Tag: mortgages

UN Report Warns Climate Change Threatens Not Only Sea Level Rise Real Estate but Human Survival Itself

“The scientific evidence is unequivocal, climate change is a threat to human wellbeing and the health of the planet. Any further delay in concerted global action will miss a brief and rapidly closing window to secure a liveable future.” — Hans-Otto Portner, Co-Chair of the United Nation’s Intergovernmental Panel on Climate Change

The Intergovernmental Panel on Climate Change (IPCC), a United Nations’ group that assesses the science related to climate change, issued a dire warning for humanity regarding climate change today. “To avoid mounting loss of life, biodiversity and infrastructure, accelerated action is required to adapt to climate change, at the same time as making rapid, deep cuts in greenhouse gas emissions,” the IPCC said in a media release. “So far progress on adaptation is uneven and there are increasing gaps between action taken and what is needed to deal with the increasing risks.”

The IPCC report is attractive massive media coverage not only for its strong wording but because of the urgency of its prediction that humans don’t have much longer to reduce the amount of fossil fuels — such as coal, oil and natural gas — it burns before it reaches a tipping point.

Businesses are taking notice. A Reuters article published today says governments and regulators are just starting to issue rules that require companies to alert investors to the impact climate change is having on their operations today and the threats they’ll face in the future.

Coastal real estate buyers, owners and investors, too, need to start gathering facts about the risk sea level rise poses to a property of interest and the neighborhood and community its located in. To make educated decisions, they need to know information such as if a property is currently experiencing sea level rise flooding, if it will in the near future, if roads and other critical infrastructure that serve the property are being impacted by flooding, and what the local government intends to do about it. They also need to know if the homeowner’s association or condo board, if there is one, plans to do to address sea level rise.

These types of questions will help them to gauge the impact sea level rise will have on maintenance and insurance costs, tax rates, association dues and special assessments, and, ultimately, property value. It will also give them an idea if there’s a threat that insurers and/or mortgage providers will stop providing policies and loans in a given area.

This might sound far-fetched to some people. But, just this month, Fannie Mae and Freddie Mac announced a policy that they would not back mortgages in condo developments that weren’t properly maintained and that didn’t have the reserves to pay for routine and emergency maintenance. As sea level rises and damages more coastal real estate, it’s a good bet lenders will get tougher in approving loans in areas experiencing property-damaging sea level rise. This will impact the ability buyers to buy properties and of owners and investors to sell them.

While sounding negative, the IPCC report will actually have a positive effect if it spurs governments, businesses and individuals to get involved in the fight against climate change and global warming before the window of opportunity closes for good.

Coastal Condo Boards have a Powerful New Ally in Building Maintenance Battles with Owners: Mortgage Providers

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.

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