Each year, Vial Fotheringham collects millions in past-due assessments, all without using the funds of our client associations. Our collections approach is to recover assessments you are owed (and need in order to maintain an association), in order to ensure a steady collection of HOA assessments and promote the overall health of your association. Our services are now available as an online application, offering online access to each individual collections account 24/7, 365 days a year.

This program, CommunityCollect, streamlines collections services and allows clients, association board members, and managers to check the status of delinquent accounts in collections. This program offers real-time information and up-to-the-minute status reports. CommunityCollect includes protected and personalized access, as well as an ability to view all documents, dues, and liens filed on the account at the touch of a button.

We know that the key to successful assessment collection is the timely exchange of reliable and accurate information between Vial Fotheringham, the board members, and the managers regarding a turned-over account. With CommunityCollect, you will be able to access account information at your convenience, and have a resource that holds us accountable through an ability to view and monitor all progress being made in real-time.

Each year, Vial Fotheringham collects millions in past-due assessments, all without using the funds of our client associations. Our collections approach is to recover assessments you are owed (and need in order to maintain an association), in order to ensure a steady collection of HOA assessments and promote the overall health of your association. Our services are now available as an online application, offering online access to each individual collections account 24/7, 365 days a year.

This program, CommunityCollect, streamlines collections services and allows clients, association board members, and managers to check the status of delinquent accounts in collections. This program offers real-time information and up-to-the-minute status reports. CommunityCollect includes protected and personalized access, as well as an ability to view all documents, dues, and liens filed on the account at the touch of a button.

We know that the key to successful assessment collection is the timely exchange of reliable and accurate information between Vial Fotheringham, the board members, and the managers regarding a turned-over account. With CommunityCollect, you will be able to access account information at your convenience, and have a resource that holds us accountable through an ability to view and monitor all progress being made in real-time.

Each year, Vial Fotheringham collects millions in past-due assessments, all without using the funds of our client associations. Our collections approach is to recover assessments you are owed (and need in order to maintain an association), in order to ensure a steady collection of HOA assessments and promote the overall health of your association. Our services are now available as an online application, offering online access to each individual collections account 24/7, 365 days a year.

This program, CommunityCollect, streamlines collections services and allows clients, association board members, and managers to check the status of delinquent accounts in collections. This program offers real-time information and up-to-the-minute status reports. CommunityCollect includes protected and personalized access, as well as an ability to view all documents, dues, and liens filed on the account at the touch of a button.

We know that the key to successful assessment collection is the timely exchange of reliable and accurate information between Vial Fotheringham, the board members, and the managers regarding a turned-over account. With CommunityCollect, you will be able to access account information at your convenience, and have a resource that holds us accountable through an ability to view and monitor all progress being made in real-time.

One of the functions of an HOA Board of Directors is to pass resolutions.  While the board can make and pass motions in a board meeting, with actions then recorded in the minutes, a resolution is a stand-alone document that is the formal expression of board action.  The adoption of the resolution should be recorded in the board meeting minutes, and the resolution itself should be part of a book of resolutions maintained by the association.  There are certain resolutions, such as a collections resolution and an enforcement resolution, which must be mailed out to all of the owners after they are adopted.

There are three types of resolutions that a board of directors can adopt.  However, with any of these resolutions, the board cannot exceed the authority given to it in the association’s governing documents and state statutes.  First, the board can adopt interpretive resolutions.  These are resolutions that are adopted to clarify ambiguities in the association’s governing documents.  Great care should be taken to thoroughly review the possible interpretations before adopting an interpretive resolution.  This would include consultation with legal counsel to determine the potential risks of a particular interpretation.  As with all actions of the board, they must consider what would be in the best interest of their association.   

Second, the board can adopt procedural resolutions.  A procedural resolution is a step-by-step process or procedure that the board adopts to apply uniformly to all owners.  For example, in a homeowners association, the board could adopt an application and review procedure for architectural control committees.  The resolution could state what needs to be submitted in the application in order for the committee to consider the construction or change.

