As a result of the deadly collapse of the Champlain South Tower in Surfside, Florida, in June 2021, Fannie Mae and Freddie Mac issued changes in Q4 of last year to their lending guidelines in light of projects with significant deferred maintenance.

With these new guidelines taking effect in 2022, purchasers may encounter challenges when trying to finance the acquisition of condos (with five or more attached units) of similar age and condition. Increased scrutiny on documentation such as homeowners’ association (HOA) meeting minutes, inspection details and engineering reports is anticipated.

As defined by Fannie Mae’s Lender Letter (LL-2021-14), “Significant deferred maintenance includes deficiencies that meet one or more of the following criteria:

• full or partial evacuation of the building to complete repairs is required for more than seven days or an unknown period of time;
• the project has deficiencies, defects, substantial damage, or deferred maintenance that
  • is severe enough to affect the safety, soundness, structural integrity, or habitability of the improvements;
  • the improvements need substantial repairs and rehabilitation, including many major components; or
  • impedes the safe and sound functioning of one or more of the building’s major structural or mechanical elements, including but not limited to the foundation, roof, load bearing structures, electrical system, HVAC, or plumbing.”

Be Aware: Delays and frustration could result for both buyers and sellers due to the added paperwork and information from HOAs and reliance on HOAs’ responsiveness.

Recommendation: A buyer should not waive contingencies when related to the lender’s approval of the property especially if a condo/co-op is involved.

Consideration: Do you restrict condos and co-ops in your home sale program if they don’t qualify for FHA financing? If you do, these new guidelines may expand ineligible properties in your program.

Stay Alert: Know your primary home sale locations. The tower in Surfside may have been damaged by saltwater seeping into its underground foundation. Properties located along the U.S. coastline may be at higher risk for vigilant maintenance.

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