SUGGESTED CHECK LIST FOR SPOT
CONDO LOAN APPROVALS, NON WARRANTABLE CONDO, FHA
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SUGGESTED CHECK LIST FOR SPOT CONDO LOAN APPROVALS: _______ 1. The legal documents of the homeowners association do not contain a right of first refusal or restrictive covenant. _______ 2. The unit is part of a condominium regime that provides for common and undivided ownership of common areas by unit owners. _______ 3. The project, including the common elements, and those of any Master Association, are complete, and the project is not subject to additional phasing or annexation. ______ 4. (a) There are no special assessments pending. ______ (b) No legal action is pending against the condominium association, or its officers or directors. ______ 5. The common areas have been under the control of the homeowners association for at least one year. ______ 6. At least 90 percent of the total units in the project have been sold. Verified by _______________________________ ______ 7. At least 51 percent of the total units in the project are owner-occupied. Verified by _______________________________ ______ 8. There are no adverse environmental factors affecting the project as a whole or individual units. ______ 9. No single entity owns more than 10 percent of the total units in the project. Verified by _______________________________ ______ 10. The units in the project are owned in fee simple or the units are held under a leasehold acceptable to FHA. Leasehold in file. ______ 11. The owners association has adequate common area insurance coverage. General liability, replacement coverage, etc. reflects the character, amenities and risks of the particular development. Flood and other insurances carried, when applicable. ______ 12. General maintenance level of common elements is acceptable and there is no deferred maintenance, based on the comments by the Appraiser and/or the pictures. ______ 13. The owners association has a reserve plan and a reserve fund, separate from the operating account, that is adequate to prevent deferred maintenance. The amount of the fund is $_________ as of __________. _______14. (a) For projects consisting of over 30 units, no more than 10 percent of the total units are encumbered by FHA insured mortgages. Verified by _________________________ _______ (b) For projects consisting of 30 units or less, no more than 20 percent of the total units are encumbered by FHA insured mortgages. Verified by ________________________ ____________________________________ _________________________________ (Mortgagee) (Reviewer) ____________________________________ (Title) ________________________________________________________________________________ (Address) ___________________________ (Date) __________________________________ _______________________ (Condominium Project Name) (FHA case number) _________________________________________________________________________________ (Address) U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 August 1, 1996 MORTGAGEE LETTER 96-41 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Loan Production - Condominium Units in Non-FHA Approved Projects; Mortgage Insurance On May 29, 1996, in 61 FR 26982, the Department issued a final rule in the Federal Register, permitting the insurance of mortgages on individual units in condominium projects that have not been previously approved by the Department. That final rule established a "spot loan" procedure to provide home mortgage insurance on individual units in condominium projects where there is little likelihood that the project's homeowners association would make the requisite changes to its legal documents (usually to benefit one association member) to obtain FHA approval. This Mortgagee Letter provides further guidance on the use of these spot loans. The Department's requirements for condominium projects are set forth in 24 CFR 234.26 of the Code of Federal Regulations. The spot loan provisions add a sub-section (I) to this section and lists specific criteria that must be met. The new spot loan regulations also add a new section, 24 CFR 206.51, to the Home Equity Conversion Mortgage (HECM) regulations. The HECM program incorporates by reference the project requirements set forth in 24 CFR 234.26(i). Therefore, spot loans may be used under both the Department's Section 234(c) and HECM programs. Cooperatives and planned unit developments (PUDS) are not eligible for spot loans. The following requirements must be satisfied before a spot loan is endorsed: The condominium project must be complete. There should be no ongoing or anticipated addition of any units, common elements, and/or facilities. Control of the common areas of the project must have been turned over to the unit owners association for at least one year. The owners association must provide evidence that the project has the appropriate hazard, liability and flood insurance. Individual units in the project must be owned in fee simple or be an eligible leasehold interest. The project's legal documents must provide for undivided ownership of common areas by unit owners. By virtue of this ownership, unit owners must have the right to use all facilities and unrestricted common elements. The project's documents should not place any legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title is generally unacceptable. Such restrictions include rights of first refusal and restrictive covenants. Certain governmental or nonprofit programs designed to assist in the purchase or rental of low-or moderate-income housing are exempted from the restrictions on conveyance provisions. The Department's policy on the free assumability and transferability of property is set forth in 24 CFR 234.66. At least 90% of the units in the project must have been sold. At least 51% of the units in the project must be owner-occupied. No single entity may own more than 10% of the units in a project. "Entity" includes an individual partnership, corporation, limited liability company, limited liability partnership, joint venture, investor group or other natural or legal person qualified to hold an interest in real property. The 10% restriction does not apply when the ownership of less than three units would disqualify an otherwise eligible project. The Department recognized that the 10% cap on the number of units that may secure FHA insured mortgages in a given project can place a small regime at a disadvantage, since only a few units will invoke the limit. Accordingly, a two-tiered system was established. For condominium projects having more than 30 units, no more than 10% of the units may have FHA insured loans at any given time. Condominium projects consisting of 30 units or less, can have up to 20% of the units encumbered by FHA insured mortgages under the spot loan rule.
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