FHA Single Family Housing Policy Handbook 4000.1, Part II — c. General Condominium Project Approval Requirements (08/19/2024)

FHA Single Family Housing Policy Handbook 4000.1, Part II — c. General Condominium Project Approval Requirements (08/19/2024)

c. General Condominium Project Approval Requirements (08/19/2024) These general requirements apply to all construction types, including Existing Construction Condominium Projects. Additional or different standards may apply for certain construction types. To be eligible for Condominium Project Approval, the Condominium Project must: • be primarily residential in nature and not be intended for Rental for Transient or Hotel Purposes; • consist only of one-family Dwelling Units; • be in full compliance with all applicable federal, state, and local laws with respect to zoning, fair housing, and accessibility; • be complete and ready for occupancy; and • be reviewed and approved by the local jurisdiction. In addition, the Condominium Project must also meet the following requirements in this section. i. Form HUD-9992, FHA Condominium Project Approval Questionnaire (A) Definition Form HUD-9992, FHA Condominium Project Approval Questionnaire, refers to a set of questions designed to collect pertinent Condominium Project and Unit information for Condominium Project Approval and FHA insurance endorsement. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 780 Last Revised: 11/26/2025 (B) Standard Form HUD-9992 must be completed, signed, and dated by an eligible submission source or a DELRAP Mortgagee. ii. Recorded Documents (A) Definition Recorded Documents refer to the Condominium Project’s legal, project, and governing documents that are required to operate legally as required by state and local law. (B) Standard The Condominium Project’s Recorded Documents must be recorded in accordance with applicable state and local law to ensure the Condominium Project meets the legal and operational requirements in the local jurisdiction. (C) Required Documentation Copies of Recorded Documents must be submitted. iii. FHA Insurance Concentration (A) Definition FHA Insurance Concentration refers to the number of FHA-insured Mortgages within a Condominium Project. (B) Standard FHA may suspend project eligibility of Condominium Projects where the FHA Insurance Concentration is greater than 50 percent of the total number of Units in the Condominium Project. iv. Owner Occupancy Percentage (A) Definition Owner Occupancy Percentage refers to the percentage of Units considered owner- occupied as shown in the calculation. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 781 Last Revised: 11/26/2025 (B) Standard (1) Existing Construction The acceptable level of Owner Occupancy Percentage is at least 50 percent of the total number of Units. (2) New Construction - Complete Condominium Projects For Complete Condominium Projects and Gut Rehab conversions, the acceptable level of Owner Occupancy Percentage is at least 30 percent of the total number of declared Units in the Condominium Project. (C) Exception for Existing Construction Existing Construction Condominium Projects that are greater than 12 months old, with an Owner Occupancy Percentage of at least 35 percent and less than 50 percent are eligible for approval with the following conditions: • applications must be submitted for processing and review under the HRAP option; and • no more than 10 percent of the total Units are Units in Arrears (does not include late fees or other administrative expenses). (D) Required Documentation Form HUD-9992 must be submitted. (E) Calculation For the sole purposes of calculating the Owner Occupancy Percentage, the numerator of the calculation for a multi-phased Condominium Project includes the total number of the following Units in the first declared Legal Phase and cumulatively in subsequent Legal Phases, or for a single-phased Condominium Project, all of the following Units in the numerator of the calculation: • any Unit that is occupied by the owner as their place of abode for any portion of the calendar year and that is not rented for a majority of the calendar year; • any Unit listed for sale, and not listed for rent, that was previously occupied by the owner as their place of abode for any portion of the calendar year and that is not rented for a majority of the calendar year; or • any Unit sold to an owner who intends to occupy the Unit as their place of abode for any portion of the calendar year and has no intent to rent the Unit for a majority of the calendar year. