As we pointed out in an earlier column, one of the direct side effects of the tragic Champlain South Tower collapse was the additional scrutiny and due diligence that mortgage companies were going to apply before issuing mortgages in condominiums.
At that time, Federal National Mortgage Association (“Fannie Mae”) issued Lender Letter (LL-2021-14), titled Temporary Requirements for Condo and Co-op Projects, which imposed new “temporary” rules and restrictions pertaining to Fannie Mae’s purchase of loans from primary lenders on the secondary market. These new requirements went into effect on January 1, 2022. What has resulted since is the requirement that any mortgage servicer who wishes to write a mortgage that may eventually be sold on the secondary market must create robust questionnaires for associations to answer before a mortgage will be issued. The problem now is that condominium associations are receiving these questionnaires, and due to the breadth and scope of the questions, are unsure on how to answer. For example, the following examples may be found on questionnaires:
While we understand that the scope of these questions is based upon determining whether the structure of the building is sound, and that the association is in good financial footing, the reality is that many of these types of questions require a nuanced response. A response could impose significant liability to the association if answered incorrectly. §718.116(8), Florida Statutes contains the questions that an association is required to respond to for an estoppel certificate. These questions are more in the nature of, how much are the assessments, and how often are they paid, or is there a capital contribution fee. Consequently, the traditional estoppel questions are much more in the purview of what management or the Board of Directors may respond to. The statute also allows the association to charge a fee for the response to an estoppel certificate. However, the new lender questionnaires go far beyond the questions in §718.116, and there is not necessarily, an entitlement to a fee for a response. While we understand associations are motivated to be accommodating and not hinder its owners from being able to sell their units, associations need to be cautious in responding to any in-depth questionnaire post-Surfside and should seek legal advice if presented with such types of questions.
Daniel A. Weber is an associate attorney at Sachs Sax Caplan practicing within the Community Associations Practice Group. He has handled a wide range of matters including interpreting and amending governing documents, litigating covenant enforcement cases, prosecuting lien foreclosure actions, reviewing and negotiating contracts, and all manner of general counsel work.
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