MORTGAGE LENDERS TIGHTEN CONDOMINIUM AND COOPERATIVE PROJECT REQUIREMENTS

In June 2021, the Champlain Towers South Condominium collapsed in Surfside Florida ignited an array of safety concerns for similar structures throughout the country and around the world. Since then, there has been even more of a spotlight on the structural safety of condominium towers, with more safety measures than ever being implemented to ensure these buildings are safe for people to live in. As we head into 2022, major lenders Fannie Mae and Freddie Mac have updated their lending guidelines on condominium buildings.  

There are certain questions Fannie and Freddie ask for ALL Loans on Condos with 5 or more units:

  1. Are there any pending or active special assessments?
  2. Are there any critical maintenance, material deficiencies, or significant deferred maintenance approved now or planned in the future? 
  3. Are there any code violations or local government certifications the HOA has not satisfied now or in the last 5 years?

After reviewing these questions, and if the answer is yes to any of the above, the lenders need to have a Maintenance/Special Assessment addendum completed and signed by the HOA. From there, the HOA or property manager must confirm if the repairs have been completed.

Some other questions that will be asked by the lender to the HOA include:

  1. Is any percentage of the special assessment delinquent (not just our unit)?
    • If yes, what percentage of the dollar amount assessed is delinquent? 
  2. Is any portion of the repairs being funded by the HOA’s reserves?
  3. Do sufficient reserves exist currently to complete ALL the work regardless of special assessments? 
  4. Has the determination been made that the amount of the assessment is sufficient to complete the work?
    • If no, will future assessments be imposed to complete the work?

The HOA will also be asked to provide the following financial documents, dated within the last 60 days:

  1. An income expense statement
  2. Balance sheet
  3. An approved 2021 budget

Other documents the HOA will be asked to provide include:

  • The last 6 months of meeting minutes
  • A reserve study ONLY if it was completed within the last 2 years

It’s important to note that These 3 questions do NOT apply to these property type/review types regardless of the investor:

  • 2-4 unit condos
  • Detached condos
  • Attached and detached Planned Unit Developments (PUDs)
  • Project Eligibility Review Service (PERS) approved projects

Without these answers, loan underwriters are not able to provide the clear to close on loans already in process. With all of these new guidelines in place and additional documentation being provided, it gives lenders the entire picture of the structural safety and maintenance of the building before approving a loan for the potential buyers.

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