Protecting Condos as a Sustainable Housing Option

In late June 2021, America and the world watched in horror as rescuers combed through piles of rubble and everyday household goods looking for survivors of the condo building collapse in Surfside, Florida. After the first few hours, no survivors were found. Ninety-eight lives and 136 homes were lost.

In the following days, information emerged about known issues with Champlain Towers South, and several nearby condo buildings were evacuated because they too had significant deferred maintenance that led to potentially life-threatening structural deficiencies. The tragedy has focused attention on an emerging challenge: significant deferred maintenance of aging condo and co-op infrastructure.

Condos and co-ops are an affordable homeownership option in many markets and a lifestyle choice for many buyers. Fannie Mae has been a secondary market leader in condo and co-op financing for a number of years. With a shortage of housing supply, it’s more important than ever for us to reaffirm our commitment to supporting sustainable homeownership in condo and co-op projects.

In response to increasing concerns about aging infrastructure, we are taking measures to address issues of significant deferred maintenance that may impact the safety, soundness, structural integrity, or habitability of a condo or co-op unit or the overall project and its amenities. (See Lender Letter LL-2021-14, Temporary Requirements for Condo and Co-op Projects.)

Loans secured by units in attached condo and co-op projects with significant deferred maintenance or that have received a repair directive from a local regulatory authority or inspection agency to make repairs due to unsafe conditions are ineligible for delivery to us until required repairs have been made. In support of our updated requirements, we have:

• enacted stricter eligibility review requirements for any condo or co-op project that has issued or is planning to issue a special assessment to address deferred maintenance items that impact the safety, soundness, structural integrity, or habitability of a condo or co-op;
• strengthened lender requirements for review of condo and co-op project reserves; and
• reminded lenders and appraisers that appraisals on units in condo and co-op projects must document any special assessments or deferred maintenance that may impact the safety, soundness, structural integrity, or habitability of a condo or co-op unit or the overall project and its amenities.

Even before the Surfside collapse, the industry recognized the challenge posed by the aging of buildings that were constructed or converted from rentals in the 1970s, ‘80s, and ‘90s. In 2020, the Foundation for Community Association Research published Breaking Point: Examining Aging Infrastructure in Community Associations. The report stated that “… association homeowners and boards often are focused on keeping regular assessments low and only investing in visible, immediate outcomes.” It went on to say that “Too often … associations fail to recognize serious structural and system failures. When damage becomes so obvious that it cannot be ignored, the tendency is to make superficial or temporary repairs and postpone comprehensive, in-depth restoration.”

Condos and co-ops provide homeownership options in a variety of styles. High-rise buildings, which are especially popular in urban areas and near beaches, may offer great views and rooftop decks – and they come with elevators and underground parking garages, like Champlain Towers South, that require ongoing maintenance. Garden-style developments with three or fewer stories may have less obvious ongoing infrastructure needs, but foundations must be maintained to avoid water intrusion or structural collapse, roofs must be maintained so they don’t leak or cave in, and balconies must be repaired or replaced periodically to maintain structural integrity and remain safe.

Adequate financial reserves are critical to funding the significant maintenance that supports ongoing viability of condo and co-op projects. To maintain homeownership sustainability, Fannie Mae has long required scrutiny of project reserves on loans delivered to us, as well as disclosure of any special assessments and review of a number of other important project characteristics that would impact mortgage borrowers. Our latest guidelines reinforce our project reserve requirements and focus on their importance.

With the new temporary requirements in place until further notice, we are also in the process of conducting a deeper analysis of the challenges surrounding aging condo and co-op infrastructure. We remain committed to providing sustainable homeownership opportunities for a range of housing types and helping to protect borrowers from physically unsafe or financially unstable projects.