.

Anyone concerned with the Cargill salt pond development proposal should ask the city one simple question: “Who will be responsible for keeping these massive flood control improvements working in the years to come?”

Don’t be surprised by the answer.

Tyler P. Berding, a partner in the law firm of Berding-Weil, represents hundreds of homeowner associations all over Northern California.

Look Closer. Or Else!

         Older Community Associations Need Better Inspections to Avoid Financial Failure

         Community Associations are not financially prepared for potentially ruinous renovations. Period. Newer communities don’t know it yet. Older ones have found out the hard way—their cash is tight for even routine repairs and for major renovations? Only bank loans and special assessments will dig them out of a very expensive hole if they are lucky. Some will never dig themselves out. Many projects 25 years and older will not have enough money to do the repairs that will eventually be identified. Reserve studies intended to equip homeowner associations with sufficient cash to do repairs are fine as far as they go. But they don’t go far enough. That’s not the fault of the board, management, or the reserve study company.

Blame it on the law. California Civil Code Section 1365.5 requires that community associations conduct a survey every three years to determine which components belong in their reserve-funding program. The statute requires that components found to have a service life of less than 30 years be included. So far, so good. But the statute is flawed. It limits the survey to just those components that are visible and accessible.