Think Your Condo is In Good Financial Shape? Think Again.
Categories: Finance, For Buyers, For Sellers
Fannie Mae Rules the Day
Since the credit crisis Fannie Mae has come out with new lending regulations that are having real impact on Hoboken condo buyers. Here is a brief overview of the pertinent issues:
One entity cannot own more than 10% of the total property. This is apparently to keep one party from having too much control and risk and to prevent “vulture buyers” from taking over the property.
There cannot be more than 20% non-residental space. Most mixed commercial-residential use projects, like Maxwell Place, will be affected by this.
The Condo Association must have at least 10% of its budgeted income designated in a capital reserve fund for replacement reserves and adequate funds budgeted for the insurance deductible. This is an issue in many of Hoboken’s older condominium associations. For years these associations, especially the self-managed ones, have kept woefully inadequate reserves and operating budgets. Many 2 and 3 unit condo buildings have no reserves at all.
Fidelity insurance will be required for condos with 20 or more units, ensuring that association funds are protected. This requirement is being extended to include established condominiums.
No pending litigation involving the structural soundness, safety or habitability. Borrowers may ask for a waiver if they can establish adequate insurance coverage for the litigation or otherwise little or no risk of loss to the association.
Borrowers must obtain an HO-6 condominium insurance policy on their unit unless the condo master policy provides interior unit coverage; coverage may not be less than 20% of the assessed value. An HO-6 policy typically covers personal property, personal liability, and the physical unit from the walls and in. Many policies also include special assessment coverage or the option to include a special assessment coverage rider.
The Condo Association must have adequate flood insurance. Nowadays, that means replacement value coverage. Few Hoboken condos have sufficient coverage. The buyer/borrower may be able to buy a supplement to the condo policy to close the gap in coverage.
This is just a quick overview of the current rules. Buyers often ask me what the maintenance fee includes or why it is so high. This is part of the reason. Paying a management company to professionally manage the building and be sure these requirements are properly met is another. I have seen deals fall apart every day due to inadequate reserves, insufficient flood insurance and lack of records. While it may not matter much to you as a unit owner of you’re not selling today, owning in a building with financial inadequacies hurts the marketability of your property and thus its value. So in the long run, it matters to all condo owners.
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It’s the Summer Solstice – Let’s Shine Some Light on Hoboken Tax Appeals
Categories: Finance, Hoboken Condos
Did you File a Tax Appeal in Hoboken?
Summer Solstice
There is hardly a new listing out there that doesn’t say “taxes under appeal” these days. Since the big tax increase of last year, filing a tax appeal has become quite common. In fact, in Jersey City, the successful appeals have in and of themselves caused some fiscal problems for the city. So here is my question – have you filed a tax appeal? I’m very curious to know how successful people have been in the tax appeal process. Does it pay to accept the offered settlement or is it worth it to go before the tax board. What is the typical tax reduction? Is it worth it to use a lawyer or is it better to do it yourself? Let’s get this info out there for all of us to use and learn from. If you filed a tax appeal, please fill out the form below (you don’t need to give your name or address) and I’ll compile and post the results:
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Is Your Condo Adequately Protected?
Categories: Finance, For Buyers, For Sellers
Why Flood Insurance Is a Big Issue
One of the most important functions of the Board of Directors of your condominium assocation is to provide adequate insurance. This insurance differs from your own individual homeowner’s policy you have on your individual unit. We’re talking about insurance on the common areas of the building. Each unit owner has a proportional interest in the common areas. This insurance is paid for through the unit owners’ monthly maintenance charge. What type and how much insurance a condo association should have is determined by the by-laws of the association and also by state regulation. In addition to liability insurance, it is also necessary for a condo association to have flood insurance. As we all know, Hoboken has an issue with flooding and, more importantly, almost all of it is located a flood zone (technically called a Special Flood Hazard Area or SFHA). Here is an interesting flood zone map.
Recently, there have been quite a few buyers who have had problems getting a mortgage for the Hoboken condo they wish to purchase because they learn that the condo association does not have adequate flood insurance. Often times the lender requires that the condo have replacement value coverage.
This straight from the FEMA website:
Federal financial institution regulators state that the amount of flood insurance purchased for a structure in a high-risk area must at least equal the outstanding principal balance of the loan, the insurable value of the building, or the maximum amount of coverage available for the particular type of building under the NFIP, whichever is less. However, the lender may exceed the minimum requirements, if necessary, and compel the purchase of limits that more fully protect the lender and the property owner.
What’s more, most loans being made today are sold on the secondary market and must therefore comply with Fanny Mae and Freddie Mac guidelines. These guidelines may be even more stringent. More specifics are available on the FEMA site or by speaking with a mortgage lender and insurance agent.
Some buyers have the seller go to the condo board and try to convince them to increase the insurance coverage. Of course, there is always resistance since more insurance means more premiums. Yet Hoboken condo boards should not be short-sighted. The marketability of each unit is at stake here. While it may not be your unit for sale today, every unit owner is likely to come up against this issue when they try to sell. In fact, a Board that does not arrange to provide adequate insurance coverage for the condo may find itself hit with a lawsuit from the unit owners and Directors could even be held personally liable.
Similarly, condo associations are supposed to have separate accounts for their day-to-day operating expenses (paying the PSE&G bills, for example) and for a capital reserve account (replacing the roof). Many Hoboken condos, especially smaller, self-managed ones do not. Again, buyers are having real problems obtaining financing as a result.
So at your next condo Board of Directors meeting (you do have those, I hope) it might be worth reexamining the adequacy of your flood insurance and the state of your condo’s finances. The flood insurance guidelines are also set out on the FEMA website and are quite detailed and specific. When you go to sell your unit, you will be glad you did. If you are in the market to buy a condo in Hoboken, this is a question you should ask early on in the process – either during attorney review or even when making an offer. A condo that is not adequately insured and has not kept its books correctly is certainly worth less than one that has, no?
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