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 782 Last Revised: 11/26/2025 For the sole purposes of calculating the Owner Occupancy Percentage, the following Units are included in the denominator of the calculation for a: • multi-phased Condominium Project, the total number of Units in the first declared Legal Phase and cumulatively on subsequent Legal Phases; or • single-phased Condominium Project, all Units. A Unit owned by the builder/developer is not an owner-occupied Unit. v. Transfer of Control (A) Definition Transfer of Control refers to the shift of existing control over the Condominium Association from the developer/builder to the Unit owners. Control of the Condominium Association refers to the ability to directly or indirectly control, direct, modify, or veto any action of the Condominium Association. (B) Standard The legal documents must: • require Transfer of Control from the developer/builder to the Unit owners; • specify the conditions for Transfer of Control; • indicate the number of Units in the Condominium Project; and • be recorded, as applicable, in the CC&R, declaration, master deed, condominium plat, and/or condominium site plans. The developer/builder must relinquish control to the Condominium Association no later than the latest of the following events: • 120 Days after the date 75 percent of the Units in the Condominium Project have been conveyed to Unit owners; or • three years after completion of the Condominium Project as evidenced by the first conveyance to a Unit owner. Any time frame regarding Transfer of Control established under state or local condominium laws takes precedence. Any contracts entered into by the builder/developer prior to the Transfer of Control and subsequently assigned to the Condominium Association, must give the right to Condominium Association to terminate the contracts with no more than 90 Days’ notice. (C) Required Documentation The following documentation must be submitted for Transfer of Control: • form HUD-9992; • recorded CC&Rs, declaration, and/or master deed, and all amendments; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 783 Last Revised: 11/26/2025 • signed and adopted bylaws; and • articles of incorporation, articles of association, declaration of trust, or other governing documents, if applicable and in accordance with state law. vi. Financial Stability and Controls (A) Definitions Financial Stability refers to the ability of the Condominium Association to meet the Condominium Project’s needs in the future through positive cash flow and adequately funded reserves. Financial Controls refer to the financial policies and procedures that a Condominium Association has in place to protect its funds from fraud and mismanagement. A Financial Distress Event refers to a Condominium Project or builder/developer that has: • sought protection under bankruptcy laws; • been placed into receivership (mandated or voluntary); • been subject to foreclosure or any seizure of assets by creditors; or • offered a DIL of Foreclosure. Resolution of Financial Distress Event refers to: • bankruptcy discharge; • termination of receivership; • issuance of foreclosure judgment; or • execution of DIL of Foreclosure. (B) Standard (1) All Projects To demonstrate Financial Stability, FHA requires Condominium Projects to have financial documents that itemize and address income and expenditures that are sufficient and pertinent to the Condominium Project including: • an operating income that demonstrates a stable income stream over the past two years with decreases of no higher than 15 percent; • ability to cover the cost of insurance coverage and deductibles; • a reserve account for capital expenditures and deferred maintenance that is funded with at least 10 percent of the aggregate of 12 months of Unit assessments, unless a lower amount is deemed sufficient based upon an acceptable reserve study; • evidence that the budget provides for the periodic funding to maintain the reserve account balance of at least 10 percent of the aggregate of 12 months of Unit assessments, unless a lower amount is deemed sufficient based upon an acceptable reserve study; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 784 Last Revised: 11/26/2025 • evidence that no more than 15 percent of the total Units are Units in Arrears (does not include late fees or other administrative expenses); and • financial records that are consistent with the application package, including special assessments, loans, or other financial variations. If a reserve study is required to justify a reserve account funded less than 10 percent, it must: • be 36 months old or less; • include a site visit; • demonstrate that the Condominium Project has adequate funded reserves that provide financial protection for the Condominium Project equivalent to the reserve requirements; • demonstrate that the Condominium Project’s funded reserves meet or exceed the recommendations included in the reserve study; and • be prepared by an independent third party that has demonstrated knowledge of and experience in completing reserve studies. The Condominium Project demonstrates Financial Controls by: • maintaining separate accounts for operating and reserve funds; • requiring the Condominium Association’s management company to maintain separate records and bank accounts for the Condominium Association; and • restricting the management company from drawing checks on, or transferring funds from, the reserve account of the Condominium Association without approval from the Condominium Association. (2) Financial Distress A Condominium Project or builder/developer that has completed a Resolution of Financial Distress Event within 12 months prior to the application date is not eligible for initial approval or recertification. If the Resolution of Financial Distress Event was completed more than 12 months but less than 36 months, the application package must be submitted through HRAP for evaluation. If there has been a Resolution of Financial Distress Event within the last 36 months, the Condominium Project or builder/developer must demonstrate the cause has been resolved and a Financial Distress Event is unlikely to recur. (3) Individual Owner Concentration (a) Definition Individual Owner Concentration refers to the percentage of Units owned by a single owner or Related Party. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 785 Last Revised: 11/26/2025 Related Party includes, but is not limited to: • an individual serving as the Unit owners’ officer, director, or employee; or • a Unit owner’s direct parent company, subsidiary, or any related entity with which the Unit owner shares a common officer or director. (b) Standard For Condominium Projects with 20 or more Units, the Individual Owner Concentration must be 10 percent or less. For Condominium Projects with fewer than 20 Units, the Unit owner may not own more than one Unit. No Related Party may own a Unit. Exception Affordable housing Units owned by an eligible governmental or nonprofit program defined in 24 CFR § 203.41 are not subject to the Individual Owner Concentration requirements. The affordable housing Units must be identified by recorded legal documents. (c) Calculation For the Individual Owner Concentration calculation: • on a multi-phased Condominium Project, the Individual Owner Concentration is calculated based on the total number of Units in the first declared Legal Phase and cumulatively on subsequent Legal Phases; or • for a single-phased Condominium Project, all Units are used in the denominator when calculating the Individual Owner Concentration, except that unoccupied and unsold Units owned by a builder/developer are excluded from the numerator and denominator in the Individual Owner Concentration calculation. The total number of declared Units in the Condominium Project for Complete Condominium Projects and Gut Rehab must be used to calculate the Individual Owner Concentration. (d) Required Documentation Form HUD-9992 and if applicable, the recorded legal documents identifying the affordable housing Units must be submitted. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 786 Last Revised: 11/26/2025 (4) Phasing For Condominium Projects that are subject to additional Phasing, the Condominium Project must contain arrangements that guarantee the future completion of all facilities and Common Elements. The Condominium Project must demonstrate positive cash flow from the revenue and expenditures of the completed Legal Phases and Common Elements. (5) Projects with Commercial/Nonresidential Space (a) Definition Commercial/Nonresidential Financial Independence refers to the ability of the Residential Space and Commercial/Nonresidential Space of the Condominium Project to be independently sustainable such that neither portion of the Condominium Project is financially reliant on the other. (b) Standard For projects with Commercial/Nonresidential Space, the Mortgagee must verify there is Commercial/Nonresidential Financial Independence. (C) Required Documentation The following documentation must be submitted: • form HUD-9992; • current year’s budget approved by the Condominium Association board; • year-to-date income and expense statement dated within 90 Days if the prior year-to-date actuals are more than 90 Days old; • income and expense statement(s) for the previous two years actual year end results; • current balance sheet dated within 90 Days prior to the date of submission; • if applicable, documentation supporting any loans or special assessments, 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. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 787 Last Revised: 11/26/2025 vii. Insurance Coverage The Condominium Project must be insured to FHA standards as well as any applicable state and local condominium requirements. The insurance policies must list the Condominium Association as the named insured, or in the case of an affiliated Condominium Project or Condominium Association, the name of the affiliated Condominium Project or Condominium Association may be listed as a named insured. (A) Hazard Insurance (1) Definition Hazard Insurance refers to insurance coverage that compensates for physical damage by fire, wind, or natural occurrences. (2) Standard The Condominium Association must have a master or blanket Hazard Insurance policy in place for the entire Condominium Project. The Condominium Association’s master or blanket Hazard Insurance policy must be in an amount to fully cover the insurable replacement cost of all Units and all insurable Common Elements in the Approved Condominium Project. Any policy with a coinsurance clause must include an agreed amount endorsement, selection of the agreed value option, or an amount of coverage to fully cover the insurable replacement cost of all Units and all insurable Common Elements in the Approved Condominium Project. Any pooled insurance policy must satisfy the insurance coverage standard for each Condominium Project insured under the policy. (3) Required Documentation The following documentation must be submitted: • form HUD-9992; • certificate of insurance or a complete copy of the insurance policy; and • if applicable, acceptable evidence of the replacement cost value. (B) Liability Insurance (1) Definition Liability Insurance refers to insurance that protects against legal claims. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 788 Last Revised: 11/26/2025 (2) Standard The Condominium Association must maintain comprehensive Liability Insurance for the entire Condominium Project, including all Common Elements and areas, public ways, and other areas that are under its supervision, in the amount of at least $1 million for any single occurrence. (3) Required Documentation The following documentation must be submitted: • form HUD-9992; and • certificate of insurance or a complete copy of the insurance policy. (C) Fidelity Insurance (1) Definition Fidelity Insurance refers to insurance that protects the Condominium Association against employee dishonesty, crime, or other fraudulent acts conducted by one or more employees. (2) Standard For all Condominium Projects with more than 20 Units, the Condominium Association must maintain Fidelity Insurance for all officers, directors, and employees of the Condominium Association and all other persons handling or responsible for funds administered by the Condominium Association. This insurance coverage must be the greater of either: • three months of aggregate (12-month) assessments on all Units plus reserve funds (up to the maximum permitted by state law); or • the minimum amount required by state law. For existing policies, an uninsured amount within 3 percent of the above calculation or $10,000, whichever is less, is acceptable. If the Condominium Project engages a management company, it must have a policy that covers both or separate policies. The policy or policies must demonstrate that they specifically meet the standard for both the Condominium Association and the management company. (3) Required Documentation The following documentation must be submitted: • form HUD-9992; and • certificate of insurance or a complete copy of the insurance policy from the Condominium Association and/or from the management company. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 789 Last Revised: 11/26/2025 (D) Flood Insurance (Existing Construction) (1) Standard Flood Insurance for Condominiums must meet the requirements in Flood Insurance. The Condominium Association must have Flood Insurance in place for property improvements in the Condominium Project that are located within Special Flood Hazard Areas (SFHA) including “A” or “V” zones, which are determined by the Federal Emergency Management Agency (FEMA). The Condominium Association must have Flood Insurance for all Condominium Units in buildings that are located in an SFHA. The Condominium Project must be located in a community that participates in the National Flood Insurance Program (NFIP) and has NFIP available, regardless of whether the Condominium Association obtains NFIP coverage. Coverage must be equal to the replacement cost of the covered improvements or the NFIP maximum per Condominium Unit multiplied by the number of Condominium Units, whichever is less. (2) Required Documentation The following documentation must be submitted: • form HUD-9992; • FEMA flood map with the Condominium Project location clearly marked; • if applicable, the Letter of Map Amendment (LOMA), Letter of Map Revision (LOMR), or FEMA NFIP Elevation Certificate (FEMA Form FF-206-FY-22-152); and • if applicable, the certificate of insurance or a complete copy of the Flood Insurance policy. (E) Exception for FHA Insurance Requirements This exception applies to Manufactured Home Condominium Projects, Detached Condominium Housing Projects, and Common Interest Housing Developments unable to satisfy the current insurance requirements. (1) Standard The Unit owners and Condominium Association or HOA of the Condominium Project must comply with FHA insurance coverage requirements. (a) Manufactured Housing Condominium Project MHCPs are eligible for this exception if the: II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 790 Last Revised: 11/26/2025 • governing documents designate the insurance coverage maintained by the Unit owners and the Condominium Association; and • MHCP is unable to satisfy FHA insurance requirements. If the governing documents require the Unit owners to maintain all applicable property insurance coverage for the dwelling, site area, and any Personal Property contained within, the MHCP is not required to maintain: • a blanket Hazard Insurance policy, provided the governing documents require the Unit owners to maintain individual Hazard Insurance; • a Liability Insurance policy, provided the governing documents require the Unit owners to maintain individual Liability Insurance; and • a Flood Insurance policy, provided that the governing documents require the Unit owners to maintain individual Flood Insurance if the Unit has been identified as located in a Special Flood Hazard Area (SFHA). (b) Detached Condominium Housing Project If the governing documents require the Unit owners to maintain all applicable property insurance coverage for the dwelling, site area and any Personal Property contained within, the DCHP Condominium Association or HOA is not required to maintain: • a blanket Hazard