A group of condominium owners has filed a lawsuit against a bank and developer. The owners decided legal action was necessary when 3 of them could not refinance their loans because the community did not meet the 2009 Fannie Mae underwriting guidelines. The primary complaint is that the bank who sold to the developer and the developer should have known that by selling the remaining buildings to one individual for the purpose of turning it into apartments was going to have negative impact on the remaining owners and their property values. The owners claim that the bank and the developer breached their fiduciary duty.
With continuing tightening of underwriting guidelines by FHA, FNMA and FHLMC, we may see more of these types of lawsuits by owners who are not able to sell or refinance their homes because existing communities no longer meet the underwriting guidelines. It is likely, however that the suits will be against the board members claiming a breach of their fiduciary duty for failing to take steps to preserve the qualifications of the community.To learn more read our article, “What your Condominium Association Should Know About FHA Lending Guidelines.”