12The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, released new condo and co-op project requirements.

These requirements are in response to the June 2021 collapse of the Champlain Towers South in Surfside, Florida. They were designed to address a condo or co-op building’s safety, soundness, structural integrity, or habitability concerns.

Below are some notable sections from the Freddie Mac announcement. The full announcement can be found here: https://guide.freddiemac.com/app/guide/bulletin/2021-38


Effective Date

“All of the temporary Condominium and Cooperative Project requirement changes announced in this Bulletin will be effective for Mortgages with Settlement Dates on or after February 28, 2022 and will remain in place until further notice.”


Reserve Requirements

As noted in the Freddie Mac bulletin, “sellers may continue to rely on a working capital fund for New Condominium Projects or a reserve study, for both Established and New Condominium Projects, when the project’s budget provides less than 10% replacement reserves.”

When the seller is relying on a reserve study, thee study must meet several requirements that include, but are not limited to:

  • “A reserve study’s financial analysis must validate that the project has appropriately allocated the recommended reserve funds to provide the Condominium Project with sufficient financial protection comparable to Freddie Mac’s standard budget requirements for replacement reserves,
  • The reserve study’s annual reserve funding plan, which details total costs identified for replacement components, must meet or exceed the study’s recommendation and conclusion,
  • The most current reserve study (or update) must be dated within 36 months of the Seller’s determination that a Condominium Project is eligible, and
  • The reserve study must be prepared by an independent expert skilled in performing such studies (such as a reserve study professional, a construction engineer, a certified public accountant who specializes in reserve studies, or any professional with demonstrated experience and knowledge in completing reserve studies)”



As noted in the Freddie Mac announcement, below are just several “…acceptable sources of documentation to determine if a project is in need of Critical Repairs.”

  • Homeowners association (HOA) or cooperative board meeting minutes
  • Engineer’s reports
  • Reserve studies
  • List of necessary repairs provided by the HOA, Cooperative Corporation or management company, and
  • Other substantially similar documentation


Special Assessments

As noted in the new requirements, Freddie Mac will review the status of special assessments to determine eligibility. “This includes any special assessment that the board approved and, if required, owners approved but the board has not initiated collection yet (e.g., a planned special assessment).”

Additionally: “Any documentation used to determine the eligibility of the special assessment, such as the income statement referenced above, must be retained and provided to Freddie Mac upon request.”


Key Terms

“To provide more guidance and specificity as to our temporary requirements, we are providing definitions for certain terms that are widely used in the Multifamily market. Sellers should be familiar with the following:

Critical Repairs

Repairs and replacements that significantly impact the safety, soundness, structural integrity or habitability of the project’s building(s) and/or that impact unit values, financial viability or marketability of the project. These repairs and replacements include:

  • All life safety hazards
  • Violations of any federal, State or local law, ordinance or code relating to zoning, subdivision and use, building, housing accessibility, health matters or fire safety
  • Material Deficiencies
  • Significant Deferred Maintenance

Material Deficiencies     

Unresolved problems that cannot reasonably be addressed by normal operation or routine maintenance and which include:

  • Deficiencies which, if left uncorrected, have the potential to result in or contribute to critical element or system failure within one year
  • Deficiencies that will likely result in a significant escalation of remedial cost related to any material building components that are approaching, have reached or exceeded their typical expected useful life or whose remaining useful life should not be relied upon in view of actual or effective age, abuse, excessive wear and tear, poor maintenance and exposure to the elements
  • Any mold, water intrusions or potentially damaging leaks to the project’s building(s)

Significant Deferred Maintenance            

The postponement of normal maintenance, which cannot reasonably be resolved by normal operations or routine maintenance and which may result in any of the following:

  • Advanced physical deterioration
  • Lack of full operation or efficiency
  • Increased operating costs
  • Decline in property value

Routine Repairs and Maintenance           

Repairs and maintenance that are expected to be completed by the project in the normal course of business and are nominal in cost. These repairs are not considered to be critical and include work that is:

  • Often preventative in nature
  • Accomplished within the project’s normal operating budget
  • Typically completed by on-site staff
  • Focused on keeping the project fully functioning and serviceable
  • Minor deficiencies with a cost of $3,000 or less per repair item that do not warrant immediate attention but that require repairs or replacements that should be undertaken within the next 12 months
  • Scheduled repairs and maintenance that are fully funded, may have a cost greater than $3,000 and will be undertaken within the next 12 months”


Next Step for Board Member and Property Managers

Board members are volunteers, not experts. They will certainly be unaware of revised and constantly evolving building codes. Or the due diligence, inspection, and reporting standards that go under scrutiny after a disaster such as a building collapse.

Nevertheless, board members have a duty to maintain and improve property values within their condominium, homeowner (HOA), and townhome associations.

Board members and property managers must pre-emptively plan and deal with repair and safety issues. Fears of increasing assessments or levying special assessments can lead to underfunded reserves. Deferred maintenance can discourage sales. Ignoring the warning signs and poor planning can create a costly crisis. In addition, ignoring these new guidelines can turn away potential buyers who would otherwise be eligible for a loan.


Legal Resource

Do not hesitate to contact our law firm if your association has questions regarding these new condominium requirements, the board’s fiduciary duties, building codes, reserves, document retention, litigation, or other legal concerns.

Please call 855-537-0500 or visit www.ksnlaw.com.

Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We have four office locations, serving hundreds of clients and thousands of communities throughout Illinois, Indiana, and Wisconsin. Our attorneys are also licensed in Arizona, Florida, and Missouri.


Please note the material contained in this article is for educational and informational purposes only and does not constitute legal advice. No attorney-client relationship is established by your review or receipt of the information contained in this article. You should not act on the information discussed in this article without first obtaining legal advice from an attorney duly licensed to practice law in your State. While KSN has made every effort to include up-to-date information in this article, the law can change quickly. Accordingly, please understand that information discussed in this article may not yet reflect the most recent legal developments. Material is not guaranteed to be correct, complete, or up to date. KSN reserves the right to revise or update the information and statements of law discussed in the article law at any time, without notice, and disclaims any liability for your use of information or statements of law discussed on the article, or the accessibility of the article generally. This article may be considered advertising in some jurisdictions under applicable law/s and/or ethical rules/regulations. © 2022 Kovitz Shifrin Nesbit, A Professional Corporation.