UncategorizedNew Condominium Lending Rules Your Clients Need to Know

Following the 2021 Surfside condominium collapse in Florida, newly implemented condo laws have been causing trouble for buyers and sellers.

The 12-story structure fell due to several factors, including degrading structural integrity. The condo association knew of the issues with the building, but the owners weren’t willing to pay for the upgrades and repairs. This caused the death of 99 people.

In the wake of the disaster, Fannie Mae & Freddie Mac implemented a three-pronged approach to ensure condominiums were properly cared for. The approach requires condo associations to have sufficient financial resources to:

  • Assess problems with the building
  • Fix issues as they arise
  • Create a plan for future maintenance

A 12-question form must be submitted by all property managers or condo boards to assess building health and association finances.

Limiting Sales in the Best Interest of Americans

Fannie Mae & Freddie Mac’s updated system looks to protect condo owners from future disasters like Surfside. The questionnaire limits sellers and buyers by removing their support from lenders.

When a condo buyer applies for a mortgage, the bank supplies the loan. This loan is often processed through Fannie Mae & Freddie Mac. Therefore, if the condo associations haven’t been properly maintaining the building or are unable to answer the questions on the form, lenders lose the security of The Federal National Mortgage Association and The Federal Home Loan Mortgage Corporation not only for one transaction, but also for all other sellers in the building. This causes a problem for buyers, sellers, and brokers.

Why It’s Crucial to Work With an Experienced Real Estate Attorney

An experienced real estate attorney will recommend that their clients avoid a low assessment for a building. Low Condo Association fees sound good in theory but rarely work out in practice. Low fees mean the condo associations might not be making repairs when they come due and aren’t even aware of the work needed on their properties.

Real estate attorneys who understand the intricacies of Condo Associations will look at the association’s budget and reserves, as well as meeting minutes. This determines how much money the association has to pay for upcoming problems and how aware they are that such problems exist.

The Takeaway for Brokers

As brokers work with clients to navigate the new condo laws set forth by lenders, the best things you can do are:

  • Ask for meeting minutes
  • Obtain a copy of the budget
  • Ask if a Reserve Study has been conducted recently

If there are special assessments coming up, or underlying issues with a property, these two things help bring it to light. Awareness is key as a broker. Awareness of current finances and not only of potential structural issues, but how aware the condo association is of those issues.

Since standard contracts—both the Multi-Board 7.0 and the CAR—require the seller to pay known Special Assessments and to address Special Assessments announced after the contract has been entered into but before closing, the more information the parties have in advance of entering into a contract, the more effective the negotiations can be.

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