New lending rules could choke off lending and insurance for Florida condos in need of repairs


Just as some insurers tightened underwriting requirements for high-rise condominiums following the collapse of the Champlain Towers in Miami Beach last year, mortgage banks are now radically overhauling lending rules.

Moves could make it difficult or impossible to sell some condominium units, especially if banks determine that major repairs are needed. More mandatory inspections could ultimately make it even harder to get insurance coverage for creaky condos, according to insurance industry news and reports.

Freddie Mac and Fannie Mae, the two federally chartered companies that buy loans from mortgage lenders and help determine lenders’ willingness to issue mortgages, now require banks to assess the condition of buildings before approving a loan. , reported the Miami Herald. The companies said they will no longer support condominium mortgages in buildings facing critical repairs or material defects, such as water intrusion or even mold, or whose deferred maintenance has resulted in a “advanced deterioration”.

Routine maintenance or repairs are unlikely to be an issue under the new loan rules, the Herald noted. But buildings that have not set aside sufficient funds to pay for the critical works needed will not qualify for loans in most cases.

Collapsed Champlain Towers South condo in Surfside, adjacent to Miami Beach

Condominium lawyers, real estate brokers, bankers and association leaders say the rules will make it much more difficult for buyers to obtain financing to buy units in certain buildings, or for the owners of these apartments to refinance. , until their associations can show that the buildings are sound or the repairs are completed and approved.

“If there is in fact outstanding work to be done, the project is not eligible,” said Eric Intihar, mortgage planner at Fairway Independent Mortgage Corporation in Boca Raton. “Essentially, it’s kryptonite.”

The Freddie Mac rules went into effect on January 1. Fannie Mae said under temporary rules that will likely become permanent later this year, all mortgages that close after February 28 must comply.

Fannie Mae also requires condominium boards to set aside 10% of operating costs each month in a special reserve to pay for future repairs needed before paying off mortgages in a condominium. And bankers will have to sift through six months of board minutes to see if any discussions of maintenance or repair issues have arisen, and will have to request copies of technical inspections carried out over the previous five years.

To qualify for loans, condo associations will need to answer detailed questionnaires about inspections, repairs, structural and mechanical issues, and the fees that have been assessed to pay for the repairs.

Older condominiums will be hit the hardest by the new rules, experts said. The Miami area is home to one of the nation’s largest concentrations of high-rise condos, many of which are over 30 years old. The collapse of the Champlain Towers in June killed 98 people and sparked a wave of lawsuits, investigations, recommendations, new concerns from insurers and lenders, and efforts to pass new legislation to prevent deferred maintenance.

Florida Senate Bill 1702 would require more frequent and thorough inspections of condos over three stories, statewide, not just Miami areas, as is now required. The bill has been passed by two Senate committees and is now on the agenda for Wednesday morning’s Rules Committee meeting.

The potential changes have raised questions for insurers and insurance agents.

“As you can imagine, these state-mandated inspections will likely be part of a company’s underwriting process,” Kyle Ulrich, president of the Florida Association of Insurance Agents, wrote in a recent memo to agents. “If carriers know that additional information is available about a risk, why wouldn’t they ask? »

Florida law now requires condo associations to carry adequate homeowners insurance. While SB 1702 and other legislative proposals would not directly change statutory requirements for condominium insurance, they will likely have unintended consequences for the availability and pricing of insurance for many condominium properties, a noted Ulrich.

If condos are not maintained, associations may not be able to obtain adequate insurance. If an agent cannot obtain adequate coverage, the Florida Department of Business and Professional Regulation (DBPR) would not take action against an insurance agent, Ulrich said. But the agency could penalize the condo association if it breaks the law.

The FAIA encourages agents to arrange for their client HOAs to request from DBPR a declaratory statement or written opinion on how they would handle the situation from a regulatory perspective.

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