Reserve Requirements

• Reserve funding requirement – at least 10% of all budgeted income must go toward a reserve account
• Adequate reserve funds required – This is subjective, but in our experience this means:
  • Funds to cover all insurance deductibles
  • Reserve Funds to cover capital repairs and replacements for the next 2 years (as determined by a

recent reserve study)

Insurance Requirements

• Master or Blanket – Must be 100% of replacement cost of condominium, not including foundation
  or land
• General Liability – Insures all common elements, and public ways
• Fidelity Bond (aka Employee Dishonesty or Crime Insurance) – for communities with 20+ units.
  Covers the Board of Directors and Employees that handle association funds. Must be 3 months
  aggregate assessments of all units + Reserves. Note: This type of insurance is different than D&O
• Flood insurance – Only required if located within 100-year floodplain. If required, it must be 100%
  replacement cost issued by NFIP.

Acceptable Leasing

• Silent – No leasing restrictions in governing documents
• Leasing Caps – A limited number of rentals permitted in the community
• Board may require a copy of the lease
• All leases must be in writing
• Provide management or the Board with tenant information including names and address
• A Requirement that the lease conforms to the legal governing documents of the association
• Set minimum and/or maximum lease periods
• Minimum must be 30 days OR state “no transient rentals”

Sometimes Acceptable

Assignment of Rents – A requirement that rental income will be assigned to the association if the
unit owner is delinquent in the payment of assessments:

• Corporate leasing restrictions
• Require that the lease be on a community-specific form

Non-Acceptable Leasing Restrictions

• Require potential tenants to “meet” with the Board – The only exception is if the “meeting” is strictly an orientation to the community and not mandatory
• Require unit owner to check the Registered Sex Offenders list before leasing to a potential tenant
• Community Leasing Ban – A Minimum of one unit must be permitted to be leased at any given time
• Seasoning Clause – unit owner must own the condo for a period of time prior to being allowed to lease
• Require Board/HOA approval of lease – unless the “approval” is specifically for monitoring the number of rentals, this must be clear and recorded in a legal instrument. Any ambiguity will
  result in rejection
• Allow accommodations typically associated with a hotel, such as a maid or front desk service.
• Have the power to void lease
• Require credit references or criminal background checks – The Unit Owner may require these, but not the HOA. Many of the condominiums that we review in Florida do not qualify for FHA
  Condo approval for this reason.

FHA Condo Approval Guidelines: 2-4 unit condo complexes

There are different FHA Condo Approval guidelines for 2-4 unit communities. Many times these smaller communities do not have shared expenses, or have very few. Communities without shared expenses typically do not have a community bank account, a budget, or any financial reports, so the FHA will offer an alternative known as a “Memorandum of Understanding.”

Memorandum of Understanding

A Memorandum of Understanding establishes the responsibilities and maintenance obligations of
each unit owner. Each owner will need to sign and record the memorandum with the County. An
in-state attorney should prepare the Memorandum of Understanding. The cost is usually $200-$500
depending on the size of the community and the attorney.
By providing this document, the association no longer needs to provide financial reports, or comply
with reserve requirements. With this document, they will meet the FHA Condo Approval guidelines.

FHA Condo Approval Guidelines: New Construction

New Construction also has its own FHA Condo Approval Guidelines. To gain FHA approval for a project that is still under construction, recently converted, or less than 12 months old, a special set of guidelines will apply.

The Developer will need to pre-sell, or have under contract, at least 30% of the units in Phase 1 to become FHA Condo Approved. If a project does not meet this requirement, we cannot continue.

Older condominiums require a list of 10 documents to become FHA Approved. New and Under-Construction projects require a significant amount of additional documentation. These include environmental reports, site photographs, and permits.

The fee for a new construction project is $1,500 in total. This is nonrefundable, but we will work with the project until it becomes approved.