Can a Condominium Declaration give a Lender in Foreclosure Exemption from Leasing Restrictions?
Of course it can. But apparently it may not.
We commonly find language in condominium declarations that give a lender in foreclosure an exemption from leasing restrictions. This makes sense insofar as a lender wants to protect its assets while the home is in foreclosure, and renting a vacant or abandoned home is one way it can generate income to suspend the continued impairment of its asset.
The National Housing Act of 1934, Pub.L. 84–345, 48 Stat. 847 (1934), among other things, created the FHA, which is administered by the U.S. Department of Housing and Urban Development (HUD). The FHA provides mortgage insurance to approved lenders throughout the United States and its territories. No FHA means more risk for lenders.
HUD is now apparently taking the position that common condominium leasing exemptions violate the National Housing Act of 1934, which prohibits federal insurance in cases that would result in transient or hotel usage. In that case, any condominium project submitted for review and approval will be rejected if it contains this provision.
See Prohibition against transient housing, 12 U.S.C.A. § 1731b.
How will this affect condominiums during FHA’s re-certification and quality control reviews? I may imagine but I cannot.