Insurance policy, provided the governing documents require the Unit owners to maintain individual Hazard Insurance; • a Liability Insurance policy, provided the governing documents require the Unit owners to maintain individual Liability Insurance; and • a Flood Insurance policy, provided the governing documents require the Unit owners to maintain individual Flood Insurance. The Condominium Association or HOA must carry master or blanket insurance for Structures/improvements that are considered common areas of the project outside the footprint of the individual site. (c) Common Interest Housing Development If the governing documents require the Unit owners of the detached Single Family homes, Site Condominiums, duplex, or two- to-four units within the project to maintain and carry property insurance for the dwelling, site area and any Personal Property contained therein, the Condominium Association or HOA is not required to maintain: • a blanket Hazard Insurance policy, provided the governing documents require the Unit owners to maintain individual Hazard Insurance; • a Liability Insurance policy, provided the governing documents require the Unit owners to maintain individual Liability Insurance; and • a Flood Insurance policy, provided the governing documents require the Unit owners to maintain individual Flood Insurance. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 791 Last Revised: 11/26/2025 The Condominium Association or HOA must maintain and carry master/blanket Hazard, Flood, and Liability Insurance for the Structures that contain the attached units and the common areas of the project. (2) Required Documentation The Condominium Project must have form HUD-9992 and certificates of insurance or complete copies of the insurance policies from the Unit owners and Condominium Association. viii. Projects in the Coastal Barrier Resources System and Special Flood Hazard Areas (A) All Projects in the Coastal Barrier Resources System If any part of the Condominium Project is located within the Coastal Barrier Resources System (CBRS), the Condominium Project is not eligible for FHA project approval. (B) Special Flood Hazard Areas (1) Complete Condominium Project If any portion of the Structures or equipment essential to the value of the Condominium Project is located within an SFHA, then the Condominium Project is not eligible for Condominium Project Approval, unless the Condominium Project: • obtains a final LOMA or final LOMR from FEMA that removes the Property from the SFHA; or • obtains a FEMA NFIP Elevation Certificate (FEMA Form FF-206-FY-22- 152). The Elevation Certificate must document that the lowest floor, including the basement of the residential building(s), and all related improvements/equipment essential to the value of the Property is built at or above the 100-year flood elevation in compliance with the NFIP criteria, and Flood Insurance is obtained. (2) Manufactured Housing If any portion of the Structures or equipment essential to the value of the Manufactured Housing Condominium Project for both new and existing Manufactured Homes is located within an SFHA, the Property is not eligible for FHA mortgage insurance unless the following is submitted: • a FEMA issued LOMA or LOMR that removes the Property from the SFHA; or • a FEMA NFIP Elevation Certificate (FEMA Form FF-206-FY-22-152) showing that the finished grade beneath the Manufactured Home is at or II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 792 Last Revised: 11/26/2025 above the 100-year return frequency flood elevation, and Flood Insurance is obtained. (3) Required Documentation The following documentation must be submitted: • if applicable, FEMA LOMA; • if applicable, FEMA LOMR; or • if applicable, FEMA NFIP Elevation Certificate FEMA Form FF-206-FY- 22-152. ix. Commercial/Nonresidential Space (A) Definitions Commercial/Nonresidential Space refers to floor area allocated to: • retail and commercial square footage (excludes Live/Work Units); • multilevel parking garage square footage that is separate from multilevel parking garage square footage allocated to residential Unit owners; • building common areas not reserved for the exclusive use of residential Unit owners; and • any square footage that is owned by a private individual or entity outside of the Condominium Association. Residential Space refers to floor area allocated to: • all Unit square footage; • all building common area square footage exclusively for the use of residential Unit owners; and • all parking garage square footage allocated to residential Unit owners. Parking lot square footage is not considered Residential or Commercial/Nonresidential Space. Total Floor Area refers to all Residential Space and Commercial/Nonresidential Space. (B) Standard The Condominium Project’s Commercial/Nonresidential Space must not exceed 35 percent of the Condominium Project’s Total Floor Area. (C) Exception The Condominium Project’s Commercial/Nonresidential Space may exceed 35 percent of the Condominium Project’s Total Floor Area up to a maximum of 49 percent if it is determined that the residential character of the Condominium Project is maintained. To determine that the residential character is maintained, the economy