A couple of months ago, Governor Brown signed into law AB596, which requires common interest developments to annually report whether the association is FHA or VA approved. What started out as a bill to REQUIRE FHA and VA approval was passed in its final form to only require annual reporting by condominium associations. This was due to the pushback from associations, management companies, and their attorneys that were concerned with a bill that would have required approval.

Given that the teeth were taken out of this piece of legislation, I am not quite sure what the passage of this bill really means. It’s shocking to this commentator that there is an association that exists that hasn’t taken the time to get both of these approvals. Between FHA and VA market shares, failure to have the certification of both these agencies results in a loss of 25-30% of the purchase demand. Eliminating this amount of demand when selling a unit will decrease not only its value, but the value of ALL units in the association. In addition, a lack of FHA approval prevents a senior resident from refinancing to a reverse mortgage. Annual reporting without review or justification for not obtaining these agency approvals is really just a paper push at the end of the day. It will most certainly require legislation or a court decision that makes these approvals mandatory, because the status quo isn’t adding any more housing options for borrowers using these two types of mortgages.