Significant Changes in Mortgage Underwriting Immediately Impacts Florida Condominiums
As a result of the Champlain Towers South collapse, Fannie Mae and Freddie Mac have imposed new requirements for mortgages obtained for condominiums and cooperative residential units. These requirements will make it harder for existing and new condominium unit owners to obtain mortgages.
Fannie Mae will no longer issue project eligibility waivers for significant deferred maintenance or for projects subject to large special assessments if an association does not reserve at least 10 percent of its total annual budget for reserves. As a result, any mortgage issued on a unit within the community that does not meet the 10 percent budget reserve requirement will not be eligible for purchase by Fannie Mae.
While Freddie Mac has strict requirements, too, it is not strictly requiring that 10 percent of the association’s budget be allocated to the association’s reserves. Freddie Mac will evaluate special assessments to determine if they are necessitated for critical repairs by implementing a questionnaire for completion by condominium associations or their property management. Responses will require reviews and interpretations of association governing documents as well as a number of financial and insurance disclosures.
Under the rules buildings “with significant deferred maintenance or in projects that have received a directive from a regulatory authority or inspection agency to make repairs due to unsafe conditions are not eligible for purchase. These projects will remain ineligible until the required repairs have been made and documented.” Critical repairs are defined as those that significantly impact a community’s safety, soundness, structural integrity or habitability, and/or that impact unit values, financial viability or marketability, including life-safety hazards, violations of any laws or ordinances, building code violations, fire-safety deficiencies.
The rules make it more difficult for buyers to obtain financing, and imposes new burdens on associations who must provide the documentation required for these loans. Most associations were unprepared for the sudden rule changes and expanded lender questionnaires putting them at odds with lenders, closing agents, and their own members while trying to determine their legal obligations in providing the new information, limiting their liability for incomplete or inaccurate information, while keeping sales in their communities moving forward.
Indeed, in Florida there is no requirement that any association provide the information requested in the new questionnaires. This is implicitly recognized by Fla. Stat. 718.111 (12)(e)1:
(e)1. The association or its authorized agent is not required to provide a prospective purchaser or lienholder with information about the condominium or the association other than information or documents required by this chapter to be made available or disclosed. The association or its authorized agent may charge a reasonable fee to the prospective purchaser, lienholder, or the current unit owner for providing good faith responses to requests for information by or on behalf of a prospective purchaser or lienholder, other than that required by law, if the fee does not exceed $150 plus the reasonable cost of photocopying and any attorney’s fees incurred by the association in connection with the response.
Ultimately, though, if associations want to ensure purchasers can obtain loans for units in their condominiums, they will have to abide by the new requirements by providing information about building conditions and association finances. Recognizing the issue, the Community Association Institute (“CAI”) sent a letter to the Federal Housing Finance Agency (FHFA) requesting suspension of the new guidelines for at least a year to give owners and community’s time to adjust. CAI has also released a new guide to help navigate the new requirements.
The continued marketability of units is vital to preserving property values. All condominium and cooperative associations should be consulting with their legal counsel to establish procedures and protocols to ensure they are answering any questions from Fannie Mae and Freddie Mac questionnaires timely and accurately.