§ 36.4360 Documentation and related requirements-flexible condominiums and condominiums with offsite facilities.

(a) Expandable condominiums. The following policies apply to condominium regimes which may be increased in size by the declarant:

(1) The declarant's right to expand the regime must be fully described in the declaration. The declaration must contain provisions adequate to ensure that future improvements to the condominium will be consistent with initial improvements in terms of quality of construction. The developer must build each phase in accordance with an approved plan for the total development supported by detailed plats and plans.

(2) The reservation of a right to expand the condominium regime, the method of expansion and the result of an expansion must not affect the statutory validity of the condominium regime or the validity of title to the units.

(3) The declaration or equivalent document must contain a covenant that the condominium regime may not be amended or merged with a successor condominium regime without prior written approval of the Administrator. Declarant may have the proposed legal documentation reviewed prior to recordation. However, the Administrator's final approval of the merger will not be granted until the successor condominium has been legally established and construction completed.

(4) Liens arising in connection with the declarant's ownership of, and construction of improvements upon, the property to be added must not adversely affect the rights of existing unit owners, or the priority of first mortgages on units in the existing condominium property. All taxes, assessments, mechanic's liens, and other charges affecting such property, covering any period prior to the addition of the property, must be paid or otherwise satisfactorily provided for by the declarant.

(5) The developer must purchase (at developer's own expense) a liability insurance policy in an amount determined by the Administrator to cover any liability to which owners of previ

ously sold units might be exposed. This policy should be endorsed "as owner's interest might appear."

(6) Each expandable project shall have a specified maximum number of units which will give each unit owner a minimum percentage of interest in the common elements. Each project shall also have a specified minimum number of units which will give each unit owner a maximum percentage of interest in the common elements. The minimum number of units to be built should be that which would be adequate to reasonably support the common elements. The maximum number of units to be built should be that which would not overload the capacity of the common facilities. The maximum possible percentage(s) and the minimum possible percentage(s) of undivided interest in the common elements for each type of unit must be stated in the declaration or equivalent document.

(7) The declaration or equivalent document shall clearly set forth the basis for reallocation of unit owner's ownership interests, common expense liabilities and voting rights in the event the number of units in the condominium is increased. Such reallocation shall be according to the applicable criteria set forth in §§ 36.4357(b) and 36.4358(c) (1) and (2).

(8) The declarant's right to expand the condominium must be for a reasonable period of time with a specific ending date. The maximum acceptable period usually will be from 5 to 7 years after the date of recording the declaration.

(b) Series projects—(1) Each phase in the series approach is to be considered as a separate project. A separate set of legal documents must be filed for each phase or project that relates to the condominium within its own boundary. The declaration for each phase must describe the particular project as a part of the whole development area, but subject only the one phase to the condominium regime. A separate unit ratio must be established that would relate each unit to all units of the particular condominium for purposes of ownership in the common areas, voting rights and assessment liability. A separate association may be created

to govern the affairs of each condominium. Each phase is subject to a separate presale requirement.

(2) In the case of proposed projects, or projects under construction, the declaration should state the number of total units that the developer intends to build on other sections of the development area.

(c) Other flexible condominiums. Condominiums containing withdrawable real estate (contractable condominiums) and condominiums containing convertible real estate (portions of the condominium within which additional units or limited common elements, or both, may be created) will be considered on an individual case basis. (38 U.S.C. 210(c)(1), 1803(c)(1), 1810(a)(6))

(d) Ownership and operation of offsite facilities-(1) Title requirements. Evidence must be presented that the offsite facility owned by an owners' association with mandatory membership by condominium unit owners has been completed and conveyed by the developer to a nonprofit corporation approved by the Administrator with title insured by an owner's title policy or other acceptable title evidence showing title in the nonprofit corporation free of encumbrances.

