Do you remember the condo building in Miami that collapsed in 2021 due to its structural deterioration and spalling? It was devastating, and many people died. But it also brought attention to how frequently (or infrequently) condominium projects are inspected and maintained, as well as questioning if HOAs have the funds to properly maintain their project.
This incident also became the impetus for Fannie Mae and Freddie Mac to tighten up their condominium project requirements. These requirements go into effect on September 18th, but many lenders have already updated their HOA questionnaires. The changes pertain to a building’s safety, and also if the HOA has enough funds in their reserve account to address repairs. Bottom line on the lending side is that we may start seeing greater challenges in lending on condos, if the HOA cannot properly address concerns.
The below statement comes directly from Fannie Mae’s notice on the change, which can also be found here in full:
Projects in need of critical repairs or that have significant deferred maintenance can result in unsafe living conditions, evacuations, and uninhabitable homes. 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.
Here is a synopsis of the new questions/requirements being asked on HOA questionnaires:
- When was the last inspection or reserve study completed? If it is within 3 years, you must provide the report.
- Did the last inspection have any findings related to the safety, soundness, structural integrity or habitability of the project’s buildings? If yes, have the recommended repairs/replacements been completed?
- Are there any critical repairs and any routine repairs to be completed, and is funding available?
- Does the HOA have a funding plan for deferred maintenance or required repairs?
Condos can often cause a bit of a headache in lending, so this is just a heads up to be prepared for more questions and paperwork for the HOA, which can also potentially add to more time to close.
Please let me know if there is anything I can do to help.