Fannie Mae and Freddie Mac: Critical Repairs and Assessments Denise Iger, Esq., Iger Wankel & Bonkowski, LLP
In 2023, Fannie Mae and Freddie Mac released updates to project eligibility standards for condominiums and cooperatives. The updates distinguish between “critical” and “routine” repairs. A community needing “critical” repairs will
likely be deemed ineligible for Fannie Mae or Freddie Mac-backed fi nancing.
Routine repairs include: • Repairs that are preventative in nature or part of normal capital replacements (e.g.,
focused on keeping the project fully functioning and serviceable); and
• Repairs that are accomplished within the project’s normal operating budget or through special assessments that are within the Fannie Mae or Freddie Mac guidelines.
Repairs and replacements safety, soundness, structural
that signifi cantly impact integrity, or habitability of
the the
project’s building(s) and/or that impact unit values, fi nancial viability, or marketability of the project are considered “critical.” These include:
• Material defi ciencies which, potential
if system failure within one year;
• Any mold, water intrusions, or potentially damaging leaks to the project’s building(s) that have not been repaired;
• Advanced physical deterioration; • Any project that failed to pass state, county, or other jurisdictional mandatory inspections, and/or certifi cations specifi c to structural soundness, safety, and habitability; or
• Any unfunded repairs costing more than $10,000 per unit should be undertaken within the next 12 months (does not include repairs made by the unit owner or repairs funded through a special assessment).
Interestingly, the new “clarifi cations” indicate that if a special assessment is associated with a critical repair, and the critical repair has not been remediated, the project is ineligible.
left uncorrected, have the to result in or contribute to critical element or
In other words, if emergency assessments are imposed and the assessments will be paid by owners over a year, the community could be ineligible for the entire year that the emergency assessment is being paid and/or the time it takes to make the repairs, whichever is longer. This should be considered when drafting special assessment ballots or notices of emergency assessments, as well
as considering whether to delay the repairs
until the assessments are paid (versus borrowing money from reserves and using the special assessment proceeds to replenish the reserve funds).
Fannie Mae and Freddie Mac lending standards for condominiums and housing cooperatives can be found at these links:
Fannie Mae
https://selling-guide.fanniemae.com/sel/b4-2.1-01/ general-information-project-standards
Freddie Mac
https://guide.freddiemac.com/app/guide/ section/5701.2
To check to see if your condominium or cooperative association is eligible for a mortgage backed by Fannie Mae or Freddie Mac, you should contact Fanne Mae or Freddie Mac to fi nd out eligibility status and how to resolve issues that make your community ineligible. For more information, visit these websites:
https://sf.freddiemac.com/working-with-us/origination- underwriting/mortgage-products/condominium-unit mortgages?_gl=1*1t5tpdv*_gcl_au*NDEzNjc0NjY4LjE3MDI2N jAxOTI.*_ga*NTI0NzQ0MDU3LjE2NjQ5ODI2ODM.*_ga_W1VD6 NP75S*MTcwNzg2MzIzOC41MDguMS4xNzA3ODYzMjYxLjM3Lj AuMA.
Finally, CAI National has a helpful blog, which includes information on other new Fannie Mae and Freddie Mac eligibility requirements. The blog can be found here - advocacy.
caionline.org
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