(2) Mandatory membership. The declaration of the condominium (each condominium in a series development) and the articles of incorporation of the nonprofit corporation which owns the offsite facility must provide the following:

(i) The owner of a condominium unit is automatically a member of the offsite facility nonprofit corporation and that upon the sale of the unit, membership is automatically transferred to the new owner/purchaser. If membership in an offsite owners' association is voluntary, no credit in the CRV (certificate of reasonable value) valuation may be given for such offsite amenities.

(ii) Each member of the nonprofit corporation must have a representative vote at meetings of the corporation.

(iii) Each member must agree by acceptance of the unit deed to pay a share of the expenses of the nonprofit corporation as assessed by the corporation for upkeep, insurance, reserve

fund for replacements, maintenance and operation of the offsite facility. The share of said expenses shall be equitably determined. Failure to pay such assessment must result in a lien against the individual unit in the same manner as unpaid assessments by the association of owners of the condominium.

(3) Developer payment of offsite facility expenses in a series project. Until the developer has completed all of the intended condominium phases in a total condominium development and established each condominium regime by filing a separate declaration, approved by the Veterans Administration for each project, the balance of the total sum of the expenses of the offsite facility not covered by the assessment against the unit owners should be assessed against and be payable by the developer commencing on the first day of the first month after the first unit is conveyed to a homeowner in the first phase. If this balance is not paid, it must become a lien against those parcels of land in the development area which are owned by the developer. The collection of such debt and enforcement of such lien may be by foreclosure or such other remedies afforded the nonprofit corporation under local law.

(4) Board of directors, first meeting. Until the first annual meeting, the nonprofit corporation may be governed by an interim board composed of developer representatives. The annual meeting of the nonprofit corporation should take place within 1 year after the first condominium unit is conveyed. At the first annual meeting the board of directors will be elected by owners of the condominium units. (38 U.S.C. 210(c)(1), 1803(c)(1), 1810(a)(6))

[44 FR 47341, Aug. 13, 1979]

§ 36.4360a Appraisal requirements.

(a) Existing resale condominiums. Upon acceptance by the local office of the organizational documents, the project and unit(s) proposed as security for guaranteed financing shall be appraised to ensure that they meet MPR's (Minimum Property Requirements) and are safe, sanitary, and structurally sound. The Veterans Ad

ministration MPR's for existing construction apply to all existing resale condominiums including conversions, except that water, heating, ventilating, air conditioning and sewer service may be supplied from a central source. (38 U.S.C. 210(c)(1), 1803(c)(1), 1810(a)(6), (b)(5))

(b) Proposed condominiums or existing condominiums with declarant in control or marketing units-(1) Low rise and high rise condominiums. Low rise and high rise condominiums including conversions shall comply with local building codes. In those areas where local standards are nonexistent, inferior to, or in conflict with Veterans Administration objectives, a certification will be required from a registered professional architect and/or registered engineer certifying that the plans and specifications conform to one of the national building codes which is typical of similar construction methods and standards for condominiums used in the area.

(2) Horizontal condominiums. The MPS (Minimum Property Standards) for One and Two Family Dwellings, HUD (Department of Housing and Urban Development) 4900.1, as identified in § 200.929(a) and (b)(1) of title 24 of the Code of Federal Regulations are hereby incorporated by reference into this section.

NOTE: Incorporation by reference provisions approved by the Director of the FEDERAL REGISTER on August 7, 1979.

(i) Proposed horizontal condominiums (excluding conversions) must be constructed according to HUD 4900.1, with the exception of the last sentence of paragraph 202-2, "Individual utilities serving a living unit shall not pass over, under or through another living unit", which shall not apply. Furthermore, references made therein to submission of applications for variations to the Department of Housing and Urban Development, are also not applicable. Requests for variations in projects subject to Veterans Administration approval shall be directed to Veterans Administration field installations. Amendments to HUD 4900.1 are published in the FEDERAL REGISTER. (See 24 CFR 200.933.) A current copy of HUD 4900.1 is available for public inspection in accordance with § 200.931

of title 24 of the Code of Federal Regulations. HUD 4900.1 shall also be available for public inspection at Veterans Administration field installations. Veterans Administration policies and procedures applicable to singlefamily residential construction shall also apply to horizontal condominiums.

