September 14 ‘asked and answered’: FHA Certification
Question: Q: If our condominium board decides not to seek FHA certification for the association, as several board members are recommending, will we face possible discrimination suits from lower-income or minority buyers who need FHA financing to purchase a unit here? Do we also risk suits filed by owners who are unable to find buyers for their units?
Answer: A: It is a fact of litigious life in America that anyone can sue anyone else at any time for any reason. That doesn’t mean the suit has merit, however. And Gary Daddario, a partner, in Perkins & Anctil, doesn’t think a suit challenging your failure to obtain FHA certification has much legal weight to support it. For one thing, he notes, there is no law or regulation requiring certification for community associations, and there are many valid non-discriminatory reasons a board might decide not to go through that process.
Cost is one: Compiling the documentation required to complete the application – or retaining someone to do that for you – is not inexpensive. And many communities don’t meet the FHA certification requirements, because their delinquency rates or investor-ownership ratios are too high or their reserve levels are too low.
“Just because a board chooses not to waste its resources on an application it knows will be futile doesn’t mean it’s doing anything wrong,” Daddario contends.
He also thinks plaintiffs would be hard-pressed to argue that excluding buyers with FHA loans from the community discriminates against minorities, because the mortgage and purchase price limits have been increased enough to make FHA financing an option for a much larger pool of borrowers, not just for those in the minority and low-income categories. “When you’re talking about FHA borrowers today,” Daddario notes, “you’re not just talking about people who are economically deprived.”
Although he thinks the risks are limited, Daddario can envision scenarios in which the board might be vulnerable to a legal challenge. For example, boards that refuse to obtain FHA certification specifically because the board assumes FHA borrowers will be minorities –might well face a discrimination claim, and in Daddario’s view, they should. “That’s wrong morally as well as legally.”
Your board might also be vulnerable to a breach of fiduciary duty claim from an owner unable to sell his unit, Daddario says, if the board decides not to seek FHA certification simply because “it is lazy” and doesn’t want to be bothered going through the process.
But a board that foregoes certification for legitimate business reasons – because of the cost or inability to meet certification requirements ¯ would have a strong defense, he believes against both owners claiming a breach of duty and prospective buyers filing discrimination claims.