Third, the board can adopt rules via resolution.  The board has authority to adopt rules for the association, and this ability should be cited in the resolution.  The rules are typically contained in a separate rules and regulations manual that then becomes part of the governing documents of the association.  The board can adopt or modify the rules one by one, or together as a whole.  Again, the rules must be: 1) reasonable, 2) consistent with the Declaration, Bylaws, and state statutes, and 3) not exceeding the authority given to the board.

There are many different resolutions that the board can adopt, and they vary from association to association.  However, there are certain resolutions that we recommend all communities adopt.  These are: 1) a collections resolution, which specifies the authority and the procedure for collecting assessments and what happens if the owners do not pay assessments; 2) an enforcement resolution with an attached schedule of fines, which denotes how the board will address potential violations of the governing documents and rules, as well as the amount of the fines; 3) an insurance resolution, which states how the association’s deductible will be paid in the event of a covered claim; and 4) a records inspection resolution, which sets out the procedure for handling a records request and allows the HOA to charge a [reasonable] fee for the inspection.

Resolutions are an important tool to help associations run efficiently and effectively.  If properly adopted and followed, resolutions can help resolve many issues before they become bigger problems.

Recently, Nevada has taken action to remedy their state’s foreclosure mess; will Oregon step up to the challenge? Despite the fact that [earlier this year] the federal government attempted to punish large banks for continuing the practice of robo-signing, it had little affect on their practices. The law Nevada passed now makes it a felony to carryout robo-signing, forcing banks to get the proper documentation together before going through a foreclosure. Since this law went into effect, Nevada foreclosures have slowed dramatically. Will this example be able to influence other areas of the country?

Oregon has been one of the states hit hardest with foreclosures. There are still thousands of homes in default, where foreclosure processes have not even begun. The inability of the banks to handle these mass amount of defaults is clear as they continue to make the mess worse by foreclosing on those legitimately trying pay and hold onto their homes, while simultaneously ignoring their ability to take foreclosure action on the numerous abandoned homes (sometimes left unattended for years). The entire situation is complicated by the fact that the Oregon Courts have failed to implement a clear interpretation of the Oregon Trust Deed Act, leaving banks and title companies uncertain on how to proceed with foreclosures.

In Oregon, it appears legislation will not solve the foreclosure problems any time soon. All eyes now look toward the case Rebecca Niday v. GMAC Mortgage, LLC, which the appellate court of Oregon has agreed to hear on January 17^th, 2012. The decision of the court will dramatically affect the banks’ procedures for foreclosure in the future.

In addition to the sheer number of foreclosures, those that held onto their homes are also undergoing hardship, with home prices continually driven down across the country and Oregon among the leaders of this trend. How does this affect homeowner associations? In this situation, those among HOAs are seeing more and more abandoned properties sitting for years without any action to foreclose by the banks. When the banks fail to foreclose, the remaining association members are forced to pay more in order to make up for those owners that have abandoned their property; they are responsible for the assessments until a foreclosure sale is held. The longer the banks wait to foreclose, the more the property values are driven down, and the higher the HOA dues become for those remaining. It is advised associations in this situation not wait to take action in an attempt to collect; there is often a solution, so all avenues should be explored. There may even be a chance to collect dues from the ones who have caused a lot of the mess: the banks them selves.

While the Oregon courts and legislature work to sort out the process of foreclosures and find a solution to decreasing home values, remember to speak with an attorney regarding any foreclosure questions or assistance you may need help with, including collections tactics if you are part of an HOA with foreclosed homes.

Recently, Nevada has taken action to remedy their state’s foreclosure mess; will Oregon step up to the challenge? Despite the fact that [earlier this year] the federal government attempted to punish large banks for continuing the practice of robo-signing, it had little affect on their practices. The law Nevada passed now makes it a felony to carryout robo-signing, forcing banks to get the proper documentation together before going through a foreclosure. Since this law went into effect, Nevada foreclosures have slowed dramatically. Will this example be able to influence other areas of the country?

