Condo Media - September 2011 - 34

COVER STORY

surprisingly, Raymo reported, “I haven’t seen anyone raising their hands” to sign certification applications.

Who Will Sign?
Philip Sutcliffe, owner of Project Support Services LLC, said initially that he wasn’t rushing to volunteer. As a consultant who prepares certification applications for community associations, Sutcliffe said he wouldn’t be comfortable signing unless someone else “provides the significant due diligence background information” he would need to offer the assurances the FHA is demanding. He also was unnerved by the “ongoing obligation” to notify HUD of any changes under any circumstances in the communities he certifies. “Am I now going to have to perform regular follow-up on every condo we submit to ask if there is anything we need to know about just so I can say to FHA that I performed my due diligence?” Sutcliffe asked, in one of the many e-mail exchanges about the new guidance. Association boards and managers aren’t going to be any more comfortable with the obligation to provide perpetual updates and to guarantee that their communities are problemfree, observed Stephen Marcus, a partner in Marcus, Errico, Emmer & Brooks. Among other problems, Marcus noted, “it is impossible for anyone to know or predict what ‘adverse circumstances’ might affect a community’s financial stability.” Even if a problem isn’t evident when the application is submitted, he pointed out, HUD could argue that the manager or board members “knew or should have known” about it anyway. As for the “continuing obligation” to inform HUD of adverse changes in the future, “How could that possibly work?” Marcus asked. “Do trustees who sign the certification application incur a permanent obligation to inform HUD of changes? Does that obligation continue when the trustees are no longer on the board or no longer living in the community?”

HUD could fix, or at least partially fix, the certification requirement, Marcus suggested, by separating the required affirmations. Association attorneys could verify compliance with state and local laws, while the lender or lender’s attorney should be able to attest that the community complies with the FHA’s regulations. However, he agreed, the outsized penalty for errors “might understandably” discourage some from doing so.

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Have any lawsuits been filed by any unit owner or resident relating to failure to repair the common areas?

No Easy Fix
But when discussing the guidance in July, Marcus didn’t see any easy fixes for the general marketability guarantees the FHA was seeking or for the specific assurances that there are no unhappy owners whose complaints could affect the community’s finances. “I certainly wouldn’t advise our clients to sign such a document and I haven’t talked to any other association attorneys who feel differently,” Marcus said. But it is possible, he noted, that some consultants who prepare FHA applications for community associations may be willing to sign the certifications, “so boards and mangers won’t have to.” In fact, while this article was in production, Marcus, working with other industry attorneys, devised a short affidavit to be signed by association board members or managers designed to provide the due diligence protection consultants said they needed. The affidavit poses four questions:

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Has any litigation been filed against the association board or manager relating to the operation and management of the condominium? Has any petition to remove the board by unit owners been submitted to the board or manager? Has any engineering report been received within the past 12 months that indicates defects in construction or major repairs?

The association representatives signing this affidavit also agree that they will inform the individual submitting the FHA certification application of any “material and adverse changes” in the answers they have submitted. If boards or managers sign this affidavit, two of the consultants interviewed for this article (Sutcliffe and Orest Tomaselli, CEO of National Condo Advisors LLC), said they would be willing to sign the FHA certifications after all — significant, because both represent association clients in all 50 states. In addition to the specific areas the affidavit addresses, the FHA guidance also seeks detailed information about association assessments, requiring the certifying entity not just to explain the purpose of any special assessment currently in effect (a perfectly reasonable request, Marcus agreed), but also to describe the impact the assessment will have on the community’s “financial stability” and its “future value and marketability.” “I don’t know how anyone could make those predictions,” Marcus said, “and I don’t know of any crystal ball that would help.” Marcus was troubled, not just by the scope of the financial assurances the guidance requires, but by what they seemed to suggest about how the FHA is evaluating association finances. The agency, he noted, has reportedly rejected two certification applications because the communities had special assessments and one because the community had an outstanding loan. “We don’t know the details,” Marcus acknowledged. “Perhaps agency officials were concerned about the terms of this particular loan or the structure of these particular assessments.” Nothing in the guidance says communities can’t have loans or assessments, he agreed. But the questions about

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CONDO MEDIA • SEPTEMBER 2011
Condo Media - September 2011

Table of Contents for the Digital Edition of Condo Media - September 2011