(ii) Proposed or existing (declarant in control or marketing units) horizontal condominium conversions shall comply with local building codes. In those areas where local standards are nonexistent, inferior to, or in conflict with Veterans Administration objectives, a certification will be required from a registered professional architect and/or registered engineer certifying that the plans and specifications conform to one of the national building codes which is typical of similar construction methods and standards for condominiums used in the area.

(3) Additional condominium conversion requirements. (i) The declarant of a condominium project, which is (a) proposed, (b) under construction, or (c) an existing project with a declarant in control or marketing units not previously occupied, must furnish structural and mechanical component statements on the present condition of all accessible structural and mechanical components material to the use and enjoyment of the condominium. These statements must be completed by a registered professional engineer and/or architect prior to the guaranty of the first unit loan in the project. Each statement also must give an estimate of the expected useful life of the roof, elevators, heating and cooling, plumbing and electrical systems assuming normal maintenance. A minimum of 10 years estimated remaining useful life is required on all structural and mechanical components. The noted statements and remaining useful life requirement are not applicable to existing resale conversion projects where the declarant is no longer marketing units and/or in control of the association. Expandable or series condominium conversions require engineering and architectural statements on each stage or phase.

authority(ies) of the adequacy of offsite utilities servicing the site (e.g., sanitary or water) is required.

(c) Presale requirements—(1) Proposed construction or existing declarant in control. Bona fide agreements of sale must have been executed by purchasers (who are contractually obligated to complete the purchase and who intend to occupy the property as their principal place of residence) of 70 percent of the total number of units in the project. Lenders shall certify as to satisfaction of the presale requirement prior to Veterans Administration guaranty of the first unit loan. Multiple purchases of condominium units by one owner are to be counted as one sale when computing the number of sales within a condominium regime to determine if this requirement has been met. When a declarant can demonstrate that a lower percentage would be justified, the Administrator, on an individual case basis, may approve a presale requirement of less than 70 percent. Reduction of the 70 percent presale requirement will be considered when:

(i) Strong initial sales demonstrate a ready market, or

(ii) The declarant will provide cash assets or acceptable bonds for payment of full common area assessments to the owners' association until such assessments are assumed by unit purchasers, or

(iii) Subsequent phases of an overall development are being undertaken in a proven market area, or

(iv) Previous experience in similar projects in the same market area indicates strong market acceptance, or

(v) The development is in a market area that has repeatedly indicated acceptance of such projects.

(2) Multiphase-proposed or existing declarant in control. The requirements of paragraph (c)(1) of this section shall apply to each individual phase of a multiphase development, taking into consideration that each individual phase must be capable of selfsupport in the event that the developer does not complete all planned phases.

(3) Existing-resales. An occupancy level based on owner residency of 70 percent of the total units will apply.

The Administrator may consider a lesser occupancy percentage on a caseby-case basis. (38 U.S.C. 210(c)(1), 1803(c)(1), 1810(a)(6)

(d) Warranty. Except in condominium conversion projects, each Certificate of Reasonable Value issued by the Administrator relating to a proposed or existing not previously occupied dwelling unit in a condominium project shall be subject to the express condition that the builder, seller, or the real party in interest in the transaction shall deliver to the veteran purchasing the dwelling unit with the aid of a guaranteed or insured loan a warranty against defects for the unit and common elements, in the form prescribed by the Administrator. The unit shall be warranted for 1 year from the date of settlement or the date of occupancy (whichever first occurs). The common elements shall be warranted for 1 year from such time as units to which 60 percent of the votes in the unit owners' association appertain have been transferred to unit owner other than the warrantor. For these purposes, defects shall be those items reasonably requiring the repair, renovation, restoration, or replacement of any of the components constituting the unit or common elements. Items of maintenance relating to the unit or common elements are not covered by the warranty. No certificate of guaranty or insurance credit shall be issued unless a copy of such warranty, duly receipted by the purchaser, is submitted with the loan papers. (38 U.S.C. 210(c)(1), 1803(c)(1), 1810(a)(6))

[44 FR 47342, Aug. 13, 1979]

§ 36.4361 Right of the Administrator to refuse to appraise residential properties.