II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 793 Last Revised: 11/26/2025 for the locality of the Condominium Project or specific to the Condominium Project and the total number of residential Units in the Condominium Project must be considered. The following documentation must be reviewed and analyzed by the Mortgagee under DELRAP to support its decision or submitted for HRAP: • an opinion from a certified residential appraiser that addresses market acceptance of the Condominium Project as residential in character; • a current market study performed by an independent third party that addresses factors relating to the economy for the locality of the Condominium Project or specific to the Condominium Project; and • the total number of residential Units in the Condominium Project. (D) Required Documentation The following documentation must be submitted for Commercial/Nonresidential Space: • form HUD-9992; • budget and financials; • recorded condominium site plans; • CC&Rs; or • if applicable, exception documentation. x. Live/Work Units (A) Definitions A Live/Work Condominium Project refers to a Condominium Project that allows space within the individual Unit to be used jointly for nonresidential and residential purposes. A Live/Work Unit refers to a Unit in a Live/Work Condominium Project. (B) Standard The Condominium Project’s governing documents must allow Live/Work arrangements. All individual Live/Work Units must not contain more than 49 percent Commercial/Nonresidential Space. (C) Required Documentation The following documentation must be submitted: • form HUD-9992; and • recorded CC&Rs. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 794 Last Revised: 11/26/2025 xi. Leasehold Interest (A) Definition Leasehold Interest refers to real estate where the residential improvements are located on land that is subject to long-term lease from the underlying fee owner, creating a divided estate in the Property. (B) Standard Condominium Projects with Common Elements owned under a Leasehold Interest are eligible if the Condominium Project meets the following requirements: • the Condominium Association must be the lessee under the lease; • the lease of the Common Elements provides that a default of the Condominium Association does not result in a disturbance of any rights of the Unit owners; • the lease provides that the Mortgagees receive notice of any monetary or Non- Monetary Default by the Condominium Association and be given the right to cure any defaults on behalf of the Condominium Association; • the lease provides for the payment of taxes and insurance related to the land, in addition to those being paid for the improvements; • the Condominium Association must not be in default under any provisions of the lease; and • the lease does not include any default provisions that could result in forfeiture or termination of the lease except for nonpayment of the lease rents. (C) Required Documentation The lease must be submitted. xii. Additional Requirements (A) Management Agreement (1) Definition A Management Agreement refers to an agreement between a third-party company and the Condominium Association to manage the Condominium Project. (2) Standard If the Condominium Association employs the services of a management company, the Management Agreement must give the Condominium Association the right to terminate the Management Agreement with no more than 90 Days’ notice. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 795 Last Revised: 11/26/2025 (3) Required Documentation The current, executed Management Agreement must be submitted. (B) Existing Contracts (1) Definition Existing Contracts refer to contracts executed prior to the Transfer of Control to the Condominium Association. (2) Standard Any contracts entered into by the builder/developer prior to the Transfer of Control and subsequently assigned to the Condominium Association, must give the Condominium Association the right to terminate the contracts with no more than 90 Days’ notice. This does not apply to ground leases or contracts in which the Condominium Association or Unit owners are granted a possessory or ownership interest in real estate. (3) Required Documentation The following documents must be submitted: • form HUD-9992; and • copies of contracts entered into by the builder/developer prior to the Transfer of Control. (C) Recreational Leases/Easement (1) Definitions Recreational Leases refer to separate ownership of recreational facilities at a Condominium Project with the owner leasing its use to the Unit owners. An Easement refers to an interest in land owned by another person, consisting of the right to use or control the land, or an area above or below it, for a specific limited purpose. (2) Standard Condominium Projects with Recreational Leases/Easements are acceptable under the following circumstances: • if the Recreational Lease or Easement holder is a nonprofit entity under the Control of the Condominium Association; or • if each Unit owner has the right to cancel the membership with no more than 90 Days’ notice and without penalty. