New FHA rules may cause problems for buyers and sellers. An article by Ken Harney in a recent issue of Inman News overviews the potential negative impact of a looking FHA rules change. The change concerns the transfer fees that many private developers and Condo Associations and Homeowners Associations now charge when condos or homes sell. Those fees are most often added into the association’s capital fund and used by the associations for the common good of all of the homeowners in the association.
Fannie Mae and Freddie Mac have already announced rules that continue to allow those fees when charged by legitimate HOA’s but outlaw the same practice by private developers. The proposed FHA rules changes don’t discriminate between the various parties that have been collecting those fees and just outlaw them across the board. You can read Ken’s article by clicking here.
So, why all the fuss about these new rules? Lowering fees is always a good thing, right? Well, not always. Those fees often make the difference between the HOA having he funds needed for critical upkeep in the complex or not. Taking that money away from the HOA’s may end up causing maintenance or improvement project delays that decreases the value of the properties. Many HOA’s may not be able or willing to give up these fees. That would also mean that those complexes would not be eligible for FHA-back mortgages, the most common mortgage type. They would also not qualify for the FHA-back reverse-mortgage programs that many seniors are taking advantage of these days.
The FHA rules are not published or implemented yet, so there is still time for change. If they go ahead as planned, than will create a confusing mortgage landscape where Fannie Mae and Freddie Mac mortgages will still be available for complexes with those transfer fees, but not FHA-backed mortgages. Chaos will not reign, but confusion may be the order of the day. Fighting this move since it’s inception back in 2010/2011 is a group called the Community Associations Institute (CAI), a group created to represent the thousands of condo HOA organizations. CAI sent a letter to FHA outlining the objections that its members have to the rules (click here to read that letter) and continues to lobby against the new rules.
These rules changes could potentially have bigger impact in Michigan than elsewhere, since most subdivisions built since the mid-1980’s were built as “site-condos” under Michigan’s condo development laws and rules. Local site-condo HOAs may have transfer fees built into their bylaws and budgets. Check with you r local HOA to see if that applies to your site-condo sub.
There are additional changes in the FHA rules that concern the CAI and you read their current position on them by clicking here. The bottom line is that the CAI believes that many of the new rules proposed by FHA don’t differentiate enough between actual homeowner associations and investor-led group who often charge the same fees. In addition CAI believe that FHA doesn't understand how the money collected by these fees is being used by real homeowner associations for the general good of all of the owners. The CAI certainly doesn't see much good coming out of these new rules and is afraid of the confusion and negative impacts that they will have.
The expectation is that FHA will release these new rules shortly, so stay tuned and pay attention, they could affect you as a unit owner in one of these complexes or they might impact what choices you have as a potential buyer.