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Will Condominium Lending Be Upended in 2022?

On January 1st, 2022, Fannie Mae rolled out a new Condominium Questionnaire (“CQ”) Addendum. This added layer that applies to condominium buildings with five or more Units requires in certain instances more detailed answers to CQs about deferred maintenance, the building’s structural soundness, and special assessments. This change has the potential to upend condominium lending.

Many industry insiders believe the update is a result of the condominium collapse in Florida last year. Fannie Mae is now requiring in some circumstances broad certifications about the Association’s financial, legal and property status, including the scope of work completed or remaining. Here are some of the questions lenders will pose to Associations (see pages 6-8 of the attachment as well):

  • Is there any significant deferred maintenance or unsafe conditions present for the project?
  • Does the project have deficiencies, defects, substantial damage, or deferred maintenance that is severe enough to affect the safety, soundness, structural integrity, or habitability of the project?
  • Does the project need substantial repairs or rehabilitation, including major components?
  • Is there any impediment to the safe and sound functioning of one or more of the buildings major structural or mechanical elements including but not limited to, the foundation, roof, load bearing structures, electrical system, HVAC, or plumbing?
  • Has the project failed to obtain an acceptable certificate of occupancy or pass local regulator inspections or recertifications?
  • Are there any current or planned special assessments even if paid in full?

For any “yes” answers, the CQ’s will require detailed written answers and request a budget to show there are funds to support repairs.

The larger Condominium Associations already have started to push back. From the Association perspective, the questions are overly broad, and in some cases unanswerable. Further, the questions pose liability to the Associations. Law firms specializing in condominium law are circulating detailed hold harmless agreements for Buyers and Sellers to sign that hold the Condominium Association harmless for any answers provided. It also is likely that the Associations will charge an additional fee to complete the form.

Competitive mortgage financing utilizes Fannie Mae backed loan products. If Condominium Associations do not complete the updated forms, then the condominium can be considered “non-warrantable” and the Buyers will need to obtain a portfolio loan. This can lead to an increase in the rate and move a product from a “fixed” term to an “adjustable” term. The net effect could impact the marketability/pricing of the condominium.

For agents, we recommend that you do your due diligence in advance of a listing. In order to work through any issues, agents should reach out to the Condominium Association/ management company in advance of a listing to determine if the entity will complete the Fannie Mae Form 1076 Condominium Questionnaire Addendum.