FANNIE MAE AND FREDDIE MAC NEW LENDER REQUIREMENTS FOR CONDOMINIUM AND COOPERATIVE PROJECTS
On June 24, 2021, tragically the Champlain Towers South condominium in Surfside, FL, collapsed. Investigation revealed that construction defects, long-term water infiltration, and years of deferred maintenance may have all led to the collapse and the death of 98 people.
In response, Fannie Mae and Freddie Mac, issued additional requirements lenders must meet in order to make mortgage loans eligible for sale to Fannie Mae or Freddie Mac on the secondary market. The new requirements address deferred maintenance, structural integrity, and special assessments. These requirements are in addition to existing guidelines, not a replacement of current requirements.
The new guidelines apply to all condominium associations and co-ops with five or more attached units. Fannie Mae’s new guidelines are effective for all mortgages closing as of January 1, 2022, and Freddie Mac’s guidelines are effective for all mortgages closing as of February 28, 2022.
What does this mean? Lenders will be requesting information not only from the borrower, but from the Association where the unit is located. Fannie Mae and Freddie Mac released a new joint Condominium Project Questionnaire Addendum, Fannie Mae Form 1076A/Freddie Mac Form 476A, with questions an authorized representative of the Community Association must fill out to see if a loan would meet the new requirements. Some questions from the form are:
- When was the last building inspection by a licensed architect, licensed engineer, or any other building inspector?
- Did the last inspection have any findings related to the safety, soundness, structural integrity or habitability of the project’s building(s)?
- Is the HOA/Cooperative Corporation aware of any deficiencies related to the safety, soundness, structural integrity, or habitability of the project’s buildings(s)?
- Are there any outstanding violations of jurisdictional requirements (zoning ordinances, codes, etc.) related to the safety, soundness, structural integrity, or habitability of the project’s buildings(s)?
- Does the project have a funding plan and schedule for its deferred maintenance components/items to be repaired or replaced?
- Has the HOA/Cooperative Corporation had a reserve study completed on the project within the past 3 years?
- What is the total of the current reserve account balance(s)?
- Are there or is there any planned special assessments unit owners/cooperative shareholders are obligated to pay?
Many sets of governing documents do not require an obligation of an Association to confirm or deny if they know of any unsafe conditions, deferred maintenance, or are planning a special assessment to a lender. It is possible that the lender could refuse to grant a mortgage without the completion of the form.
When answering the questions, the HOA/Cooperative Corporation should be as accurate as possible, an error could lead to liability if a claim is ever brought for inaccuracy regarding questions on the Fannie Mae Form 1076A/Freddie Mac Form 476A.
If you have questions about the Fannie Mae and Freddie Mac requirements, please contact Griffin Alexander, P.C.
The information in this Client Alert is provided solely for information purposes. It should not be construed as legal advice on any specific matter and is not intended to create an attorney-client relationship. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular circumstances. Each legal matter is unique, and prior results do not guarantee a similar outcome.
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