There have been some big changes at Fannie Mae and Freddie Mac since the tragic Surfside Condominium collapse in June 2021 that killed 98 people. The building was 40 years old, and the culprit of the building collapse was known problematic structural deficiencies and deferred maintenance that had been postponed for years. With an event of this magnitude, the agencies tightened up guidelines to prevent an event such as that from ever happening again.
What you need to know:
Projects in need of critical repairs are defined as those needing repairs or replacements that significantly impact the safety, soundness, structural integrity, or habitability of the project’s building(s), or the financial viability or marketability of the project. Critical repairs include conditions such as:
- Material deficiencies, when left uncorrected, have the potential to result in or contribute to critical element or system failure within one year;
- Any mold, water intrusions, or potentially damaging leaks to the project’s building(s);
- Advanced physical deterioration;
- Any project that failed to pass state, county, or other jurisdictional mandatory inspections or certifications specific to structural safety, soundness, and habitability; or
- Any unfunded repairs costing more than $10,000 per unit that should be undertaken within the next 12 months (does not include repairs made by the unit owner or repairs funded through a special assessment).
Examples of some items to consider, but are not limited to, sea walls, elevators, waterproofing, stairwells, balconies, foundation, electrical systems, parking structures or other load-bearing structures.
What’s Acceptable:
If damage or deferred maintenance is isolated to one or a few units and does not affect overall safety, soundness, structural integrity, or habitability of the project, then these requirements do not apply.
Routine repairs are not considered to be critical and include work that is:
- Preventative in nature or part of normal capital replacements (for example, focused on keeping the project fully functioning and serviceable): and
- Accomplished within the project’s normal operating budget or through special assessments that are within guidelines.
A project with an evacuation order due to an unsafe condition, either for a partial or total evacuation of the project’s building(s), is ineligible until the unsafe condition has been remediated and the building(s) is deemed safe for occupancy.
Special Assessments
Special assessments may be current or planned. Lenders must obtain and review the following information for each special assessment to determine if it addresses a critical repair:
- No more than 15% of the units can be delinquent 60 or more days on their special assessment;
- What is the purpose of the special assessment;
- When was the special assessment approved and is it planned (approved by the unit owners, but not yet initiated by the board) or already being executed;
- What was the original amount of the special assessment and the remaining amount to be collected, and;
- When is the expected date the special assessment will be paid in full.
Inspection Reports – Three-Year Rule
If a structural and mechanical inspection was completed within three years of the lender’s project review date, the lender must obtain and review the inspection report. The report cannot indicate that any critical repairs are needed, no evacuation orders are in effect, and no regulatory actions are required.
If the inspection report indicates there are unaddressed critical repairs, the project is ineligible until the required repairs have been completed and documented accordingly. The lenders must review an engineer’s report or substantially similar document to determine if the repairs completed have resolved the safety, soundness, structural integrity, or habitability concerns of the project.
Documentation
Lenders may need to review a combination of documents to determine if a project meets Fannie Mae’s physical condition requirements. Lenders are responsible for determining which documents are needed to ensure compliance with the requirements of this Guide. Some examples of this documentation include, but are not limited to:
- HOA board minutes;
- Engineer report(s);
- Structural and/or mechanical inspection reports;
- Reserve studies;
- A list of necessary repairs provided by the HOA or the project’s management company;
- A list of special assessments provided by the HOA of the project’s management company, and;
- Other substantially similar documentation.
Your Condo Listing: How Can We Help?
- We can help you get the condo pre-approved/reviewed for eligibility.
- Empower sellers to get a copy of the HOA resale certificate, current budget, and insurance up front.
- Have sellers reach out to the property manager to ask them to provide any questionnaire they’ve completed for a lender within the past 60 days. Note: The seller is a current owner in the HOA and the HOA is the management company’s customer.
- We can let you know the eligibility BEFORE you list. We can even co-market with brokers! Everyone can be confident that the condo itself is cleared for financing.
For more information on Movement Mortgage, click here.
