May 6, 2022 | Bryony G. Swift, Esq.
The Federal National Mortgage Association, commonly known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, have issued new guidelines for their Condominium or Cooperative mortgages. Fannie Mae and Freddie Mac will no longer purchase the mortgage of a unit within a community that has significant deferred maintenance, or a community that has been directed by a regulatory agency to make repairs due to unsafe conditions. Such deferred maintenance must have been performed or such unsafe condition repaired before units within the condominium or cooperative community would be eligible for Fannie Mae or Freddie Mac loans. While that may seem reasonable at first blush, deferred maintenance is defined to include the postponement of normal maintenance, which cannot be reasonably resolved by normal operations or routine maintenance, which may result in increased operating costs. I expect many older associations have deferred maintenance.
Fannie Mae and Freddie Mac have added an Addendum of several pages to their Condominium Questionnaire to address these new guidelines. The Condominium Questionnaire Addendum requires the Association to submit the findings resulting from the most recent inspection of the building by an engineer, architect or other building inspector. It enquires about deficiencies related to the safety, soundness, structural integrity or habitability of the building(s), but also about zoning violations, code violations, special assessments, and borrowing by the Association. In addition, a condominium or cooperative community must meet a reserve requirement of at least ten percent (10%) of the association budget, or a unit therein will not be eligible for a Fannie Mae or Freddie Mac backed mortgage. Fannie and Freddie require lenders to review all current special assessments as well as potential future special assessments and provide any additional documentation showing the financial stability of the condominium community.
A Condominium or Cooperative Association is not legally obligated to complete this Questionnaire. While owners, buyers and real estate professionals may exert pressure on an Association to complete the Questionnaire, generally an Association has no legal obligation to provide more information than required by the Florida Statutes, unless the Association’s governing documents create such an obligation. Moreover, under Florida Statute 718.111, if the Association does provide the additional information required by the Condominium Questionnaire, the Association may charge a fee for providing good faith responses to requests for information by a prospective purchaser.
Any response to the Questionnaire should include the statement: “The responses herein are made in good faith and to the best of my ability as to their accuracy.” Your association may elect to include a cover letter drafted by counsel to include additional caveats, explanations, or disclaimers. We recommend a case-by-case analysis by the Association Attorney to determine whether the Association should answer the Questionnaire, and, if so, a determination by counsel as to the appropriate scope and extent of response based on the circumstances of the Association at that time. Moreover, if the Association is faced with a litigious buyer or seller, it may want to insist on liability releases from both buyer and seller before completing the questionnaire.
*** This article is intended to provide general information and is not legal advice. Seek legal counsel if you have questions regarding compliance with the law.