It is an astounding fact that there are only 325 FHA approved condominium projects in Florida, out of an estimated 25,000. As the sunshine state, Florida built condo projects so quickly in the 1990’s and early 2000’s that it became a running joke that the state bird should be changed to the crane.
Certainly the mortgage/real estate meltdown didn’t help matters, but there are problems endemic to Florida that will prevent an increase in FHA market share for the foreseeable future. Unfortunately the general unavailability of FHA condo loans presents yet another obstacle to the recovery of the condominium market in Florida.
Reserves are the primary problem for associations in Florida. The real reason for the problem is that the state’s Condominium Act doesn’t require them. It has been practice, good or bad, to assess members of the association a special assessment to cover the cost of deferred maintenance such as roofing, paint, etc. HUD abhors special assessments, as in their view it is an unfair and arbitrary burden to require members to pay potentially large special assessments with sometimes little or no advance warning. HUD and conventional wisdom dictate that monthly dues increases are the appropriate method for increasing reserve allocations, thereby avoiding the need to levy special assessments. To be eligible for FHA certification, HUD requires that an association allocate at least 10% of standard assessments to reserves. Until condominium associations in Florida begin to proactively allocate to reserves on their own, in the absence of a state requirement, inadequate reserves will be the number one reason for association ineligibility.
Florida’s sunshine, beaches and warm weather are both a blessing and a curse to condominium associations. It’s a blessing to live in such a climate, but a curse in that it produces a large demand for rentals within the state, specifically in the resort areas. For FHA certification, HUD requires that more than 50% of the units within an association be owner occupied. This requirement is obviously problematic for associations where there is a high concentration of rentals, whether short term or long term. Additionally, HOA’s that allow rental periods of less than thirty days are considered condotels, and are therefore ineligible for FHA certification.
Lawsuits have most certainly been a problem in preventing Florida associations from obtaining FHA certification. The rush to build has resulted in many construction defect lawsuits, a big no-no for FHA certification. There is light at the end of the tunnel on this issue as eventually all of this litigation will either go to trial or be resolved in some other way, and will therefore no longer stand in the way of FHA certification.
Associations would be wise to be mindful of HUD requirements and do what they can to meet them. FHA market share is hovering around forty percent currently, with no decrease in the immediate future projected. Eliminating forty percent of the buyers in a marketplace is sure-fire way to hurt values, sales and the market as a whole.