I’ve writen about this before but I think it bears repeating. When most banks make a loan, they intend to sell that loan in the secondary market. Since the credit crisis of 2008, the only buyer of mortgages in the secondary market is Fannie Mae. In order for Fannie Mae to buy a mortgage, the underlying building must meet certain requirements. (See the full blown version of those requirements here). Every time a buyer applies for a mortgage, the lender has the condo association fill out something called the “condo questionnaire”. It looks like this and, after each question, is the required answer in order for the condo to be in compliance with Fannie Mae’s requirements. If the answers come back “wrong”, chances are the loan will be denied. Take heed – the bank does not get into any sort of explanation of the answers. It’s a simple yes or no inquiry. They don’t care why you answer the way you did – just that it’s not what they need to approve the deal.
EXISTING CONDOMINIUM PROJECT
Total number of units in project
Total number of units rented in project (Cannot be more than 49%)
Does any one person or entity own more than one unit
If yes, list how many each own: (Cannot be more than 10% of total)
How many units in project are over 30 days delinquent on HOA Fees (Must be zero)
Are there any pending or active special assessments on unit owners (Must answer no)
Is the HOA Association involved in any litigation (Must answer no)
Are there any ongoing environmental conditions (Must answer no)
Is there more than 20% Commercial Space in the project (Must answer no)
Does the HOA Budget allocate 10% of budget towards reserves (Must answer yes)
It would behoove condo boards to familiarize themselves with these requirements. If a condo association is run in such a way so that these guidelines are ignored, the property value of every single unit owner in the condo is diminished as the units become very difficult to sell – to the point where a seller must find an all-cash buyer. Even if the seller were lucky enough to do so (something difficult in Hoboken’s market which consists of so many young, first-time buyers with barely enough cash for a down payment) once the potential buyer knows of these difficulties they are often reluctant to buy into such a building.
There are ways for the board to deal with each of these issues. Sometimes it requires amending the governing documents. Sometimes it requires rules and regulations. Sometimes it requires better budgeting. In any case, this issue is not going away so it is best to deal with it and get your house in order. Pun intended!