2013 Jan 24th

The Fannie Mae Condo Questionnaire and Why it’s so Important to Hoboken Condo Sales

I’ve writen about this before but I think it bears repeating.  bumpWhen 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!

FacebookTwitterGoogle+Share
  1. JK

    very good info. Thanks!

  2. JC

    Good post…This is one of the last things mortgage brokers ask too, and it is certainly a potential deal breaker. For brownstones/rowhouses that have 4 condo’s there are obvioulsy exceptions since owners own more than 10%…but I think that answer can not be more than 25%.

  3. Dane

    Thanks Lori – this is very helpful!

    The one I don’t get however is:

    How many units in project are over 30 days delinquent on HOA Fees (Must be zero)

    So, basically, if one unit is a month behind in HOA fees it will ruin the possibility of a sale for everyone else? That just doesn’t make too much sense…I can see adding on something like “if more than 10% of units are 30 days delinquent” or “how many units are more than 3 months delinquent?” I just think this is going way overboard as just about everyone knows someone who just forgot to put the check in the mail, was out of town for a couple of weeks, etc. The way it is worded right now is by no means indicative of any problems with the condo association whatsoever.

    I’m just curious of your thoughts on this one? Thanks.

  4. Craig

    As the president of my condo association I can tell you that the answers to all these questions don’t have to be exactly as indicted for a sale to go through. We’ve had 3 sales in my building of 8 units since I was elected president. In each case there was an active special assessment. It’s small – $100 every quarter for the sole purpose of building the reserve fund. None of the buyers had a problem getting their mortgage.

    Ironically, I had a problem getting my mortgage when I bought into the building in 2010 because there was no reserve fund at all at the time. They had to create one once it became aparent no one was going to ever sell their place again without one. Of course thanks to Sandy, that is once again the case for the time being. But our reserves saved our bacon after the storm because flood insurance paid nothing. Every building should have a reserve fund that is at least 50% of their annual operating budget.

  5. JG

    Is this true for 4 unit buildings too?

    “Total number of units rented in project (Cannot be more than 49%).”

    If 2 units out of 4 are rented, the rest can’t sell, unless cash?

  6. Lori Turoff

    JG – yes it is true for 4 unit buildings. There are always exceptions, depending on the lender and whether they hold the loan in their portfolio, but it is a real issue and potential buyers will pay a higher rate if the exception is made. That is a deterrent to many buyers who are (surprisingly given how low rates have been) extremely rate sensitive.

  7. Susana

    Lori: We were able to close on our unit even though there is a commercial space that adds up to 35%. Was it because we are a small building (10 units)?

  8. cheryl

    Hello Lori,

    Do you have any first hand experience is seeing what happens to potential buyer’s mortgage if the unit they are trying to buy is in a building that has rentals over 49%?

    Thank you.

  9. joe

    On page 18 of the Fannie Mae requirements says the below. Does thhis mean that only mortgages on investmwnt properties need the requirement on rental units being less than 49%?

    “FAQ – What is the owner occupancy
    requirement for an established project?
     Mortgages on primary residences and second homes: no
    owner-occupancy requirements.
     Mortgages on investment properties: at least 51% of the
    units in project are occupied as primary residences or
    second homes.”

  10. Lori

    @Joe – I don’t know where you pulled that language but the 51% requirement applies to all Fannie Mae mortgages, from what I understand and have been told by mortgage brokers.

  11. Linda

    On the balance sheet of our condo HOA we show total cash which is less than total reserves. The total cash includes all the savings methods (CDs, etc) so we are confident that is total cash for the HOA. The only other assets listed are A/R and prepaid insurance…

    There is no expense that would come out of the Reserves at this time. So is this the norm? Where could the rest of the Reserves be?

  12. Lori Turoff

    Linda – that’s a question for your management company, if you have one.

  13. Colleen O'Neil

    I live in a 4 condo building and our issue is that when the condo’s were developed (back in the 1980’s) 2 were put into an irrevocable trust for one of the original owners kids. (The owners currently live in one and rent the other) Both condos are paid off but b/c 2 of the 4 condos are owned by the same person – I was turned down for refinancing and am at a complete loss for when we go to sell. It’s beyond frustrating as our situation doesn’t add risk to the other condos and has been like that from the beginning – even though this regulation was just put in place within the last year or so. Anyone else having similar issue? You would think there would be some kind of process to have it reviewed or a grandfather clause.

  14. Lori

    Colleen – your buyer would have to go to a portfolio lender (that is one that keeps the loan rather than sells it to Fannie Mae) or, an exception would have to be made by the lender to meet Fannie Mae standards. You might talk to some lenders in advance of selling to line up potential financing for buyers. Of course, a cash buyer would also work.

  15. Mark Stlaske

    I interested in buying a condo, there are three buildings of 16 units in each bldg, the developer is selling the last 16 units left but I was told sense no one investor can own more than 10% of the total units (48 x 10% = 4.8) Fannie Mae will not buy the mortgage, therefore I could not get a loan. Why is the developer considered an investor?

