Many Condo Appraisers Will Start Assessing Building Safety
In response to the Surfside condo collapse, Fannie Mae says its condominium loan decisions after Jan. 1 will include a stronger look at the overall condo building. Loan decisions will consider current or planned special assessments and any deferred maintenance issues.
WASHINGTON – It might become more difficult to get a condo mortgage loan after Jan. 1, 2022, if appraisers cite potential safety problems with the building, notably potential special assessments or safety issues.
According to Fannie Mae, the new requirements apply to mortgages it purchases, a standard most lenders follow.
According to Fannie Mae Director, Single-Family Collateral Risk Management, Jodi Horne, the collapse of Champlain Towers South in Surfside, Fla., in late June 2021 led the secondary mortgage lender to tighten its oversight of condo buildings.
While an official explanation for the collapse hasn’t been released, Horne cites “significant deferred maintenance that led to potentially life-threatening structural deficiencies.” As a result, she says Fannie Mae focused new attention on “significant deferred maintenance of aging condo and co-op infrastructure” that “reaffirm our commitment to supporting sustainable homeownership in condo and co-op projects.”
After Jan. 1, Fannie Mae will generally not support condo or co-op loans with deferred maintenance or “a repair directive from a local regulatory authority or inspection agency to make repairs due to unsafe conditions are ineligible for delivery to us until required repairs have been made.”
Updated requirements for Fannie-backed condo/co-op loans after Jan. 1
- Stricter eligibility review requirements for any condo or co-op project that issued or is planning to issue a special assessment to address deferred maintenance items that impact the “safety, soundness, structural integrity or habitability of a condo or co-op”
- Stronger lender requirements for reviewing condo and co-op project reserves
- Stricter emphasis on appraisals, notably that they must document special assessments or deferred maintenance that could impact the “safety, soundness, structural integrity or habitability of a condo or co-op unit or the overall project and its amenities.”
“Adequate financial reserves are critical to funding the significant maintenance that supports ongoing viability of condo and co-op projects,” Horne writes. “Our latest guidelines reinforce our project reserve requirements and focus on their importance.”
Fannie Mae calls the new requirements “temporary” but “in place until further notice.” At the same time, Horne says Fannie Mae is not yet done studying the issues faced by older condo and co-op infrastructure.
Additional information about Fannie Mae’s updates
- Appraising and Underwriting Condo and Co-op Projects Fact Sheet
- Lender Letter LL-2021-14, Temporary Requirements for Condos and Co-op Projects
- Protecting Condos as a Sustainable Housing Option
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