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BROKER CORNER

TERMINATION OF CONTRACT IF HOA IS NOT APPROVED BY LENDER

12/30/2022

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Recently, we have been faced with condominium associations that cannot be approved by lenders for Fannie Mae and Freddie Mac loans due to deferred maintenance, financial and insurance deficiencies, and other HOA issues. After the terrible condominium collapse last year 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.  Property management of condominiums are now required to answer additional questions regarding deficiencies, defects, substantial damages and deferred maintenance, as well as other new questions. 

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 released by GAR for this situation.  Note that the GAR Special Stipulation 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. Both variations are below:

GAR SS 528 CONTINGENCY FOR RECEIVING CONDOMINIUM QUESTIONNAIRE
If the Property is a condominium unit, and if the Buyer is obtaining a loan to purchase
the Property, 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 or (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, then Buyer may terminate this Agreement by providing
written notice to Seller, along with the notice from Buyer’s lender, within ____ days
from the Binding Agreement 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, financing, or all cash, contingency exhibit attached hereto and shall survive
the expiration, wavier, or satisfaction of the same.

RMAA CONTINGENCY FOR CONDOMINIUM HOA INELIGIBLE FOR FINANCING
If the Property is a condominium unit, and if the Buyer is obtaining a loan to purchase
the Property, 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 or (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, then Buyer may terminate this Agreement by providing
written notice to Seller, along with the notice from Buyer’s lender, at any time prior to
closing. 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,
financing, or all cash, contingency exhibit attached hereto and shall survive the
expiration, wavier, or satisfaction of the same.

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  • Home
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