The mortgage crunch hit condominiums hard with the recent changes to the Federal National Mortgage Association Selling Guide, including some alterations that went into effect March 1, 2011.
Federal National Mortgage Association, also known as Fannie Mae, is a government-backed mortgage provider, a private corporation sponsored by the government that buys mortgage from banks and financial institutions and guarantees roughly a quarter of the US home loan market. In my experiences, roughly 70 percent of recent buyers are applying for Fannie Mae mortgages so if a condominium unit is not Fannie Mae compliant then it will kill a deal for the majority of current buyers.
Current Fannie Mae guidelines read: "Any project (condo, co-op, or planned unit development) for which the homeowners association or co-op corporation is named as a party to pending litigation, or for which the project sponsor or developer is named as a party to pending litigation that relates to safety, structural soundness, habitability or functional use of the project, remains ineligible."
What does this mean? If a unit owner in a condominium complex has some personal beef with the condominium association or developer because his heating doesn't work or the plumbing is leaking and sues, that will affect a potential buyer as the unit will not be eligible for Fannie Mae financing.
Any upset condominium owner can sue the condominium association or the developer and this unfortunately triggers a Fannie Mae issue. It is unfortunate all condominium unit owners do not realize the "ripple" effect of lawsuits.
My advice for Realtors and condo buyers is to:
- Have the seller/listing agent disclose the name of the condominium management company and call them directly to question whether the association is involved in any type of pending litigation which could trigger the Fannie Mae guidelines.
- Get this information prior to the inspection, because it's a deal killer and you do not want to be out-of-pocket for inspection costs.
- Work with an experienced real estate attorney, I always put a provision in my purchase and sale agreement rider in which the seller represents there is no pending litigation involving the condo.
Legal Insider Content Contributed by Attorney Judy A. Field. Contact Atty. Field at email@example.com.