(a) The Administrator may refuse to appraise dwellings to which a request for appraisal relates if the Administrator determines that any party or parties involved or financially interested in the construction or sale of such units (1), have theretofore participated in the construction or sale of units sold to veterans which involved (i) substantial deficiencies in the construction, or (ii) a failure or indicated inability to discharge contractual obligations to the veterans who contracted

for the construction or purchase of such units, or (iii) the use of a contract of sale or of methods or practices in marketing such units of a type which under standards promulgated by the Administrator was unfair or unduly prejudicial to the veterans concerned, or (2), have been refused the benefits of participation under the National Housing Act pursuant to a determination of the Secretary of Housing and Urban Development, or (3), have declined to sell a residential property to an eligible veteran because of race, color, religion, sex, or national origin. Upon any such refusal to appraise, the Administrator shall give written notice thereof to the person or firm submitting the appraisal request and shall state the basis for such refusal.

(b) Except when the refusal to appraise is based upon action taken by the Secretary of Housing and Urban Development, any person or persons affected by such refusal to appraise shall have the right within 10 days after receipt of written notice of such refusal to file with the Administrator, by registered mail, a request for a hearing. Upon receipt of such request, the Chief Benefits Director shall, as promptly as may be deemed feasible to do so, designate a time and place as may be deemed appropriate for such hearing and shall appoint one or more persons who shall constitute a board to conduct the hearing. The person or persons requesting such hearing shall be afforded full opportunity to appear at the hearing in person, or by counsel, or both, and to introduce evidence showing why the sanction should be terminated or modified. Authority is hereby granted to the persons designated to conduct the hearing to administer oaths to witnesses.

(c) As soon as is practicable after conclusion of the hearing, the board will make findings of fact and recommendations in writing to the Chief Benefits Director. The builder or other person requesting the hearing will be furnished with a transcript of the hearing and with a statement of the board's findings of fact. Such builder or other person shall have the right within 14 days after receipt of such copy to file with the Chief Bene

fits Director a brief of either, or both, facts and law.

(d) Upon receipt of the findings and recommendations of the hearing board and the brief of the builder or other person requesting the hearing, if a brief is filed, the Chief Benefits Director shall make a determination in the case; i.e., whether the refusal to appraise as originally imposed is continued, modified, or terminated, and what terms or conditions, if any, are imposed for termination or modification of the refusal to appraise. Notice of such determination shall be given to the person requesting the hearing. Such person shall have the right to appeal such decision to the Administrator within 30 days after the date of receipt of such notice. In the event of an appeal, the Administrator will decide the matter finally and will notify the person who filed the appeal of the decision.

(e) Where the refusal to appraise is based solely on action taken by the Secretary of Housing and Urban Development the sanction will be lifted upon presentation to the Veterans Administration by the builder concerned of satisfactory evidence of his or her reinstatement as a participant in the programs administered by the Federal Housing Administration.

[17 FR 9668, Oct. 25, 1952, as amended at 20 FR 769, Feb. 4, 1955; 20 FR 9180, Dec. 10, 1955; 23 FR 8297, Oct. 28, 1958; 24 FR 5371, July 2, 1959; 40 FR 34594, Aug. 18, 1975] § 36.4362 Requirement of

warranty.

construction

Each certificate of reasonable value issued by the Administrator relating to a proposed or newly constructed dwelling unit, except those covering one-family residential units in condominium housing developments or projects within the purview of §§ 36.4356 through 36.4360a, shall be subject to the express condition that the builder, seller, or the real party in interest in the transaction shall deliver to the veteran constructing or purchasing such dwelling with the aid of a guaranteed or insured loan a warranty, in the form prescribed by the Administrator, that the property has been completed in substantial conformity with the plans and specifications upon