Congress Mulls FHA-Backed Condo Repairs

U.S. Representatives Charlie Crist (D-Fla.) and Debbie Wasserman Schultz (D-Fla.) recently introduced the Securing Access to Finance Exterior Repairs (SAFER) in Condos Act of 2022 (H.R. 7532). The legislation would allow condo owners to finance special assessments with loans backed by the Federal Housing Administration (FHA).

But, if enacted, the law might not provide the sweeping relief needed as associations struggle to tackle deferred maintenance and repairs in the wake of the Champlain Towers South collapse in Surfside, Fla.

Addressing a Familiar Dilemma

After the collapse, it was widely reported that the members of the condo association were asked to pay special assessments ranging from $80,000 to $200,000. Many of them refused to pony up.

The situation was — and is — hardly unique to Champlain Towers. “There’s a significant problem with old buildings, deteriorating buildings, and poorly constructed buildings,” says Alan Garfinkel, founding partner of Garfinkel Law, a full-service community association law firm in Florida.

“Foreseeable events like the 98 people who lost their lives in Surfside could happen again.”

It’s unusual for legislation directly affecting community associations to pop up at the federal level. In this case, though, it might make sense.

“Logically, it’d be great for everyone to have the same playing field, rather than piecemealing it from state to state,” says David Wilson, an attorney with Black, Slaughter & Black, P.A., which works with community associations in North and South Carolina. “In some states, you’ll never be able to pass what’s necessary.”

He reports that no specific reforms have been enacted in North Carolina and South Carolina. “That’s interesting because they’ve got your larger coastal cities, with a lot of condos, that are basically in the same situation as down in Florida.”

But even Florida failed to enact any legislation on point in the aftermath of the Surfside collapse.

“I think we’re getting this federal bill because Florida didn’t get anything passed,” says Brad van Rooyen, president of HomeRiver Group-Florida, the management company for about 160 associations in the state.

The proposed law would give condo owners expanded access to two loan programs guaranteed by the U.S. Department of Housing and Urban Development to help cover the cost of special assessments for structural and safety-related repairs.

Specifically, SAFER would amend the 203(k) Rehab Mortgage Insurance program to allow loans to be used for special assessments for structural repairs. It also would expand the Title I Property Improvement Loans program to insure private lenders against losses when lending to individual owners or associations for special assessments.

“The bill is designed to help get past the issue where people would vote no on repairs because they can’t afford the special assessment,” Wilson says. “It kind of softens the blow.”

Seeing the Forest for the Trees

“On the surface, this sounds like a great solution because owners could merge the assessment in with their mortgage,” van Rooyen says. “If they can find a way to make the barriers to entry a lot less restrictive than the current FHA guidelines, I think it’d be a tremendous step in the right direction.”

But, in light of the current guidelines, he’s skeptical about how effective the law would be in reality: “In Florida, there are over 25,000 condo developments, and less than 1 percent had FHA approval last I checked.”

The stumbling block, van Rooyen says, are the requirements to qualify for FHA programs. “An association has to meet certain criteria, and, the way that governing documents are structured in Florida, it’s almost impossible to qualify without modifying them. An association has to strip out a lot of the board’s authority. It’s a risky move just to be federally backed on mortgages.”

Associations in other states could run into similar hurdles.

“While it provides for only a certain amount of eligible condos, the idea to provide open streams of additional financing options is a good one,” Garfinkel says. “It’d be a good start to help associations fund structural repairs. The language would have to be examined as far as boards ceding authority, though.

“The devil is in the details. We don’t want to have the federal government causing more potential issues within our state and local governments and local boards.”

Van Rooyen sees another potential gap. “Under these types of programs, the lender isn’t just going to give the homeowner the money,” he says.

“Suppose an owner has a $50,000 special assessment. That $50,000 check, according to the rehab loan program guidelines, will sit in escrow until the FHA comes out and does an inspection of the work. How is an association going to get the work done without money?”

Stay Tuned

As of mid-May 2022, the bill has only been introduced in the House of Representatives — it has a long way to go before it hits President Biden’s desk. “It’s got the backing of the Community Associations Institute, so that’s helpful,” Wilson says, “but you never know.”