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FHA Changes Transient Leasing Rules to Help Condominium Associations Re-Certify

By Dean L. Semer, Esq. August 16, 2013 Posted in Community Association Law

For the last couple of years, FHA has been rejecting the certification and re-certification applications citing a statute which prohibits government insured mortgages from being used for housing which may be used for transient or hotel purposes.  This was defined as rentals for a period of less than 30 days; or, a rental that provides customary hotel services.

The problem is that the governing documents of many condominium associations, while prohibiting short term rentals and transient and hotel use, contained exceptions for the developer, for mortgage investors who obtain a home through a foreclosure or deed in lieu of foreclosure, or for a contractor purchaser. 

In its rejections of certification applications, FHA’s general response was that an association must amend its governing documents, ignoring the fact that making changes to governing documents are difficult.  It requires the affirmative approval of a high percentage of the community.  The investment of time and money can be defeated by apathy. 

The reality is that most often, the developer is no longer associated with the community.  And, mortgage lenders never seem to have an interest in obtaining possession of condominium units so that they can rent them out.  Most condominium communities are already frustrated by what they see as mortgage company delays in completing foreclosures because once the mortgage company owns a unit, it is responsible for maintenance fees and charges.     

In mid-July 2013, FHA is offering a second option.  An association may provide a dated and signed statement on association letterhead affirming that no units within the condominium project are leased for a term of less than 30 days and tenants are not provided services commonly associated with a hotel.

Hopefully, this is will ease the certification process, which will lead to greater flexibility in the sale of units.  And with increased sales, comes increased prices.

This posting is intended to provide general information and is not intended as specific legal advice or to establish an attorney-client relationship.  Please contact Griffin Alexander, P.C. at (973) 366-1188 to assist you with both your Community Association law and Landlord-Tenant law needs.

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