Associations Must Be Prepared For Mortgage Lender Inquiries On Structural Problems, Important Deferred Maintenance And Unsafe Conditions Following New Requirements From Fannie Mae | Saul Ewing Arnstein & Lehr LLP

For many years, associations and their managers responded to questionnaires from mortgage lenders who sought information about the condominium association to help the lender determine whether a loan to a homeowner or unit buyer would meet the requirements of the mortgage lender. Fannie Mae for federally guaranteed loans.

What would you like to know:

  • Fannie Mae Updates Eligibility Requirements for Community Association Loans
  • Managers and boards should expect questions about structural issues, significant deferred maintenance, and unsafe conditions during sales
  • Associations should expect lenders to ask if at least 10 percent of the annual budget is pledged for reserves

In response to concerns over the collapse of the South Champlain Tower in Surfside, Florida, Fannie Mae recently tightened her eligibility criteria for condominium mortgages in order to deny eligibility for units in the condominium. associations with significant deferred maintenance or unsafe conditions. To help determine if associations meet these new requirements, Fannie Mae completed her HOA questionnaire. form to include questions on these topics.

StSolid construction, significant deferred maintenance and unsafe conditions

The three-page addendum that was added to Fannie Mae’s HOA questionnaire form seeks information on structural integrity, the existence of significant deferred maintenance, and related issues. Associations and their leaders should expect lenders to ask them to answer these questions, especially when there are large special assessments. Some of the questions associations are likely to ask themselves include:

  • Has the building been professionally inspected for safety, soundness, structural integrity and livability? If so, what were the results of such an inspection?
  • If any deficiencies exist, when will they be corrected?
  • Are there any outstanding Code violations?
  • Has the association obtained a back-up study in the past three years?
  • Has the association obtained loans to finance improvements or deferred maintenance? If so, what is the loan amount and terms?

These are issues associations have not had to deal with before for mortgage lenders or in section 22.1 disclosures related to unit sales. Answering these questions should not pose significant problems for well-maintained associations free from serious structural problems and with well-funded reserves. However, associations with serious structural issues or significant deferred maintenance should expect significant investigation from disgruntled lenders and mortgage applicants.

Mandatory reserves

Fannie Mae requires that an association contribute at least 10 percent of its annual budget to its replacement reserve. In the past, this reserve funding requirement could be waived if an association had a reserve study supporting a lower reserve contribution. However, this special exception is no longer available. Therefore, associations should also expect lenders to ask if at least 10 percent of the association’s annual budget is going into its replacement reserve.

Regardless of whether a lender uses the Fannie Mae HOA Questionnaire Form or their own questionnaire form that incorporates the substance of the new Fannie Mae requirements, associations and their officers should anticipate the need to provide additional information to mortgage lenders. .

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