• Thu. Dec 1st, 2022

How can appraisers appraise aging condos without documents?

Reviewing condominium documents is essential, but can be costly, with property management companies charging documentation fees of $500 or more. Second of two articles on condominium financing.

24-Jan-22 ?? New nationwide regulations on Fannie Mae’s condo loans and co-op apartments were created to protect residents, but the strict rules don’t cover all the issues, valuation experts say.

High-rise buildings with aging infrastructure and significant deferred maintenance are a growing concern across the country. noted Fannie Mae’s memorandum, released following the tragic collapse of Champlain’s South Tower in Surfside, Florida, which killed 98 people. The new regulations came into force on January 1, 2022.

How do lenders and appraisers deal with deferred maintenance issues if they don’t have access to documents that are now being sold by management companies?

“The elephant in the room is, who is going to absorb the cost of providing the long list of documents that reveal the current state of the property? asks the veteran real estate agent Sarah Benson (left), president of Chicago-based Benson Stanley Realty.

The new rules will also apply to poorly constructed new buildings that show evidence of poor workmanship, construction defects or substandard materials.

Analysts say the tighter restrictions could have a major impact on selling and buying condos and co-ops in Chicago. Many lakeside skyscrapers date from the 1950s and 1960s, and some buildings were erected in the 1920s. They may not qualify for Fannie Mae-backed mortgages due to deferred maintenance issues.

Fannie Mae rules now require lenders and appraisers to review a long list of items before mortgage approval, including the following documents:

?? The declaration (or covenants), conditions and restrictions (CC&R), statutes, rules and regulations of the house.

?? Minutes of board meetings, state mandatory disclosures, prior and current year budgets, and reserve review.

Examination of critical but expensive condominium documents

??Document fees can range from $50 to $250 per document, so the price can really add up depending on the number of documents requested,?? Benson said. ??On average, fees can exceed $500 for the electronic delivery of a complete package necessary to complete a condominium sale transaction.??

Reviewing condominium paperwork is key, say consumer advocates, because buyers need to know well in advance if the corporation they’re being purchased in has costly deferred maintenance issues, or is on the brink of failure. bankruptcy, or is in good financial health and is a sound investment.

?? You wouldn’t want to be hit with that special assessment of $50,000 six months after closing, would you??? Benson asked. Some special assessments exceeded $100,000 per unit.

The new Fannie Mae rules cover current or planned special assessments. Even if they are paid in full, they must be reviewed. The lender must document the reason for the special appraisal, the total amount appraised and the repayment terms.

Fannie Mae

Fannie Mae also needs the following information:

?? Supporting documentation that the special appraisal will not adversely impact the financial stability, viability, condition and marketability of the project.

?? The lender must obtain the necessary financial documents to confirm that the condo association or HOA has the ability to finance the repairs.

If the special assessment is related to safety, soundness, structural integrity or habitability, all related repairs must be fully completed or the project is ineligible.

“Fannie Mae needs a reality check if she believes that the information needed by lenders and appraisers is readily available to sellers and buyers or real estate agents,”? Benson said.

The custodian is usually the property management company that charges for the information, a practice that only took off after the 2008 real estate meltdown, Benson noted. At that time, management companies struggled to increase their bottom line by reselling co-ownership documents for a profit.

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“The minutes of board meetings are the only place where an upcoming special assessment can be discussed, ? Benson said. For example, collecting bids for roofing or structural reconstruction work that were not taken at the time of the sale.

??And if the property has not yet been transferred and the special assessment has not yet been taken??? Benson asks. ??How will the appraiser and/or lender review meeting minutes to address upcoming undisclosed special appraisals? Who is going to pay the fees to the property management companies for the necessary compliance and disclosure???

When it comes to documents, most governance instruments and state laws were created long before online delivery was a possibility, consumer advocates note. They allow a ?reasonable cost?? to copy documents.

However, in the age of the Internet, association documents are frequently stored electronically and can be shared with the click of a mouse. There is no paper, ink or shipping costs. There is no labor time associated with copying documents and sending them to the buyer via US Mail or Fed Ex.

??Despite this, most management companies ?? and some boards ?? use documents as a literal profit center, ?? Benson said. ??These are new expenses mentioned by property managers ?? charge fees for vendor-owned materials or documents that are public records.??

Although the new Fannie Mae regulations are designed to protect sellers and buyers, the real overlooked question is who pays for the cost of documents?

?? Appraisers are not paid enough to absorb the cost of hundreds of dollars in document fees,?? Benson said. “Until Fannie Mae tackles the condo document resale business model, the document review guidelines are nearly impossible to meet. »