The Federal National Mortgage Association (FNMA, otherwise known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC, commonly known as Freddie Mac) have both created new sets of requirements impacting condominium associations in recent years.

These new guidelines were primarily in response to the partial collapse of a Surfside, Florida condominium building in 2021. The tragedy raised concerns about the safety of buildings, leading to calls for increased inspections and regulations. “…Fannie Mae and Freddie Mac have worked together to update project review requirements to assist lenders in identifying projects that may have issues that result in unsafe conditions, and to promote sustainable homeownership.”

Both Fannie Mae and Freddie Mac issue official updates or bulletins to their approved mortgage lenders and servicers that provide clarification, operational details, and provide guidance on regulatory changes.

These bulletins are especially critical since Fannie Mae and Freddie Mac hold a significant role in the U.S. mortgage market, particularly for lenders who work with properties located within condominium community associations and cooperatives.

Below are some of the updated requirements:

 

Number of units

  • “These requirements apply to all loans secured by units in condo projects (condo loans) and all cooperative share loans secured by share ownership in a co-op project (co-op share loans) with five or more attached units, regardless of the project review type.”

 

Structural and mechanical inspection reports

  • “Require a review of all structural or mechanical inspection reports that have been completed within 3 years of the project review date.”

 

Special assessments

  • “Freddie Mac is updating its project review requirements to address projects in need of Critical Repairs and projects that have material deficiencies (such as significant deferred maintenance) or special assessments.”
  • “Special assessments for these types of issues can result in a substantial financial hardship for homeowners, which can put them at risk for loan default and foreclosure.”
  • “These project review requirements…provide new requirements for condo or co-op projects with special assessments.”

 

Repairs and evacuation order

  • “Prohibit sale of condo loans and co-op share loans in projects in need of critical repairs.”
  • “Prohibit sale of condo loans and co-op share loans in projects with unfunded repairs totaling more than $10,000 per unit.”
  • “Prohibit sale of condo loans and co-op share loans in projects with current evacuation orders due to unsafe conditions.”

 

Unavailable status

  • Fannie Mae maintains a list of “unavailable” properties that have issues involving environmental hazards, title issues, structural problems, or other issues that would affect the safety, soundness, or marketability of the property. Properties on the unavailable list are ineligible for Fannie Mae financing and lending.
  • Fannie Mae utilizes an online took known as the Condo Project Manager (CPM) to “to facilitate the lender’s review of the project to determine if it meets Fannie Mae’s project eligibility requirements.”
  • The new requirements would “prohibit sale of condo loans and co-op share loans in projects that have an “Unavailable” status in Condo Project Manager™ (CPM™).”

 

Deadlines

  • “Lenders may incorporate these policy changes into the review process immediately.”
  • “Lenders must implement these new policies for all new loan applications dated on or after Sept. 18, 2023.”
  • “…if a lender has an unexpired project review completed prior to Sept. 18, 2023, they must still validate these new requirements have been met for loan applications dated on or after that date. This applies to all review types.”

 

Additionally, below are recent and relevant Fannie Mae and Freddie Mac bulletins:

 

Next Steps for Board Member and Property Managers

Board members are volunteers, not experts. They will certainly be unaware of revised and constantly evolving legal requirements impacting their communities. 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.

 

Six Proactive Steps to Consider

1. Create a maintenance responsibility chart – The association’s attorney can draft this quick reference guide of the community’s governing documents. It acts as an overview of unit owner and association maintenance responsibilities. The chart is specific to the community and may address items such as HVAC, landscaping, pest control, snow removal, fencing, and balconies.

2. Organize association documents – Scattered, misplaced, and outdated documents can lead to poor decision-making and inefficiency. Organized documents provide board members with a clear understanding of the association’s financial and administrative matters. It will also assist associations in maintaining legal compliance with local, state, and federal laws and regulations.

3. Evaluate the association’s budget – A thriving community starts with a thoughtfully prepared budget. Generally, a budget should include the association’s estimated annual revenue, expenses, and reserve fund contributions. Reviewing past budgets may assist in forecasting upcoming expenses and funding gaps.

4. Review the association’s reserves – Along with upcoming expenses and projects, the budget should also address the association’s reserves. Adequate reserve funding can be integral in the event of an emergency or unexpected costs. An underfunded reserve account can also be a red flag for potential buyers and mortgage lenders.

5. Prepare for document requests – Buyers are entitled to receive certain disclosures from the seller or developer before purchasing a unit. These disclosures typically include information about the financial health of the association, any pending legal actions or disputes, and any defects or deficiencies in the common elements of the property. Board members should work with their management, financial consultants (ex. accountant, reserve specialist), and attorney to compile and confirm information for real estate sales and refinancing transactions.

6. Assess your community’s assessments – The cost for utilities, maintenance, contractor services, and other association resources continue to increase. Board members should regularly reevaluate their community’s assessment levels to make sure they are adequate and utilize their association’s collection policy and work with the association’s attorney to address any delinquencies.

 

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 represent thousands of clients and community associations throughout the US with offices in several states including Florida, Illinois, Indiana, and Wisconsin.

 

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