How to Buy a Condo in 2022

With Miami being the city of condo's why is it so much harder to own one?

In January 2022, New guidelines were released for lending in condo and co-op properties in response to the tragic collapse of the Champlain Towers condominium in Surfside, Florida. The new guidelines have had a massive impact on borrowers, lenders, and condos.

The focus of these new guidelines is squarely on ensuring that lenders do not lend on properties that are unsafe and to ensure that associations have enough capital to repair problems that may exist. While these new guidelines create more transparency into the condition and financial health of condos, they have wreaked havoc on lenders trying to close these loans.

For starters, before lenders are required to use Fannie Mae’s new condo questionnaire and addendum, which requires lenders to document a property’s structural and mechanical components, deferred maintenance, and special assessments.

Meanwhile, boards and managers are pushing back hard. Under advice from legal counsel, many are refusing to answer questions about the buildings they represent. Lenders are forced to either reject the loan or investigate the property on their own. The latter choice takes a lot of time and effort, and with no guarantee they’ll be able to close the loan.

New guidelines require lenders to determine whether a property has deferred maintenance, and what impact it may have on the ability to reside in and the financial health of a development. Not making the needed repairs could create long-term problems, from higher repair costs to the kind of disaster that occurred in Surfside. Examples may include “full or partial evacuation of the building to complete repairs as required for more than seven days,” or improvements that involve “many major components. ”

Fannie Mae has also created an “unavailable” list of condominium and cooperative properties that do not meet one or more of the newly issued guidelines. Once Fannie Mae has been made aware that a property does not meet its new lending guidelines, the property is added to this “unavailable” list and mortgage financing is no longer available.

The newest guidelines change has an increased focus on requiring condo and co-op boards to maintain a 10% reserve line item for future maintenance. Although this requirement has been in place for years, the 10% reserve line-item has often been left out of condo and co-op budgets so unit owners could enjoy lower HOA fees. Some condo and co-op boards have refused to add the reserve line item to their operating budget.

Special assessments are typically used to pay for unforeseen expenses on a condo or co-op property. Although lending guidelines haven’t changed very much regarding special assessments, when coupled with the new Fannie/Freddie lending guidelines, they can stop a condo property from obtaining lending approval.

The new condo questionnaire addendum asks several additional questions regarding building safety, soundness, structural integrity, habitability, deferred maintenance, and special assessments. So far, most condo and co-op managers and attorneys have called these questions an overreach, as boards want to avoid attesting to the structural condition of the property. As a result, the questions are creating significant delays—but because they are required for both Fannie Mae’s limited and full reviews, there’s no way of getting around it.

All in all, however hard it is to concur with the spirit of the new guidelines, especially after last year’s tragedy. If it saves lives by preventing another catastrophe, then they may be well worth it.

Source: https://nationalmortgageprofessional.com/news/new-gse-guidelines-challenge-condoco-op-lenders