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Prepare your Condo for the New Fannie Mae and Freddie Mac Lending Requirements

The Surfside condominium collapse was devastating for the condominium community and served as a wake-up call for many condominium associations.  Since the Surfside condominium collapse, co-owners in Florida and Wisconsin have been forced to evacuate condominiums as a result of unsafe structural conditions.  As previously indicated in The Surfside Condo Collapse: A Condo Association Tragedy, the Surfside condominium collapse was likely to bring about regulatory change.  As such, Fannie Mae and Freddie Mac have updated their lending guidelines in response to the Champlain Towers condominium collapse.  As will be outlined below, purchasers will have a challenging time obtaining a loan to purchase a condominium unit in a condominium that has significant common element structural issues starting in 2022.

 2022 Fannie Mae Updated Condominium Lending Guidelines

On January 1, 2022, the updated Fannie Mae condominium lending guidelines will go into effect. Fannie Mae Lender Letter (LL-2021-14) specifically states that new guidelines are necessary to combat aging infrastructure and significant deferred maintenance in condominiums in the wake of the tragic collapse of the Champlain South Tower in Surfside, Florida.  The new condominium requirements, as outlined below, will apply to all loans in attached condominiums or co-ops with 5 or more units.  Specifically, condominium associations must be aware of the following changes:

Significant Deferred Maintenance and Unsafe Conditions in Condos

Loans secured by units in a condominium with significant deferred maintenance or that have received a directive from a regulatory authority or inspection agency to make repairs due to unsafe conditions will no longer be eligible for purchase by Fannie Mae. Significant deferred maintenance is defined as any one of the following:

  • Full or partial evacuation of the condominium or co-op to complete repairs is required for more than seven days or an unknown period of time.
  • The condominium or co-op has deficiencies, defects, substantial damage, or deferred maintenance that is one of the following:
  1. Severe enough to affect the safety, soundness, structural integrity, or habitability of the improvements.
  2. The improvements need substantial repairs and rehabilitation, including many major components.
  3. Impedes the safe and sound functioning of one or more of the condominium or co-op’s major structural or mechanical elements, including but not limited to the foundation, roof, load-bearing structures, electrical system, HVAC, or plumbing.

In order to determine whether significant deferred maintenance exists, Fannie Mae has indicated that its best practice for lenders is to review the past six months of a condominium association’s meeting minutes and obtain information about any maintenance or construction that may have significant safety, soundness, structural integrity, or habitability impacts on the unit or the project. References to items such as improvements, renovations, inadequate reserve funding, budget deficits, and negative cash flows should be researched to determine if these items are related to deferred maintenance or other conditions that impact the safety, soundness, structural integrity, or habitability. Fannie Mae has also recommended that lenders review any available inspection, engineering, or other certification reports completed within the past five years to identify deferred maintenance that may need to be addressed.

Special Assessments in Condos May Impact Fannie Mae Loan Eligibility

Fannie Mae will now require all condo lenders to determine whether the condominium association has imposed any special assessments.  The lender must document the loan file with the following:

  • The reason for the special assessment.
  • The total amount assessed and repayment terms.
  • Documentation to support no negative impact to the financial stability, viability, condition, and marketability of the project.
  • Confirmation that the borrower will still qualify for the loan with any outstanding special assessment payment.

If the special assessment is related to safety, soundness, structural integrity, or habitability, all related repairs must be fully completed, or the project is not eligible. Additionally, if the lender or appraiser is unable to determine that there is no adverse impact, the project is ineligible.

Conditions in Condos that Will not Impact Fannie Mae Lending

In Fannie Mae Lender Letter (LL-2021-14), Fannie Mae clarified that not every defect in a condominium will prevent a potential purchaser from obtaining a loan.  Specifically, the following types of issues will not make a condominium project ineligible:

  • Routine maintenance or repairs that a homeowners’ association (HOA) undertakes to maintain or preserve the integrity and condition of its property.
  • Damage or deferred maintenance that is isolated to one or a few units that does not affect the overall safety, soundness, structural integrity, or habitability of the improvements.

