Every Community Association Manager out there knows that the community association industry has an ongoing problem with deferred maintenance. Condominium and co-op buildings specifically have been in the spotlight about this exact topic lately. Boards are in a constant struggle of performing maintenance throughout the community, keeping their reserve funds healthy, and somehow doing this without their homeowners feeling like they’re being robbed blind. It’s a delicate balance to maintain, and it often leads to boards “kicking the can down the road.” This has always been a problematic and often dangerous practice, but now it comes with a new consequence to worry about: securing approval for your community to be eligible for Fannie Mae loans.
Fannie Mae recently came out with guidance that will temporarily make FNMA mortgage loans in buildings that are facing “significant deferred maintenance” ineligible for purchase beginning January 1, 2022. In a letter to single-family sellers, Fannie Mae details what types of maintenance issues are and are not considered to be “significant deferred maintenance,” so this is not going to impact buildings with minor or standard maintenance requirements or buildings in which a serious maintenance issue is confined to a single unit.
Why should boards be prepared to act quickly in response to the new requirements? Two of the most critical items boards should be sure to manage are insurance coverage for the community and the ability for residents to obtain financing to purchase or refinance their home. Due to the Surfside tragedy and increasing climate related storm activity, both mortgage lenders and insurance providers are taking a harder look at how communities are managing their infrastructure repairs and insurance policies. These new requirements target building resiliency and include specific requirements that must be communicated in lender questionnaires. These requirements focus on deferred maintenance, special assessments, reserve requirements and unsafe conditions.
What should boards do?
Create a capital plan—Use a licensed engineer and a reserve study as a baseline and outline immediate and long-term reserve expenditures. Include immediate and long-term capital expenditures and any structural or infrastructure components not found in the reserve study.
Communicate—Inform residents of the importance of funding reserves and making timely repairs as well as the potential consequences of inaction. Highlight recent Fannie Mae guidance and outline your plan to keep the community compliant. Tie this back to protecting the value of everyone’s homes in the community as staying Fannie Mae compliant is critical to home sales and refinancing.
Implement the plan—Use the reserve study as your guide. If need be, adjust the timing of projects, annual reserve contributions and consider financing projects if it makes sense.
If you find that your community is struggling to meet the new temporary standards being set forth, a community association loan from NCB could be the solution for you. Borrowing allows boards to immediately secure the funding they need to make large repairs--no waiting for months or years to properly fund reserves, or issuing costly special assessments to homeowners who already feel they’re paying too much. Click here to learn more about the solutions NCB has to offer your community.