  16. Suzanne

    I understand that Fannie Mae considers investors more likely to default than owner-occupants. If an investor loses his/her job, they will stop paying the mortgage on their investment property before they would stop paying the mortgage on the home they live in. That’s the theory, right? BUT the investor-owned units in my building are owned outright. There are no mortgages on the units and thus no real possibility of foreclosure. So why are the owner occupants in my building being penalized? And to Colleen’s point, this was not an issue when any of us purchased our units, and no reflection on our own credit worthiness. As for the building, there hasn’t been any foreclosures. I think it’s safe to say there were very few foreclosures in Hoboken during the recession. Surely Fannie Mae will realize at some point that they are rendering whole buildings virtually unsellable, even in prime locations during a very hot market. On the plus side, the portfolio loan managers smart enough to underwrite mortgages on these properties have a golden opportunity in the meantime.

  17. Wasif

    Why is Fannie Mae requirement only for Condos? (why not coops and other properties as well?

    Just curious.

  18. Lori Turoff

    It is not just for condos. There is a similar form for coops as well but there are only two of those in Hoboken.

  19. Eric Renn

    hi,
    Approved and ready to close for a refinancing on our townhouse and the lender just ask for the hoa certification. The only problem is that the hoa in 2013 filed a claim against the builder for construction defects. Basically it’s a pre litigation claim. The builder is willing and is working with the hoa on the defects. We are not going into litigation and no lawsuit has been filed.
    Even if a lawsuit was to be filed the homeowners would have to vote. We have 30 townhomes and most owners I talked to say no to litigation.

    My question is since there is a claim filed against the builder will this get our loan denied? I wish the broker would ask the hoa before we went through 3 months of jumping through hoops. The appraisal report did not mention any claim against builder in his report or defects. I forgot to mention this, since nothing has been happening in regards to the claim and defects. Any info would be great.

    Oh I know that either the broker, bank or escrow people where in contact with the Hoa, since when the homes where built the Hoa was under a different name until it was turned over to the homeowners. I had to give them the correct name of the hoa.

  20. April

    We live in a 2-unit building. It was originally a duplex and was later condo mapped so each unit now has its own APN. There is no HOA, no budget, no condominium insurance (just individual unit insurance be each owner). There are CCRs that basically state the two owners work everything out between them. Lender wants us to fill out and sign the condo questionnaire, which states on it to be filled out by the HOA. There is not an HOA. Do we really need to fill this out and sign it as the owner of 1/2 the 2-unit building?

  21. JOE SWARTZ

    Associations, their Boards and managing entities should NEVER complete a lender questionnaire. These forms are part of a sellers disclosure, not the association. There is no legal requirement for associations to even touch these forms and they should not risk the liability in completing one in the event even one question is innocently answered wrong. The Lenders needs to start taking responsibility for their own requirements and work, reading the governing documents themselves, reviewing tax rolls, and making contact with local municipalities to get what they think they need to complete a loan transaction.

  22. Lori

    I would be stunned to see this change any time soon. How would the lender have access to this information? They don’t know anything about late maintenance fees or environmental issues or many of the other questions asked. The association is answering on behalf of the seller – the association is made up of the sellers. I don’t see the problem.

  23. Craig

    Joe’s advice might make some sense in theory, but doesn’t work in real life. If the HOA declines to fill out the questionnaire, then the lender won’t underwrite the loan for the unit. Thus the lender is holding all the cards if you want its money – and as consumer level buyers/sellers, we need the lender more than they need us. So to Joe I say what it comes down to is this: do you want to be right…or do you want to sell your condo?

  24. Ckeyes

    Hello,

    I’ve been trying to sell my condo for 9 months now. I’ve had offers, but none of them have gone through because of the financing questionnaire. No one can get financing because of the phasing requirement. The land around me was bought by a developer who has plans to build more units. To my knowledge, no plans have been finalized and they haven’t broken ground yet. I guess my question is, at what point does the condo go into legal phasing to which the association has an obligation to list it on the questionnaire?

  25. Tom Swift

    Hi. I own a condo and am worried about the ownership percentage portion of the questionnaire. The original developer could not sell all of the units (2008, so not surprising) and could not make the note payments. The bank that financed the project sold the note to 3rd party. The 3rd party foreclosed on the note and took possession of the outstanding condos as payment for the note. As a result, the 3rd party now owns 6 units in the development of 37 condos. The development is now in a very strong financial position. It is my understanding that no one entity or person can own more than 10% of the condos; however, there appears to be an exemption for the “developer or sponsor”. Does the 3rd party qualify as the “developer or sponsor” for the questionnaire in this case?

    Thanks for your help!

  26. Angie Luna

    Who is responsible for filling out an HOA Questionnaire?

  27. Lori Turoff

    Angie,
    In a self managed building it would be a board member. In a professionally managed building, the management company does it and (unjustly) often charges an outrageous fee.

Leave a Reply

Copyright © 2008 Hoboken Real Estate News     Login     Sitemap