2022 Freddie Mac Updated Condominium Lending Guidelines 

On December 15, 2021, Freddie Mac issued Bulletin 2021-38: Temporary Condominium and Cooperative Project Requirements and Topic 5600 Reorganization – CRC – Single Family – Freddie Mac.  The requirements contained in Bulletin 2021-31 will become effective on February 28, 2022.  Similar to the Fannie Mae Bulletin, Bulletin 2021-31 states that the purpose of tightening the lending requirements is due to increased risk after the Champlain Towers South collapse in Surfside, Florida.  The Freddie Mac requirements apply to all condominium loans in in projects with five or more attached units.

Condominium Projects in Need of Critical Repairs are Ineligible for Loans

Bulletin 2021-38 is similar to the Fannie Mae lending guidelines, but speaks in terms of not lending in condominiums that have “significant critical repairs”, which are defined as follows:

Repairs and replacements that significantly impact the safety, soundness, structural integrity or habitability of the project’s building(s) and/or that impact unit values, financial viability or marketability of the project. These repairs and replacements include:

  • All life safety hazards
  • Violations of any federal, State or local law, ordinance or code relating to zoning, subdivision and use, building, housing accessibility, health matters or fire safety
  • Material Deficiencies
  • Significant Deferred Maintenance

Freddie Mac has indicated the following forms of documentation are acceptable in determining that a condominium does not have any significant critical repairs:

  • HOA or cooperative board meeting minutes
  • Engineer’s reports
  • Reserve studies
  • List of necessary repairs provided by the HOA, Cooperative Corporation or management company, and
  • Other substantially similar documentation

Special Assessments in Condos May Impact Freddie Mac Loan Eligibility

Similar to Fannie Mae, Freddie Mac will now require all condo lenders to determine whether the condominium association has imposed any special assessments.  While the Illinois Condominium Property Act does not require special assessments to be levied upon the condominium property as a whole, but rather upon each unit and the owner’s corresponding percentage of ownership in the common elements as tracts, doing so may aid in an optimal outcome for an association and its co-owners. The lender must review the following with respect to each special assessment:

  • The reason for the special assessment
  • The total amount assessed
  • For current special assessments, the total amount is an appropriate allocation or, for planned special assessments, there is adequate cash flow to fund the reason for the special assessment, and
  • For current special assessments, the amount budgeted to be collected year-to-date has been collected

Conditions in Condos that will not Impact Freddie Mac Lending

Similar to the Fannie Mae guidelines, Freddie Mac clarified that not every defect in a condominium will prevent a potential purchaser from obtaining a loan.  Specifically, the following types of issues will not make a condominium project ineligible under the Freddie Mac Guidelines:

  • Routine Repairs and Maintenance, which are defined as follows:

Repairs and maintenance that are expected to be completed by the project in the normal course of business and are nominal in cost. These repairs are not considered to be critical and include work that is:

  1. Often preventative in nature
  2. Accomplished within the project’s normal operating budget
  3. Typically completed by on-site staff
  4. Focused on keeping the project fully functioning and serviceable
  5. Minor deficiencies with a cost of $3,000 or less per repair item that do not warrant immediate attention but that require repairs or replacements that should be undertaken within the next 12 months
  6. Scheduled repairs and maintenance that are fully funded, may have a cost greater than $3,000 and will be undertaken within the next 12 months
  • Damage or deferred maintenance to one or a few units in the project, provided that there is no impact to the overall safety, soundness, structural integrity, or habitability of the improvements

Key Takeaways for Condos from the new Fannie Mae and Freddie Mac Lending Requirements