Oregon has been one of the states hit hardest with foreclosures. There are still thousands of homes in default, where foreclosure processes have not even begun. The inability of the banks to handle these mass amount of defaults is clear as they continue to make the mess worse by foreclosing on those legitimately trying pay and hold onto their homes, while simultaneously ignoring their ability to take foreclosure action on the numerous abandoned homes (sometimes left unattended for years). The entire situation is complicated by the fact that the Oregon Courts have failed to implement a clear interpretation of the Oregon Trust Deed Act, leaving banks and title companies uncertain on how to proceed with foreclosures.

In Oregon, it appears legislation will not solve the foreclosure problems any time soon. All eyes now look toward the case Rebecca Niday v. GMAC Mortgage, LLC, which the appellate court of Oregon has agreed to hear on January 17^th, 2012. The decision of the court will dramatically affect the banks’ procedures for foreclosure in the future.

In addition to the sheer number of foreclosures, those that held onto their homes are also undergoing hardship, with home prices continually driven down across the country and Oregon among the leaders of this trend. How does this affect homeowner associations? In this situation, those among HOAs are seeing more and more abandoned properties sitting for years without any action to foreclose by the banks. When the banks fail to foreclose, the remaining association members are forced to pay more in order to make up for those owners that have abandoned their property; they are responsible for the assessments until a foreclosure sale is held. The longer the banks wait to foreclose, the more the property values are driven down, and the higher the HOA dues become for those remaining. It is advised associations in this situation not wait to take action in an attempt to collect; there is often a solution, so all avenues should be explored. There may even be a chance to collect dues from the ones who have caused a lot of the mess: the banks them selves.

While the Oregon courts and legislature work to sort out the process of foreclosures and find a solution to decreasing home values, remember to speak with an attorney regarding any foreclosure questions or assistance you may need help with, including collections tactics if you are part of an HOA with foreclosed homes.

What is all this fuss about "FHA Approval" anyway?

For those unfamiliar with the background and recent news surrounding FHA approval for condominiums, here is a [very] brief overview: The Federal Housing Administration (FHA) is a government agency that provides mortgage insurance on loans made by FHA-approved lenders and is a subdivision of the US Department of Housing and Urban Development (HUD). During 2009, HUD published a series of new guidelines that dramatically changed the FHA approval process for condominiums. The most significant changes were as follows:

1. Each condominium project as a whole must now obtain FHA approval before any individual unit in the project will be eligible for FHA financing. Prior to the recent changes, it was possible to obtain an FHA loan on an individual unit even if the condominium project was not on the list of FHA-approved condominiums. However, this "spot loan" approval process was completely eliminated by the new guidelines.
2. Condominium project approval now expires every two years. In the past, once a condominium project received FHA approval, the approval was more or less indefinite and had no fixed expiration date. Once a project is approved under the new guidelines, it will need to go through a [supposedly more simple] recertification process every two years to ensure continued compliance with FHA guidelines.
3. The details of the application process itself, the exact eligibility requirements that condominiums must meet, and the required documentation that must be submitted with applications have all changed significantly.

All projects approved under the old guidelines have either already expired or will expire in the very near future. You can check the following website to verify whether your condominium is FHA approved, and if so, when the current approval is set to expire: https://entp.hud.gov/idapp/html/condlook.cfm

Is FHA approval really all that important?

In order to address this question, it is helpful to first understand a bit about FHA financing. The Federal Housing Administration (FHA) itself does not issue individual loans to borrowers. Rather, the FHA agrees to insure certain loans that, in turn, allow the lender to offer a better deal to borrowers. Because the loan is FHA-insured, the lender has less risk exposure and can typically offer lower down payments (as low as 3.5% of the purchase price, as opposed to 20-25% down for most conventional loans), less strict credit qualification criteria, and (often) lower closing costs. A growing number of buyers are turning to FHA loans, either because they currently cannot qualify for traditional financing, or simply because they prefer to take advantage of these benefits.

In light of the still-lingering economic and housing mess, FHA-backed financing offers an attractive alternative to potential homebuyers. According to recent reports, the FHA's share of new loans increased from 7% in 2007 to 37% in 2009 and 36% in 2010 (Federal Financial Institutions Examination Council press release, September 22, 2011). In short, this means that a condominium that is not FHA-approved is limiting its pool of potential buyers by more than one-third of the market.

