You have finally decided to buy your own condo. After a lot of time spent searching, you have
found your dream condo. Agreement in
hand, deposit down and a couple days away from having the keys in your hand,
the deal falls out from under you with no warning, and no hope.
Effective March 1, 2011, alterations to the Fannie Mae
Selling Guide are disrupting otherwise smooth sailing condo sales across the
board. It’s taking both condo buyers and
sellers alike by a deeply disrupting surprise.
There are two changes which can cause your condo deal to turn south
costing you time, money and definitely your peace of mind. The first involves newly converted, non-gut
rehabilitation condo projects, and the second has to do with the collateral
damage of an ongoing litigation.
Fannie Mae now declares mortgage loans in progress on a
condo involved in any type of litigation, other than minor litigation such as
noise levels, ineligible for delivery, said Orest Tomaselli, CEO of White
Plains, N.Y. –based National Condo Advisors, LLC. “There are different types of litigation,
from slip-and-fall cases to structural issues, so Fannie split it all up and
any project where the HOA is named as a party defending litigation that relates
to the safety, structure (or) soundness of functional use (is) ineligible. These projects will not be able to enjoy
Fannie Mae project approval nor the financing that results from it,” said
Tomaselli.
In short, if your neighbor is in a dispute about the locks
on the front door to the lobby, or is not satisfied with the gate on the pool
area and decides to sue over it, this makes it impossible to use Fannie Mae as
a lender. Banks are still available, but
they are more expensive and their qualifications are stricter.
The other rule which can cause a problem for sellers
involves condos which have been converted from rentals into ownership units,
which Fannie Mae labeled, newly converted, non-gut rehabilitation condo
projects. Fannie Mae states, “Many
buildings are converted to condominiums without the replacement of major
components resulting in eventual increased costs to unit owners for maintenance
and major repairs. In order to mitigate
the additional risk that newly converted, non-gut-rehabilitation projects pose,
all newly converted, non-gut rehabilitation condo projects must be submitted to
PERS for review and approval.”
At first glance, this may seem like a reasonable and
protective measure to take, but what is not revealed, is the cost. Fannie Mae charges $1,200 for the review,
plus $30 for every unit in the building which can be stiff price for the
HOA. Additionally, the newly converted
units have to undergo a reserve study to determine over a 30-year period of
time what the repair costs are going to be to elevators, roofs, mechanical and
structural systems, and the exterior.
This could be a tremendous cost for developers.
The new rules may prevent a lot of deals from
progressing. At the very least, it is
reason to research alternate lending options.