2022 MAY ADD UP TO TROUBLE FOR CONDOMINIUMS

With the turning of the calendar from 2021 to 2022 new Fannie Mae lending guidelines become effective on January 1, 2022.  One of the new lending guidelines includes a prohibition on the purchase of loans in communities with significant deferred maintenance or unsafe conditions.  These new guidelines are a direct result of the Surfside tragedy in Florida, which put a spotlight on aging condominium and co-op communities.

In Lender Letter (LL-2021-14) dated October 13, 2021, Fannie Mae adopted temporary requirements which impact the eligibility of condominium and co-op projects containing attached units.  The new guidelines provide that “loans secured by units in condo and co-op projects with significant deferred maintenance or in projects that have received a directive from a regulatory authority or inspection agency to make repairs due to unsafe conditions are not eligible for purchase”.  Meaning, if your community has more than five attached units, and suffers from deferred maintenance Fannie Mae will not purchase or back any loans regardless of eligibility status.

Deferred maintenance includes:

• Repairs that require a full or partial evacuation of the building (for more than 7 days or an unknown period of time) to complete.
• The community has deficiencies, defects, substantial damage or deferred maintenance that:
  • is severe enough to affect the safety, soundness, structural integrity or habitability of the building;
  • the improvements need substantial repairs and rehabilitation, including many major components; or
  • impedes the safe and sound functioning of one or more of the building’s major structural or mechanical elements, including but not limited to the foundation, roof, load bearing structures, electrical system, HVAC, or plumbing.
• Have failed to obtain an acceptable certificate of occupancy or pass local regulatory inspections or re-certifications are not eligible.

There are also new guidelines relating to special assessments.  Special assessments must be reviewed by the Lender including: the reason for the special assessment, the total amount of the special assessment and repayment terms, all documentation to support a determination that the special assessment does not impact the financial stability, viability, and condition, and marketability of the project, and how it impacts the borrower’s qualifications.

In looking at these guidelines, what you may expect is expanded lender questionnaires which ask that the association or its management company certify that none of the above conditions exist in the community.  Merely providing a reserve study report will not be sufficient as the lenders are looking for affirmative statements that the project does not suffer from deferred maintenance.  Additional information regarding this issue can be found here.  As we get deeper into the new year, we hope that new guidance is provided to assist associations in complying with these requirements. 

With this said, communities that had formerly attempted to save money by performing spot repairs rather than major repairs, may no longer be able to do so and remain marketable.  The message being sent at this time is there is an expectation that communities perform major maintenance in a timely manner. FAQs: Project Standards Requirements, Deferred Maintenance, and Special Assessments can be found here.

Should you have any questions regarding the new Fannie Mae lending guidelines, please contact one of the Altitude attorneys at [email protected] or 303-432-9999.