FHA only allows a handful of leasing restrictions; one of them is that units cannot be used for transient leasing. FHA also does not allow unit owners to provide hotel-like accommodations for the tenants. If either of these are allowed in the condominium project, it is not eligible for FHA condominium project approval.
The term transient or hotel purposes is defined to mean:
1. any rental for a period of less than 30 days, or
2. any rental if the occupants of the housing accommodations are provided customary hotel services such as room service for food and beverages, maid service, furnishing and laundering of linen and bellboy service.
Prior to the 2013 bulletin, the only way for a project to get approved with HUD if the legal governing documents allowed for transient leasing was to amend the legal documents to remove or revise this language. This can sometimes be difficult to accomplish as the legal documents often require a 2/3 majority vote in order to amend the documents.
HUD allows for another option.
If the Association is not willing to amend their legal documents, an executed written statement may be provided by the Board that affirms that there are no units within the project currently rented for less than 30 days and/or pursuant to the lessor for providing any services normally associated with a hotel.
On the loan-level, the FHA Originating Lender will also be required to provide an executed written statement that affirms in the event of a conveyance action to the lender that they will not rent the associated unit for less than 30 days an/or provide any services normally associated with a hotel.
Borrowers will now be required to execute form HUD-92561, Borrower’s contract with Respect to Hotel and Transient Use of Property for all condominium loans using FHA insured financing. This is the same form required by HUD for loans for 2-4 unit properties.
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