FHA Funding Screw Up!?

We were supposed to close this coming Monday on our condo and we got a call saying that FHA messed up when they approved funding last year. They say that the condo association does not have enough fidelity bond coverage. Because of this, our buyers approval has been revoked. Can they be held accountable for the financial damage this will cause to all parties involved?


We are not the buyers. We were told by the buyers lender agent that FHA yanked their approval for the condo association.

1 Answer

  • 9 years ago
    Favorite Answer

    FHA didn't mess up approving the condo. That's not how it works.

    Your lender's underwriters are responsible for reviewing the association's fidelity bond coverage to verify that it meets FHA's requirements. For whatever reason, they didn't do that until the last minute. Your loan doesn't get approved until this is done, so it was still a condition up until it was reviewed.

    Since your loan was never approved, you should have been extending your mortgage contingency. If you did that, you wouldn't have a problem right now.

    If you didn't do that, I would get on the phone with the association's management company / attorney / president or all of the above. Explain the situation, and tell them they are not holding enough fidelity bond coverage to meet FHA's requirements. Tell them that it is preventing you from getting an FHA loan on one of their condos, and it will prevent every buyer that comes to that complex in the future.

    Not being able to obtain an FHA loan on a condo will limit their buyer pool and effectively lower their condo values since less people will be able to buy them.

    It's a lose/lose for everyone and if explained correctly, the management company / attorney / president should recitfy the situation.

    Actually... your lender should be making those phone calls for you. I have done it numerous times in the past. Sounds like you didn't make the best choice in lenders. Not much you can do about that now, but fix the issue and do their work for them.

    Edit to add... if you are the seller, then you should get on the phone with your association/management company and tell them the same thing. Find out why they don't have enough fidelity coverage. The underwriters review fidelity coverage, not FHA. Your complex is either FHA approved or it isn't, but the lack of fidelity coverage isn't making it not approved. It is making it not eligible, but that is different and it is a quick fix. You can look up whether the complex is approved at https://entp.hud.gov/idapp/html/condlook.cfm . If it is, call the association/management company and tell them they need to change the coverage for the reasons stated above. In this economy, you want to keep every buyer you have and if you are being told the truth for the reason they can't get an FHA loan on your condo then no one will be able to obtain an FHA loan on your condo.

    Source(s): Mortgage banker for 15 years. Concentrate on government loans - FHA / VA / USDA and first time home buyers. Lend in 49 states. There is still 100% financing available in some areas and I can help you get preapproved! Real estate paralegal for 10 years prior to working in mortgages.
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