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08/08/2014: Questions About Your Homeowners Association? This Book Has Answers

By Benny L. Kass

August 8, 2014

How much should your condominium association maintain in reserves? Is your association’s insurance sufficient to protect unit owners faced with some kind of disaster? What role does the Federal Housing Administration, Fannie Mae or Freddie Mac play when lenders are deciding whether to make you a loan to purchase or refinance a condo unit?

There are no easy answers to these questions. But these and many other issues are discussed in detail in the new online Community Association Fact Book, which provides a lot of useful information for homeowners governed by HOAs.

The publication was prepared by the Foundation for Community Association Research, the research arm of the Community Associations Institute (CAI), a Falls Church, Va.-based group that provides data to homeowner associations. “The Fact Book was developed to provide research-based information to all community association stakeholders, homeowners, board members, management professionals, including attorneys, accountants, developers, mortgage lenders,” said Clifford J. Treese, who chaired the project.

As the book points out, community associations and association housing are subject to state laws and residential mortgage lending requirements that do not apply to single-family homes or voluntary community associations.

For example:

* Community associations need to meet Fannie Mae and Freddie Mac requirements. Otherwise, most mortgage lenders will not approve a loan for a sale or a refinance. The fact book provides guidance on how to comply with requirements such as delinquency rates and reserve requirements.

* The FHA has its own approach. If a buyer wants an FHA-insured mortgage, the condominium association must be approved by the FHA. In the past, a borrower could get what is known as a “spot loan,” in which the lender would look to the creditworthiness of the buyer and do a brief analysis of the condo’s financial condition. Now, condos must be approved every two years.

* Community associations are nonprofit corporations. However, they are not nonprofits for Internal Revenue Service purposes. Thus, an association board needs to be aware of its income sources and its use of assessments for the most advantageous federal tax filings. Associations must obtain an annual financial audit from an independent certified public accountant, who will file the appropriate tax forms with the IRS, even if no money is owed.

* Given increases in severe climate phenomena, whether rainstorms, windstorms or sinkholes, the association’s insurance policies need to be as comprehensive as economically feasible. Just because the condo act specifies a dollar level of required property and liability insurance, it does not mean that coverage will be adequate. The condo laws involving insurance in Maryland, Virginia and the District have not been amended in years.

These points are a reminder that a homeowner cannot go it alone. The community association needs to be a partnership of owners and board members. Community associations, which include condominiums, planned communities (often called homeowner associations) and cooperative apartments, have become a way of life for more than 65 million residents.

As of last year, according to one study, 328,500 associations were operating in the United States. Virginia has 8,200, Maryland 6,400, and the District nearly 2,000.

Virginia ranks 12th in the nation in the number of community associations, and Maryland is 19th.

Especially useful in the Community Association Fact Book: a summary of all state laws pertaining to community associations, as well as data on insurance, reserve requirements and housing occupancy.

The fact book is available free at

Benny L. Kass is a Washington and Maryland lawyer. This column is not legal advice and should not be acted upon without obtaining legal counsel. For a free copy of the booklet “A Guide to Settlement on Your New Home,” send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036.