What factors might prevent a condominium association from obtaining approval?

In order to be eligible for FHA approval under the new guidelines, condominium associations must meet numerous criteria. A few of the major eligibility factors that will be considered include the following:

1. Pending or recent litigation – will often prevent eligibility, particularly if involving construction defects.
2. Pending or recent special assessments – not an automatic disqualifier, but a major red-flag that must be disclosed and adequately explained.
3. Adequate budget and reserve funding – typically, the association's budget must clearly reflect that at least 10% of the total budget is allocated to reserves (when this requirement is not met, a recent reserve study must be submitted to show the adequacy of reserves).
4. Owner-occupancy ratio - at least 50% of units must be owner occupied.
5. Adequate insurance coverage - in particular, many associations have insufficient fidelity (also known as "employee dishonesty") insurance coverage.
6. Delinquent assessments - no more than 15% (20% if certain other conditions are met) of units may be more than 30 days past-due.
7. Commercial use – no more than 25% of the total floor area (of an individual unit or of the condominium project as a whole) may be used for commercial purposes.
8. Investor ownership – no more than 10% of the units may be owned by any single investor.
9. Governing documents – any provisions that violate FHA guidelines may need to be amended (for example: certain types of rental restrictions or restrictions on an owner's right to convey a unit will be problematic).

Please note that the above list is merely a summary of a few of the major factors involved in determining a condominium project's eligibility. Numerous other criteria may also come into play and must be evaluated. Feel free to contact us if you have specific questions relating to the potential eligibility of an individual project.

What recent changes should I be aware of?

On June 30, 2011, FHA issued revised lending guidelines that, yet again, made significant changes to the FHA approval process for condominiums. This most recent guidance came in the form a new FHA Condominium Project Approval and Processing Guide—a 95-page beast of a document—that completely replaces all prior guidelines and becomes the only "official" approval guideline for condominiums.

Although the intent of this new guide was to clarify and consolidate the complex details and requirements of the approval process, the process is—in reality—no easier to understand than before. While the guide did help to clarify a few previously ambiguous eligibility requirements, it also introduced a number of controversial requirements, the most notable of which is a Project Certification that must now be signed and submitted with every FHA approval application.

The Project Certification is so broad and unrealistic in its scope that it could make any board member or manager preparing and submitting an FHA application think twice before signing. The submitter must certify to the following three items:

1. The project complies with all state and local condominium laws and all FHA condominium approval requirements;
2. The information and statements contained in the application are true and accurate; and
3. "The submitter has no knowledge of circumstances or conditions that might have an adverse effect on the project or cause a mortgage secured by a unit in the project to become delinquent (including, but not limited to: defects in construction, substantial disputes or dissatisfaction among unit owners about the operation of the project or the owners association, and disputes concerning unit owners, rights, privileges, and obligations). The submitter understands and agrees that the submitter is under a continuing obligation to inform HUD if any material information compiled for the review and acceptance of this project is no longer true and correct."

Of particular concern is the "continuing obligation" to inform HUD of any changes in circumstances post-approval that might affect any of the eligibility criteria. It is unclear at this point exactly how broad of an obligation this may impose on the either the condominium association itself or on the submitter of the application; however, many industry organizations are up in arms about the unreasonableness of the current wording of the Certification and the overly broad obligations that it appears to impose.

Community Associations Institute (CAI) has already filed an administrative challenge against the FHA, in part seeking to modify the language of the Certification. Fortunately, HUD officials acknowledged at a recent training conference that they are seriously considering modifying this language in order to reflect more realistic expectations. Unfortunately, for the time being, any individual submitting an application must sign and submit this onerous Certification.

Needless to say, board members and managers should also be very cautious about certifying to compliance with state and local laws and may want to make sure their D&O or E&O insurance coverage is current and that such a certification would be covered under their policy before doing so.

