www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410 March 27, 1984 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 84-6 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Condominium Provisions of the Housing and Urban-Rural Recovery Act of 1983 Section 420 of the Housing and Urban-Rural Recovery Act of 1983 made major changes to HUD's condominium procedures. Several provisions add restrictions which must be applied to all condominiums immediately. Other changes (e.g., maximum mortgage limit from $74,900 to $90,000) will be made after changes are published in the Federal Register. I. Owner Occupancy The new law states that at least 80 percent of the units on which there are HUD insured mortgages in a project must be owner occupied before HUD can make insured financing available on additional units. It should be emphasized that this 80 percent limit only applies to HUD insured mortgages. Existing regulations and instructions on owner occupancy and presale requirements for the entire project remain in effect. Condominium Project Eligibility Project eligibility requirements for condominiums in which HUD has not previously participated are not altered by the 80 percent requirement. We will continue to accept project approvals made by the Veterans Administration. (VA approved conversions to condominiums from rental housing must meet the new statutory criteria in Section II below.) With respect to condominium projects in which HUD has already insured individual unit mortgages, it is assumed that at least 80 percent of the units covered by HUD insured mortgages are owner occupied, since the previous statutory limitations generally precluded investor activity. Borrower Eligibility and the 80 Percent Requirement Since it is essential that HUD honor all firm commitments, eligibility under the 80 percent requirement must be determined at the firm commitment stage. Effective immediately, HUD will monitor, by project, firm commitments issued for each unit application received. _____________________________________________________________________ 2 The 80 percent requirement cannot be violated. Accordingly, the first four firm commitments in any condominium must be issued for owner occupants before a firm commitment for an investor may be issued. For example, if there have been issued three firm commitments on behalf of owner occupants in a project, the next firm commitment must be issued for an owner occupant. If a firm commitment were issued for an investor, the owner occupancy percentage would drop below 80 percent (75 percent) and violate this provision. This requirement applies to all firm commitment applications regardless of whether they are submitted pursuant to a HUD conditional commitment or VA CRV. (While HUD will continue to accept VA CRVs from a project perspective, they are subject to this occupancy requirement at the firm commitment stage.) HUD Processing Procedures There is no change to conditional commitment processing procedures involving condominiums. On all firm commitment applications involving owner occupants, processing follows regular procedures for any borrower application. However, for investor applications, the Field Office will determine whether a commitment can be issued before any processing takes place. To facilitate HUD review, please label Section 234(c) investor applications. (Place an "I" in Block 2B next to the Section of the Act.) If issuance of a firm commitment would violate the 80 percent requirement, no further processing occurs and Form 92026 is completed and returned to the mortgagee with the firm commitment application package. A record will be kept of these cases in chronological order and, as authority becomes available (i.e., issuance of firm commitment would not violate owner occupancy requirement), mortgagees will be contacted to determine whether interest in FHA processing remains for that case. For investor cases which meet the 80 percent criteria, processing will continue in accordance with regular procedures. No reservation for an investor commitment will be made for a mortgagee prior to the submission of the application for a firm commitment. Direct Endorsement Section 234(c) cases may still be processed under the Direct Endorsement Program. However, after the mortgage credit analysis is completed and prior to approving any borrower (occupant or investor), the Direct Endorsement underwriter must contact the field office for approval. In addition, on any Section 234(c) investor cases, an eligibility check will be included in HUD's pre-endorsement review. _____________________________________________________________________ 3 II. Condominium Conversions Section 420 also adds new provisions with respect to condominium conversions. Units in any project (including VA approved) converted from rental housing to condominium less than one year prior to the application for insurance are not acceptable unless: (a) the mortgagor or comortgagor was a tenant of that rental housing, or (b) the conversion of the property is sponsored by a bona fide tenants organization representing a majority of the households. As long as evidence is submitted that one of these conditions is met, Field Offices will process applications in VA approved projects. This requirement applies to all VA condominium conversions less than one year old whether or not HUD may have previously accepted such applications. At the present time, HUD does not have instructions to process requests for project approval (non VA approved projects) which meet one of the two statutory requirements outlined above. Contact your local HUD office for assistance. Additional instructions on maximum mortgage limits, conversion processing and procedures for accepting new condominiums less than one year old will be forthcoming in the next several months. Sincerely, Maurice L. Barksdale Assistant Secretary _____________________________________________________________________