In the wake of the Champlain Towers South collapse in Surfside, Florida last year, the two federally chartered agencies that back most residential mortgages in the country, Freddie Mac and Fannie Mae, have instituted new rules requiring lenders to verify the condition of condominium buildings before approving loans.
The stated goal: Encouraging condo association boards to carry out regular inspections and maintenance, correct structural and mechanical deficiencies, and set aside enough money to pay for the work.
Here are highlights of what condo owners, prospective buyers and sellers and condo associations need to know:
—Freddie Mac and Fannie Mae will no longer back mortgages in condo buildings facing unfinished “critical repairs” or material deficiencies such as mold or water intrusions, or that have deferred maintenance resulting in “advanced deterioration.” Ongoing routine maintenance or repairs won’t be an issue. But buildings that have not set aside sufficient funds to pay for needed critical work will be ineligible.
—Lenders must ask condo associations to fill out a three-page questionnaire and scour condo board meeting minutes. The queries include when the building was last inspected, what the findings were, whether repairs are underway or completed, and whether there are other structural or mechanical issues the board is aware of. The form also asks about the status of any special assessments imposed to pay for repairs to determine if enough money is being collected.
—Buyers in buildings undergoing significant structural or mechanical repairs, or where work has not been undertaken or completed, will be unable to obtain mortgages backed by Fannie or Freddie, until the associations can show repairs have been finished and approved by local authorities.
—Real estate brokers are advising condo owners looking to sell their units to do due diligence early, by asking their associations about the status of any repairs or structural and maintenance problems. Some brokers are advising buyers to steer clear of condos needing or undergoing significant repairs because the work can take years, rendering the units ineligible for loans backed by the agencies.
—Brokers and lenders also are advising condo associations to initiate inspections and any needed repairs now, even if they’re not legally required or the buildings are relatively new, to avoid problems with Fannie Mae or Freddie Mac financing in the future. Said Farid Moussallem, a broker at Compass and board member at the Miami chapter of the Master Brokers Forum: “Now a condo has to be vetted and approved. It creates an urgency to address any issues a condo may have.”
—Brokers and lenders are telling condo buyers and sellers to expect delays in the processing of mortgage applications, at least initially, as banks and associations gather the required information and figure out how to handle the new requirements.
