Condominium-Unit Financing

March 30, 2011 at 1:41 pm Leave a comment

Special Thanks to Hal Tzinberg in our Real Estate Group for preparing the following article, which we at BankinBits think will be useful information for your bank.  Give us a call if you would like more information about new rules and requirements of condo financing.

Since the mortgage meltdown and being confronted with numerous loans on units in partially completed condominiums, the United States Department of Housing and Urban Development, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (the “Agencies”) adopted new rules which have had the practical effect of requiring many existing condominiums to amend their Declarations and By-Laws, so their unit owners and prospective unit purchasers can refinance or procure financing to purchase their units. Some of the changes include the following:

  • At least 10% of the Condominium Association’s annual budget must be allocated to funding replacement reserves for capital expenditures and deferred maintenance, and the budget must provide funding for any deductible payable under the Association’s property and liability insurance policies.
  • Eligible First Mortgage Lenders (“Lenders”) must be given notice of, and at least 51% of the Lenders holding mortgages on units in the condominium must approve, any “Material Amendment” to the Condominium Declaration or Plat or the By-Laws of the Condominium Association, and the approval of Lenders holding mortgages encumbering units to which at least 67% of the allocated interests are assigned is required for certain other actions. The Declaration must incorporate the Agencies’ insurance guidelines.
  • Although rights of first refusal are permitted, provided they do not violate the Fair Housing Act, the Declaration must exempt Lenders from any requirement to first offer to the Association units they acquire in the exercise of their remedies. Further, any Lender who obtains title to a condominium unit through foreclosure will not be liable for more than 6 months of the unit’s unpaid regularly budgeted dues or charges incurred before acquisition.

In addition to documentary compliance, the following are conditions precedent to the Agencies’ approval of a condominium project:

  • No more than 10% of the units may be owned by one investor. For projects with 10 or fewer units, no single entity may own more than 1 unit.
  •  All units, common elements and facilities within the project must be 100% complete.
  • No more than 15% of the total units can be more than 30 days past due in payment of their condominium association fees.
  • At least 50% of the units must be owner-occupied or sold to owners who intend to occupy the units.

Additional rules apply to projects under development.

If you are contemplating purchasing or refinancing a condominium and would like us to review the project documents, please contact a member of Stinson Morrison Hecker LLP’s Real Estate Group.

Entry filed under: Uncategorized.

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