To add to the state of anxiety about the Certification, HUD has further "encouraged" the use of caution by emphasizing the strict penalties that can result from knowingly and willfully using or making a false or fraudulent statement in connection with the FHA application, namely: a fine of up to $1,000,000 and imprisonment for up to 30 years. Overkill or not, this is what we currently have to work with.

Will there likely be any additional significant changes to the application process?

Yes… I recently returned from a training conference in Santa Ana where I spent two full days discussing the gritty details of the FHA approval process with both the national HUD officials who wrote the new FHA guidelines, and the local HUD staff that actually reviews the applications submitted for approval. We discussed recent changes to the application process and the approval/eligibility requirements, as well as additional anticipated changes that are in the works and will be implemented over the coming months and years.

If I learned one thing from the conference, it is that the FHA approval process is still very fluid. The new FHA guidelines are undergoing constant review and revision and will continue to be subject to modification for the foreseeable future.

The details of the application process itself, as well as the actual eligibility requirements for approval, are still being refined, modified, and—in some instances—changed altogether to account for previously unforeseen and unaddressed issues that have arisen. Due to the complexity involved, anyone who is considering submitting an application for FHA approval should be prepared to expend a significant amount of time, effort, and frustration, or be willing to engage the services of someone who understands the intricacies of the approval process and stays abreast of the continual changes to the process.

How can an association obtain FHA approval?

Associations can obtain FHA approval in one of two ways. One option is to work through a lender if the association already has a potential buyer of a unit to push the process forward. Certain lenders are eligible to certify condominium associations under the Direct Endorsement Lender Review and Approval Process, or DELRAP. Under this process, the association or its manager supplies the necessary documentation and information to the lender, who then reviews and processes the application materials. Fees and approval processing time vary by lender.

The second and most common method is for the association to apply directly to HUD, which oversees the FHA. This process is called the HUD Review and Approval Process, or HRAP. Under HRAP, approvals are typically processed within four to six weeks, if the application is complete and correct when submitted. However, any missing documentation or information will cause the application to be rejected and sent to the back of the line upon being re-submitted.

Due to the complexity of the application process and the headache of dealing with government agencies, many associations choose to hire an experienced attorney to assess their eligibility for approval, review their governing documents for FHA compliance, assemble and review the necessary documentation, and submit the application to HUD.

Obviously, not all condominium associations will meet the eligibility requirements for FHA approval. However, given the current market conditions, nearly all condominium associations should seriously evaluate whether seeking FHA approval would be in the best interest of their community. Most eligible associations will benefit from obtaining FHA approval. Regardless of whether there is currently a potential buyer waiting, approval will 1) open the door to a significantly larger pool of buyers; 2) offer owners the ability to market their units as "FHA Approved;" 3) help maintain the property value of homes in the association; and 4) avoid possible legal actions by owners against the board or the association for failing to seek approval.

When should a condominium association begin the application process?

Due to the length of time involved in the application process and the numerous factors that can delay the process, associations that wish to become FHA compliant should start the application process immediately and be careful to maintain their eligibility.

According to HUD, applications are typically processed and a decision reached within four to six weeks. In my experience, it is often possible to receive an approval within roughly three weeks from the time a complete application is submitted. However, the exact amount of processing time will depend on the current volume of applications received and the current backlog at HUD. Regardless, be aware that the application process will take a significant amount of time and cannot be expedited by HUD (yes, even if there is a sale pending and the only thing holding it up is the receipt of FHA approval).

We can help!

Whether you need someone to handle the entire approval process from start to finish, or whether you just need assistance evaluating your association's potential eligibility, we can help. In most cases we charge a flat fee, determined up front, for preparing and submitting the application materials and taking care of any necessary follow up with HUD. For those attempting the application process on their own, we are also happy to act in a consulting role on an hourly basis. We have significant experience helping condominium associations evaluate their eligibility for FHA approval, identify and deal with potential barriers to eligibility, and successfully obtain approval. Feel free to contact us with any questions or to get the process started!

Matt McMullin

msm@vf-law.com

503-684-4111, ext. 207