Do you represent residential condominium HOAs or residential lenders? Do you handle residential condominium closings?

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This news from Fannie Mae negatively impacts condo closings

This blog has previously discussed the June 24, 2021 collapse of the 136-unit Champlain Towers South condo project in Surfside, Florida.

South Carolina has many aging condominium projects, particularly along our coast. And we have earthquake issues to consider. Do our local homeowners’ association boards face expensive repair and inadequate reserve dangers like those in Florida? These concerns may impact HOAs, lenders and purchasers. Dirt lawyers should be prepared to assist their clients in navigating these concerns.

Fannie Mae has addressed this issue by issuing Lender Letter (LL-2021-14), which took effect on January 1 of this year. The letter directs lenders that make loans on condominium projects containing five or more attached units to gather information from owners’ associations about potential unsafe conditions.

Dale Whitman, the esteemed retired professor from the University of Missouri School of Law who moderates the national Dirt Real Estate Lawyers Listserv has commented on this letter. He said on a January 24 DIRT entry that HOAs are probably not obligated legally to respond to a lender’s inquiry prompted by Fannie Mae’s letter, but a potential buyer of a unit may not be able to obtain a loan absent a response.  

That’s the crux of the problem. If repair and reserve issues arise in connection with a condominium project, it may become impossible to obtain loans.

DIRT also discussed a December 2021 addendum to the condominium questionnaire of Fannie Mae (Form 1076) that asks if there have been any findings relating to safety, soundness, structural integrity or habitability of the buildings in an inspection report, reserve study or government inspection or if the HOA board knows of such issues. This information is requested whether the issues have been resolved or would be resolved. The form requests information of how funds to make repairs will be obtained.

The lender letter points to a growing concern across the nation about aging infrastructure and significant deferred maintenance issues in condominium projects because a majority of these projects were built more than twenty years ago. Fannie Mae states its condominium standards are designed to support the ongoing viability of these projects.  

Fannie Mae will change the status of deficient condominium projects to “unavailable”, and lenders are able to check the status of projects on Fannie Mae’s “Condo Project Manager™” software.

Consider representing wealthy consumers who may seek to purchase expensive coastal condominium units paying cash. How should a closing attorney advise these clients considering these repair and reserve concerns? This is an issue that should be addressed in residential closing practices.