February 10, 2010

Important Lending Notice

There have been major changes in the regulations governing lending institutions that will impact your Community Association.  Because these changes will affect sales of homes in your community, we strongly encourage you to review this brief explanation and plan to attend additional informational sessions as they are scheduled.

Fidelity Bonding - This topic will affect all Community Associations.  Fidelity Bonding is an insurance coverage that protects Associations from Board Members absconding with Association funds.  As this has never been a concern, we have never encouraged our clients to obtain this coverage.  Up until now, our office has maintained a Fidelity Bond for such concerns, as we handle all of the operating accounts of our clients.  Our coverage has always withstood review by lenders as adequate for the protection of Association funds from theft.  The change in regulations does not allow coverage on the part of Management to be the only Fidelity Bonding, and requires that the Board of Directors maintain its own bond.  The new regulations have provided the following equation to determine the minimum amount of coverage:  Three (3) times the monthly collection of condo fees, plus the total dollars held in all reserve accounts.   The quote for such coverage is being obtained by our office and will be communicated to every client within a short period of time.  We anticipate the expense to be affordable for all Associations. We ask that all clients move on such recommendations by April 30, 2010 to ensure financing approval for future sales.  Since December 2009, three of our managed communities have been forced to add such insurance coverage.  See the attached letter from Attorney Steve Sowell regarding his recommendation. 

FHA Approval List - Site Condominiums, identified in the community's Master Deed, are not affected by these changes.  FHA has maintained a list of approved Associations for some time.  To date, only four (4) communities that we manage are listed on the FHA approved list and their approval will expire on December 7, 2010.  The changes in FHA now mandate that if an Association is not on the approved list, FHA will not finance any sales in the community.  Since FHA is the most prevalent financing for all loans, this is a monumental change as it may halt the majority of future sales.  Due to the importance of this topic, the upcoming State Conference of CAI will address this topic as the featured discussion.  Additionally this topic will dominate our communications to you throughout 2010.  Once the process and costs are determined, we plan to host multiple Seminars in the Spring to educate our clients. 

Again, we encourage each Association to send representatives to the State Conference on March 12, 2010 at the Rock Financial Showplace (46100 Grand River in Novi) as together we work to keep your community an Association of choice.  (Please call our office for details and to register.)

Sincerely,

Kay