Continued HUD/FHA Delays on Site Condo Financing Creating Serious Hardships for Michigan Homeowners and Builders

Michigan Consumers Cannot Take Advantage of First Time Homebuyers Tax Credit
Until Bureaucratic Roadblocks Are Removed

LANSING AND FARMINGTON HILLS, Mich. – June 4, 2009 – US Department of Housing and Urban Development (HUD) Secretary Shaun Donovan announced this week that the agency has implemented rules that will allow first-time homebuyers to use an $8,000 tax credit to help cover closing costs on an FHA-insured home. That’s great news for homebuyers across the country but may be just one more frustration for families in Michigan.

Over 20 years ago, the Michigan Condominium Act was established which allowed single-family homes in Michigan to be built using a designation called “site condominium” instead of traditionally platted subdivisions in order to expedite plan and permit processing. Since it was faster and easier to build and provide single-family homes to families using this process, and there was no downside to the builder or the families who bought the homes, it became the preferred method of development for many of Michigan’s residential developers and builders. More than 90 per cent of the single-family homes built in and around southeast Michigan over the past ten years have been built as site condos under Michigan’s unique development law.

An unintended consequence is that Federal Housing Administration (FHA) applies the same mortgage rules to site condominiums as those used for traditional, attached condominiums, meaning that 50 – 90 percent of the development had to be pre-sold before FHA would insure mortgages within the development. There is no pre-sale requirement for platted single-family developments.

“As soon as they find out we can’t do FHA financing, homebuyers just walk out the door,” said Bryan Mazurkiewicz of Orchid Development, Inc. in Clinton Township. He is one of two builders in Breton Woods community in Macomb Township, with homes in the mid-$200,000 to low-$300,000 range. “Buyers want to do FHA because of the 3.5 percent downpayment requirement. They can’t come up with the 20 percent often required by conventional lenders. I have lost at least three home sales this year because I cannot offer FHA.”

This FHA issue was, presumably, resolved in July 2008 since one of the provisions of the Housing & Economic Recovery Act of 2008 (Pub.L. 110-289) is an amendment to the National Housing Act (12 U.S.C. 1707(a)) enabling FHA to insure mortgages on site condominiums. The US Department of Housing and Urban Development (HUD) was charged with the implementation of this amendment by publication of a “Mortgagee Letter” which was to be drafted by November 1, 2008 and promulgated by December 31, 2008. Despite urging from Michigan Senators Carl Levin and Debbie Stabenow on this situation that only impacts Michigan, this letter has not yet been published.

“Because these pre-sale requirements are still being enforced we cannot offer FHA financing to families who want to buy a new home,” said Stuart Michaelson of The Windmill Group, developer and builder of Riverwalk in Farmington Hills. “Our community at Riverwalk is ideal for families. A stream meanders through it and it backs up to older neighborhoods. Good schools are within walking distance and there’s a trail leading to a fine playground, baseball field and tennis courts. Families with children love it. But typically today, without being able to offer FHA, you’re out of business.”

Another award winning community is Mill River in South Lyon. “They’ve basically shut me down because of this site condo situation,” said Sam Palazzolo of Palazzolo Brothers Construction, one of the builders of the Cottages at Mill River as well as River’s Edge at Cherry Hill Village and Trailside in Washington Township. “Basically, everyone wants an FHA mortgage right now. Even if they are able to come up with a downpayment large enough for a conventional mortgage, and qualify for a loan, it is nearly impossible for families to find a bank to offer the mortgage.”

Michael C. Stoskopf, Executive Director of Building Industry Association of Southeastern Michigan (BIA) explains, “During robust economic times and broader mortgage credit availability, these requirements did not hinder sales. With the recent collapse of commercial credit availability, it is virtually impossible for builders and developers to achieve the pre-sale requirements that allow FHA-insured mortgages – the primary source of mortgage funding in Michigan – to be used by potential home buyers. Similarly, homeowners may not be able to sell their existing home due to the same requirements.”

“Michigan is the only state in the union that is impacted by this needless bureaucratic delay because other states regulate site condos as single family homes,” said Robert Filka, CEO of the Michigan Association of Home Builders (MAHB). “FHA seems unconcerned about the fact that Michigan consumers are suffering severe hardships because they can’t sell their homes, and builders struggling to survive are forced to carry unsold inventory during these trying times.”

It is ironic that FHA could quickly implement the rules relating to the federal stimulus act, but can’t seem to finalize rules for a law that was passed nearly a year ago,” said Filka.


Editor’s note: Following is contact information for builders and developers in Michigan who are available for interviews to discuss this topic and may be able to refer you directly to potential homebuyers. A Fact Sheet with full background on the Site Condominium issue is also included.

The Michigan Association of Home Builders (MAHB) is a professional trade association comprised of 32 local homebuilder associations around the state and their builder, subcontractor and supplier members. MAHB works to positively promote the building industry and impact legislative, regulatory and legal issues affecting housing affordability.

Headquartered in Farmington Hills, Building Industry Association of Southeastern Michigan (BIA) is a trade associations representing nearly 1,200 builders, remodelers, multi-family property owners, developers and suppliers to the single family and multifamily residential construction industry. BIA is affiliated with the Michigan Association of Home Builders in Lansing and the National Association of Home Builders in Washington, D.C. Membership nationwide includes more than 235,000 individuals and companies.


Southeast Michigan

Stuart Michaelson Sam Palazzolo Bryan Mazurkiewicz

The Windmill Group Palazzolo Brothers Construction Orchid Development, Inc.

248-756-5200 586-739-9162 x303 586-783-4402

Michael C. Stoskopf, CGP

Executive Officer of BIA of Southeastern Michigan



Bob Hubbell Bob Schroeder

Coldwell Hubbell Real Estate Mayberry Homes

517-492-3307 517-712-0620


West Michigan

Mick McGraw David Charron

Eastbrook Homes Charron & Hanisch P.L.C

616-988-1326 616-363-0300


Southwest Michigan

Greg Powell

Powell Construction Services


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