In many coastal condo buildings and developments, one of the hardest challenges for condo boards is convincing owners to cover the cost of routine and even emergency building maintenance. The days of such battles are likely over as condo boards gain a new ally: mortgage providers.
According to an article published today in The Wall Street Journal (“Surfside Tower Collapse Makes Buying Condos More Complicated”), in light of the tragic collapse of the oceanfront building in South Florida last summer — possibly due to owner reluctance to fund maintenance projects — mortgage backers Fannie Mae and Freddie Mac will no longer buy loans involving condos located in buildings that need significant maintenance or that have safety issues. Fannie Mae and Freddie Mac spokespeople told the newspaper the new requirement will ensure buildings are safe and maintained responsibly. (It’s clear that it will also increase the odds that a typical 30-year mortgage will be payed off instead of abandoned in the event of a building condemnation or collapse.)
Fannie Mae and Freddie Mac have already given lenders detailed questionnaires that condo boards have to complete regarding a building’s condition. Their answers are being used in the loan approval process. The Journal report says that the new requirement is already slowing down the loan approval process as building managers and board members don’t always have the facts they need to answer the questions accurately or completely.
Fannie Mae and Freddie Mac’s new policy regarding building maintenance will have several consequences for condo owners and buyers. Condo owners are going to have to get used to the new reality that in order to sell their condos to buyers using loans and, ultimately, to protect their property value, they will have to become more amenable to paying higher condo fees and special assessments to cover the cost of routine inspections and routine and emergency maintenance projects. Buyers, on the other hand, are going to have to become more aggressive in gathering information on condo building maintenance at a property of interest BEFORE they submit an offer and mortgage application to avoid submitting offers on condos that will likely fall through due to building maintenance deficiencies and/or safety issues.
Sea level rise is another factor that’s sure to complicate the building maintenance issue. Condo buildings located near the coast typically require more maintenance than buildings located inland. Salty ocean air and seawater can be very corrosive when they come into contact with structures. Exposure to them often results in the need replace stucco, concrete and rebar, especially in buildings with balconies. As sea level continues to rise, buildings will become increasingly vulnerable to these destructive forces of nature.
The question for owners and buyers to ponder at this point is will owners have the resources to fund costly repairs necessary to ensure buyers can still purchase condos using loans. If not, some coastal condos could actually lose value due to a locked-up market.
NOTE: The Miami Herald also published a detailed article (“Prompted by Surfside Tower Collapse, New Condo Lending Rules Target Buildings in Need of Critical Repairs”) about this issue that’s protected behind its paywall.