Northwest Condo & HOA Law Blog : Washington & Oregon Construction Defect Lawyer & Attorney : Barker Martin Law Firm : Homeowner Associations, Condos : Seattle, Portland

There was an article in last week's Stranger reporting that new Fannie Mae regulations established in March have blocked condominium developers from closing unit sales if the developer has sold fewer than 70 percent of the units in a building.  Many of the large condo towers currently being built in Seattle and Portland are below the 70-percent threshold; consequently, hundreds of buyers who've already put down deposits may have to live elsewhere even after the buildings are completed.  These circumstances are a direct result of the economic crisis and real estate market slow down.

As Dominic Holden writes in the Stranger article:

If developers can't presell 70 percent of a building's condos before opening—a steep expectation even in a strong market—market forces may push developers to convert their buildings into apartments or drastically reduce prices.

As prices on unsold condos drop, some buyers may choose to walk away from earnest money deposits rather than hang on to units that have lost much of their original value.  In an ever spiraling situation, as more buyers walk away--increasing the gap between actual sales and the 70 percent required under the new Fannie Mae regulations--developers may have to decrease unit prices even further.

Click here for a listing of several Fannie Mae regulations affecting condominium lending requirements.

For further information on Fannie Mae lending requirements, or other issues related to condominium associations, feel free to contact Barker Martin, P.S. by selecting the "Contact" tab at the top of this blog page.

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In February, I wrote about stiffening mortgage underwriting polices adopted by mortgage lenders on loans for condominium purchasers.  This rule tighten was a direct result of the sub-prime lending crisis plaguing our nation's banks and lending institutions.  These changes included Federal National Loan Association ("Fannie Mae") altering its lending policies on condominiums to include a Full Review Required.

Under the Full Review, lenders are now required to assess the financial strength of condominium owners associations, as well as the credit and assets of the individual prospective condominium purchasers.

The new rules require full project reviews for loans to individuals purchasing units for primary residences or second homes and for loans to investors buying condominium units.  Another significant change is that single loans in existing communities will be allowed only for borrowers who make a miminum down payment of 10%; the former policy allowed "zero-down" loans.

Under the new policy, lenders must verify and warrant to Fannie Mae that:

• The homeowners association maintains an "adequate" budget;
• The budget allocates at least 10% of annual revenues to reserves;
• The homeowners association holds funds equaling the deductible under the master insurance policy; and
• No more than 15% of the common area fees are delinquent by more than one month.

As I wrote earlier this year, the downturn in the economy and change in lending laws require association boards of directors to pay particularly close attention to:

• (a) disclosure requirements for condominium resale certificates (in Washington only);
• (b) managing accounts receivables;
• (c) overseeing rental restrictions; and
• (d) following strict collections policies.

These requirements are no less important with the recent lending rule changes adopted by Fannie Mae.  With the large number of foreclosures and owners who are falling behind on paying asessments, it will be especially problematic for associations to stay above the 15% delinquency rate mandated by Fannie Mae.  Furthermore, the budget and reserves funding requirements may exceed those required under both the Washington and Oregon Condominium Acts (thus, a board may be following the law and still run afoul of Fannie Mae lending rules).

If you have specific questions regarding your how your homeowner association can best comply with these requirements, feel free to contact Barker Martin, P.S. by selecting the "Contact" tab at the top of this blog page.  

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