FHA Won’t Dictate How You Run Your Condominium

We have been working with one of our clients for many months because the Board has been reluctant to provide the necessary information to us.  It recently surfaced that they have concerns that once the condominium is approved by FHA, the Federal Government will have the power to dictate how the condominium is run. The couple asked us to compose an email that they could present to the Board that might allay the fears of the members.  While this email is too long to post here, you can read the full version HERE. We believe that part of the misconception is that FHA is a division of HUD.  HUD has other divisions which provides housing subsidies for low- and moderate-income folks.  It also builds, owns and manages housing facilities for these folks as well.  However, FHA is not linked to these other divisions except that they are all branches of HUD. The Board noted that they “didn’t want the Federal Government’s dirty hands in the affairs of our association”.  It became clear that the Board thought that the FHA approval would mean that the condominium would then be a HUD community which would give it the right to tell the association how it should be managed. The fact of the matter is that the FHA project approval is merely a “stamp of approval” that the condominium meets the minimum requirements for FHA loans.  Without it, unit owners and potential buyers would not have the ability to finance units with FHA loans. In our case, we are working with unit owners to obtain an FHA condominium project approval.  This is necessary because they are attempting to obtain a reverse mortgage for their condo unit which will provide them with additional monthly revenue by utilizing the equity in their unit, which is substantial. Once approved, neither HUD nor FHA will be given any power to control how the condominium is run.  In fact, if the association decides to change its rules, amend its legal documents or make other internal changes, the condominium will lose its FHA approval. The only time FHA or HUD would have the ability to influence the operations of the condominium is if it receives title to a unit through the process of foreclosure or deed in lieu thereof.  Even if this were to happen, HUD would then be a and its power would be limited to that of an ordinary unit owner.  It would have the ability to vote on issues of the association subject to the limitations as laid out in the legal documents.  This is no different than if a conventional (or other) lender receives title through the process of law. Hopefully, the email will clear up any confusion that Board has so that these folks can get their reverse mortgage.