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As my fellow firm partner Laura Manning-Hudson wrote recently in this blog, Fannie Mae’s new condo-safety financing requirements for condo buyers are now in place. Following suit, federal mortgage buyer Freddie Mac has also announced similar requirements for condominium loans to meet its standards for acquisition for its mortgage-backed securities for investors. Both of these changes are heralds of the stricter mandates that condominium associations are likely to see as a result of the horrific tragedy of the collapse of the Champlain Towers South in Surfside, Florida.
Freddie Mac’s new requirements, which take effect for all mortgages with settlement dates on or after Feb. 28, exclude from eligibility for acquisition any loans for units in condominium communities with what it considers to be critical repair needs. Subsequently, properties that have already identified elements requiring attention and begun their construction and remediation efforts may become ineligible until such repairs and renovations are completed.
The federal agency defines critical repairs as those that significantly impact a community’s safety, soundness, structural integrity or habitability, and/or that impact unit values, financial viability or marketability. These include all life-safety hazards, violations of any laws or ordinances, building code violations, fire-safety deficiencies, and others.
Loans for units in condominium communities with such deficiencies or significant deferred maintenance will not be eligible for acquisition. This will include structural elements that have the potential to result in or contribute to critical failures, and deficiencies involving the replacement of any material building components that are approaching, have reached or exceeded their typical expected useful life.
Freddie Mac will also evaluate special assessments to determine if they are necessitated for critical repairs by implementing a questionnaire for completion by condominium associations or their property management. Responses will require reviews and interpretations of association governing documents as well as a number of financial and insurance disclosures.
As Laura wrote in her recent post, many mortgage lenders will now adopt these reviews and mandates from both Freddie Mac and Fannie Mae as part of their residential underwriting procedures, and the Florida legislature is also likely to address condo-safety reforms during the current legislative session that officially convened this week on Tuesday, Jan. 11. Additionally, a coalition of Florida building professionals has developed recommendations, and so has a Florida Bar task force as well as the Community Associations Institute, which is the leading national organization representing the interests of community associations.
Given Freddie Mac and Fannie Mae’s new requirements as well as the calls for similar new mandates from other sources, including of course from the state’s property insurance industry that is expected to also impose stricter standards for structural oversight and maintenance, the boards of directors and property managers for aging Florida condominium towers should consult with highly experienced engineering, financial, insurance and legal professionals to assess their current and future needs. By planning accordingly to keep ahead of the curve, condominium communities will be able to help avoid any disruptions that could have a negative impact on property values.
Our firm’s South Florida community association attorneys write regularly about important matters for associations in this blog, and we encourage association directors, members and property managers to enter their email address in the subscription box on the right to automatically receive all our future articles.