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 796 Last Revised: 11/26/2025 (3) Required Documentation The following documents must be submitted: • form HUD-9992; and • Recreational Leases, Easements, or contracts for use of recreational facilities. (D) Litigation (1) Definition Litigation refers to a current or pending lawsuit or proceedings in a court, arbitration, or mediation involving the Condominium Project or Condominium Association, or those concluded within 12 months of the application date. Litigation does not include foreclosure or actions to collect past due assessments brought by the Condominium Association or Condominium Project as plaintiff. (2) Standard The Condominium Project or Condominium Association must not be subject to pending Litigation in which the project sponsor is named as a party that relates to the safety, structural soundness, habitability, or functional use of the Condominium Project. The Condominium Project or Condominium Association must not be subject to any other Litigation risk not covered by insurance or that exceeds the amount of insurance coverage relating to the potential losses for that matter. (3) Required Documentation The following documents must be submitted: • form HUD-9992; • a signed and dated explanation from the Condominium Association, management company, or an attorney representing the Condominium Association that includes at least the following information: o reason(s) for the Litigation; o risk of the Litigation; o anticipated settlement/judgment date, if any; o sufficiency of insurance coverage to pay out a settlement/judgment, if applicable; and o impact of the Litigation on the future solvency of the Condominium Association; and • the following documents, which must be attached to the signed and dated explanation, if applicable: o complaint filed with the court, arbitrator, or mediator; and II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 797 Last Revised: 11/26/2025 o 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. (E) Legal Restrictions on Conveyance (Free Assumability) (1) Definitions Legal restrictions on conveyance have the same meaning as defined in 24 CFR § 203.41. (2) Standard The Condominium Project must not contain Units encumbered by restrictions on conveyance in violation of the requirements contained in 24 CFR § 203.41, subject to certain enumerated exceptions provided below. The Condominium Project’s organizing documents may contain one or more of the following provisions: • All leases must be in writing and subject to the declaration and bylaws of the Condominium Project. • The Condominium Association may request and receive a copy of the sublease or rental agreement. • The Condominium Association may request the name(s) of all tenants including the tenants’ Family Members who will occupy the Unit. • Unit owners are prohibited from leasing their Units for an initial term of less than 30 Days. • The Condominium Association may establish a maximum allowable lease term. • The Condominium Association may establish a maximum number of rental Units within the project; however, the percentage of rental Units may not exceed the current FHA Condominium Project owner-occupancy requirement. • The Condominium Association may not require that a prospective tenant be approved by the Condominium Association and/or its agent(s), including but not limited to meeting creditworthiness standards. • The Condominium Association may have the right of first refusal to purchase or lease any Unit only if it does not violate discriminatory conduct prohibitions under the Fair Housing Act regulations at 24 CFR Part 100. It is the responsibility of the submitter to address any questions regarding eligibility issues with their attorney or the appropriate agency. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT C. Condominium Project Approval 2. Project Eligibility Handbook 4000.1 798 Last Revised: 11/26/2025 (a) Exceptions for Affordable Housing Units Legal restrictions on conveyance for eligible government or nonprofit affordable housing programs are acceptable if: • the government or eligible nonprofit program restriction meets the exceptions defined in 24 CFR § 203.41(c)–(d); and • the affordable housing units are identified by recorded legal documents, specifying the Units that are covered under the program. In accordance with 24 CFR § 203.41(d)(1)(ii), FHA considers a reasonable share of appreciation to be at least 50 percent. HUD does not object to affordable housing programs whereby the homeowner’s share of appreciation is on a sliding scale beginning at zero, provided that within two years the homeowner would be permitted to retain 50 percent of the appreciation. If the program sets a maximum sales price restriction, the Borrower must be permitted to retain 100 percent of the appreciation. (b) Exceptions for Private Transfer Fees Notwithstanding the policy of free assumability with no exceptions contained in 24 CFR § 203.41, properties with private transfer fee covenants are acceptable provided such covenants are Excepted Transfer Fee Covenants as provided in 12 CFR § 1228. (3) Required Documentation The following documents must be submitted: • form HUD-9992; and • recorded legal documents.

Source: FHA Single Family Housing Policy Handbook 4000.1, Part II — c. General Condominium Project Approval Requirements (08/19/2024) · source URL · snapshot 8c03836f77f317e1