The tragic collapse of a the condo building in Surfside, Florida, that claimed 98 lives continues to force changes in the way real estate is bought and sold all across the country. This month, Freddie Mac and Fannie May, the quasi-government organizations that back many of the nations mortgages, began requiring condo associations to answer detailed questionnaires about a building’s maintenance, repairs, and reserves to determine overall safety and financial soundness as part of the process lenders use to evaluate mortgage applications.
On Tuesday, the Miami Dade County Commission took transparency a step further and unanimously passed a new law requiring condo and homeowner’s associations to file detailed financial and maintenance records for inclusion in an online library. Currently, Florida real estate law requires sellers to provide buyers with these documents only upon request AFTER a sales contract is executed. The buyer is then given three days from receipt of the information to cancel the contract if they don’t like what they see.
Some real estate agents told the Miami Herald they’re relieved that the new database is being created. They complained that condo associations and homeowners associations often made it difficult for sellers and buyers to access the relevant documents and too often they were delivered incomplete.
One potential shortcoming of the law is that the associations are only required to file the documents on an annual basis, which leaves the possibility that the information will be outdated by the time a buyer receives it. This could lead to a buyer not being aware of such critical information as a costly special assessment that is under review or approved since the last annual filing. Note to Buyers: Still request the latest condo docs and financials when conducting a review.
Overall, the move toward greater transparency regarding real estate is a huge plus for buyers and owners, especially when sea level rise is already causing maintenance and funding challenges for condo developments located on or near the coast. Regardless of a coastal state’s laws, buyers everywhere need to take a look at condo association and homeowner’s association documents and financials before they commit to close a deal.
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.