HUD Could Be Stepping Up Violation Enforcement

The following article was published by Goodman, Shapiro & Lombardi.

condominiumWe have heard rumors that there is a movement underfoot at the U.S. Department of Housing and Urban Development, commonly referred to as (“HUD”). The word is that HUD intends to step up on its enforcement of violations of Title 18 U.S.C. 1014 in connection with applications being submitted to HUD seeking FHA project approval on behalf of Condominium associations.

Briefly stated FHA insures condominium single unit loans for up to 30-year terms to purchase or refinance a unit in an FHA-approved condominium project. The condominium project must be primarily residential, contain at least two dwelling units and can be detached, semi-detached, a row house, a walk-up, mid-rise, high-rise, including those with or without an elevator, or manufactured housing.

Currently Condominium associations that want FHA approval must submit to HUD a detailed application in accordance with established guidelines supplemented by a number of documents together with a Certification by the submitter known as Appendix A Project Certification.

The exact language of the HUD guidelines states as to the Certification on “Appendix A,” “must be submitted on company letterhead and must be executed (signed / dated – signature stamps or electronic signatures are not permitted) by the authorized mortgagee representative, the homeowners association representative, the homeowners association’s authorized representative, the builder, the developer, or the builder’s or developer’s authorized representative. Authorized representative is defined as the management company, project consultant or attorney. The certification states that the undersigned hereby certifies that:

1. They have reviewed the project and it meets all State and local condominium laws and all FHA condominium approval requirements thereto applicable to the review of condominiums;
2. To the best of his or her knowledge and belief, the information and statements contained in the application are true and correct; 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 of the owner’s association; and disputes concerning unit owner’s right, 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.

Violations in connection with the Certification and FHA applications are governed by Title 18 U.S.C. 1014, which provides in relevant (and scary) part “that whoever knowingly and willfully makes or uses a document containing any false, fictitious, or fraudulent statement or entry, in any matter in the jurisdiction of any department or agency of the United States, shall be fined not more than $1,000,000 or imprisoned for not more than 30 years or both. In addition, violation of this or others may result in debarment and civil liability for damages suffered by the Department.”

While the requirement concerning the execution of the “Appendix A” Certification and enforcement of violations under Title 18 U.S.C. 1014 have been in effect for years our office has heard that HUD intends to step up enforcement on what it determines are infractions. The submitter would then be facing anywhere from $3,500.00 for minor infractions all the way to prosecution to the full extent of the law, fines not more than $1,000,000.00 or imprisonment for up to thirty years.

An example of a violation could be a simple as submitting a project for approval along with the required “Appendix A,” Certification claiming that the Condominium meets the FHA guidelines when, in fact, the Condominium governing documents contain a leasing restriction that is not allowed by the guidelines.

Submitters of FHA applications should take notice or find themselves facing fines or even worse. Our office will of course keep you apprised of any official announcements made by HUD concerning FHA guidelines going forward.

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About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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