CONDOMINIUM ELIGIBILITY FOR FINANCING

This is a repeat Broker Corner because we keep seeing condominium properties
rejected for FNMA and Freddie Mac financing for HOA issues.

After the terrible condominium collapse in Florida, Fannie Mae and Freddie Mac
created additional conditions to the HOA Approval process.  Significant deferred
maintenance at the Florida condominium was a factor in the building collapse. 
Condominium associations cannot be approved by lenders for Fannie Mae and
Freddie Mac loans if there is significant deferred maintenance (like the Florida
collapse), unpaid monthly assessments above 15%, insurance coverage deficiencies,
and other HOA issues. If the HOA is rejected, the loan is rejected.

Condominium management companies are now required by FNMA and Freddie Mac to
answer additional questions regarding deficiencies, defects, substantial damage and
deferred maintenance, as well as other new questions. Some management companies
either answer very slowly (after a loan contingency has expired) or refuse to answer
the questions at all for fear of liability. If a lender cannot get the questionnaire
completed, the loan cannot be approved. If the financing contingency has expired, the
buyer loses.

Protect Your Condominium Buyer Clients
To protect a buyer’s earnest money in the event that the approval process takes longer
than the time limits of finance contingency or if the HOA cannot be approved at all, we
recommend adding a Special Stipulation to all condominium purchase agreements that
allows the buyer to terminate if the property cannot be qualified by FNMA or Freddie
Mac.  If such a stipulation is not included and the HOA is not approved by the lender,
there is no protection for the buyer after the finance contingency has expired. The
following is a new Special Stipulation to cover the situation. There is also a GAR
 Special Stipulation that calls for the buyer’s termination right based on a number of
days from the binding date.  The time period can, of course, be adjusted as the
situation requires. We suggest that instead of days from binding that the time period be
written as any time prior to closing. The following Special Stipulation is suggested as it
covers both ineligibility for financing, an uncooperative HOA and can be used at any
time prior to closing.

Summary
If you are a Buyer’s agent selling a condominium property and you are seeking a
conventional loan, we highly recommend that you protect your client by including the
following special stipulation:

Special Stipulation
Contingency for Condominium Eligibility for Financing
If the Property is a condominium unit, this Agreement shall be contingent upon
the condominium in which the unit is located being eligible for financing and
approved by Buyer’s lender. If Buyer obtains written notice from Buyer’s lender
indicating that (1) it is declining Buyer’s loan application because the
condominium in which the unit is located is ineligible for financing, (2) Buyer’s
lender is unable to determine whether the condominium in which the unit is
located is eligible for financing because the HOA or management company for
the condominium has not provided sufficient information for the lender to make
such a determination, or (3) Buyer’s lender cannot approve financing until the
Association fills out a FNMA or other secondary mortgage market questionnaire
on whether the Association has done inspections of the Condominium and the
amount of reserves for needed repairs, then Buyer may terminate this
Agreement by providing written notice to Seller, along with the notice from
Buyer’s lender, prior to closing date. If Buyer timely provides such notice, then
Buyer shall be entitled to the return of their earnest money. If Buyer does not
timely provide such notice, then the contingency contained in this paragraph
shall be waived and of no further force or effect. This contingency is applicable
irrespective of whether there is any loan contingency, financing contingency, or
“No Financing” contingency exhibit attached hereto and shall survive the
expiration, wavier, or satisfaction of the same.

1/20/23