What should be considered in reviewing condo project pending special assessments and legal actions?

The project submission documentation must include information regarding special assessments and/or pending litigation.

Special Assessments

A signed and dated explanation for any assessment must be provided by the builder, developer, sponsor, Condominium Association or management company including information regarding:
  • the purpose, term, payment status, total amount of the assessment, amount of the assessment per Unit and overall impact on marketability and value of the Property;
  • if applicable, a dated legal document evidencing Resolution of Financial Distress Event and a letter of explanation describing the cause of the event and measures taken by the Condominium Association to prevent a future Financial Distress Event; and
  • Evidence of financial arrangements that guarantee the future completion of all facilities and Common Elements, as applicable.
Pending Litigation
Pending litigation does not include routine foreclosure actions by lenders.  A signed and dated explanation from the Condominium Association, management company, or an attorney representing the Condominium Association must be submitted and include, at a minimum, the following information:
  • reason(s) for the Litigation;
  • risk of the Litigation;
  • anticipated settlement/judgment date, if any;
  • sufficiency of insurance coverage to pay out a settlement/ Judgment, if applicable; and
  • impact of the Litigation on the future solvency of the Condominium Association.
The following documents must be attached to the signed and dated explanation, if applicable:
  • complaint filed with the court, arbitrator, or mediator; and
  • all engineering or expert reports commissioned by the Condominium Association or their attorneys, which must include evidence of the safety, structural soundness, habitability, or functional use of the Condominium Project and evidence of the cost of the repair of any construction defect and status of the repairs.
These lists of items considered when reviewing and analyzing the project is not all-inclusive and any additional items evidencing a negative impact on the project must be reviewed.

For case numbers assigned October 15, 2019 and after, additional information regarding special assessments and/or pending litigation related to Condominium Projects refer to:  Handbook 4000.1, Sections II.A.8.p.iii(D)(11) and II.C.2.c.xi(D) available at:  https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh
 
For case numbers assigned prior to October 15, 2019, information is available in:
  • Mortgagee Letter (ML) 2011-22 Condominium Approval Process for Single Family Housing – Consolidation and Update of Approval Requirements and the attached Condominium Project Approval and Processing Guide provides the requirements and procedures for obtaining FHA condominium project approval.
  • ML 2012-18 Temporary Approval Provisions for FHA Condominium Project Approval provides temporary condominium project approval guideline changes to address current housing market conditions.
  • ML 2015-27 Additional Temporary Approval Provisions for FHA Condominium Project Approval
  • ML 2016-15 FHA Condominium Project Approval – Owner Occupancy Requirements modifies the Condominium Project Approval and Processing Guide, attachment to ML 2011-22, in order to implement the Housing Opportunity Through Modernization Act of 2016 (HOTMA) requirements and establish the required owner-occupancy percentage that must be met for purposes of FHA project approval.
Note: The Temporary Provisions in ML 12-18 and ML 15-27, as modified by ML 2016-15, are effective until HUD publishes and implements the Final Rule of Condominium Project Approval through publication of the Condominium Project Approval Section of HUD Handbook 4000.1, as extended by ML 2017-13.  Mortgagee Letters are available at:  https://www.hud.gov/program_offices/administration/hudclips/letters/mortgagee

For more information regarding condominium projects refer to:

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-03946