  1. Keep good records. One of the important takeaways from the Fannie Mae and Freddie Mac bulletins is that lenders will now require a great deal more information to lend in attached condominiums than in the past.  Accordingly, condominium associations and property managers should have readily available board meeting minutes, engineering reports, reserve studies, and repair records.
  2. Provide accurate answers on lending questionnaires. In order to obtain traditional financing, condominium associations are required to complete lending questionnaires to provide the above described information to lenders.  The questionnaires are now much more complicated as they now include addendums inquiring into building conditions.  If significant misrepresentations are made, the preparer of the questionnaire could be subject to civil or criminal penalties.  Accordingly, board members and managers should be careful of playing “expert” on construction issues and consult an attorney if they have questions on how to respond to a lending questionnaire.
  3. Budget accordingly. Fannie Mae and Freddie Mac are going to be taking a closer look a condominium association budgets.  Similarly, special assessments have the potential to disqualify a condominium until repairs are made.  Accordingly, condominium associations should ensure that they have adequate budgets to address any repairs to maintain good standing with Fannie Mae and Freddie Mac.
  1. Perform regular maintenance. Condominium associations that do not perform regular inspections and maintenance are much more likely to become ineligible for Fannie Mae and Freddie Mac financing. Accordingly, condominium associations must perform regular maintenance and avoid letting their condominiums fall into disrepair.
  1. Maintain a reserve fund. Both Fannie Mae and Freddie Mac require a minimum 10% reserve. In most cases, reserve funds should be in excess of the statutory minimums.  An inevitable part of condominium living is an increase in assessments to pay for repairs over time and all co-owners must be cognizant of this fact.


While condominium associations are not required to meet Fannie Mae and Freddie Mac’s requirements, the consequence will likely be a decrease in property values as the potential pool of purchasers that utilize traditional financing would be eliminated.  Some smaller banks and credit unions will provide non-warrantable loans, which are not sold to Fannie Mae or Freddie Mac if traditional financing cannot be obtained.  However, it remains to be seen whether these lenders will provide loans in condominiums that have significant building conditions. Given that the board of directors already has a responsibility to maintain the common elements in a condominium, it is wise of the board of directors to appropriately plan for repairs and keep good records to remain in good standing with Fannie Mae and Freddie Mac.

The attorneys of Hirzel Law, PLC focus their practice on condominium and homeowners association law in addition to real estate law. Our attorneys have extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters. We stand by our clients, offering quality legal representation and promptly responding to our clients’ needs. Contact Hirzel Law online or call 248-986-2290 to learn how our Illinois attorneys can help.

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Kevin Hirzel is the Managing Member of Hirzel Law, PLC. Hirzel Law has offices in Farmington, Grand Rapids, and Traverse City, Michigan with a fourth office location in Chicago, Illinois. Mr. Hirzel focuses his practice on condominium law, homeowners association law, and real estate law. He is a fellow in the College of Community Association Lawyers (“CCAL”), a prestigious designation given to less than 175 attorneys in the country. Mr. Hirzel formerly served on the CCAL National Board of Governors and is a former member of the Community Associations Institute’s (“CAI”) Board of Trustees, an international organization with over 40,000 members worldwide that is dedicated to improving community associations. Mr. Hirzel has been recognized as a Leading Lawyer in Michigan by Leading Lawyers, a distinction earned by fewer than 5% of all lawyers licensed in Michigan. He has been named a Michigan “Rising Star” in real estate law by Super Lawyers Magazine, a designation is given to no more than 2.5% of the attorneys in Michigan each year. Mr. Hirzel was also named as a “Go-To-Lawyer” in condominium and real estate law by Michigan Lawyer’s Weekly. Hirzel Law was also voted the best law firm in Metro Detroit in the Detroit Free Press Best of the Best awards. He is the Co-Chairman of the State Bar of Michigan’s Real Property Law Section Committee for Condominiums, PUDs & Cooperatives. Mr. Hirzel has authored numerous articles on community association law for publications such as the Michigan Community Association News, Michigan Real Property Review, Macomb County Bar Briefs and the Washington Post. He is also the author of the first and second editions of “Hirzel’s Handbook: How to operate a Michigan Condo or HOA”, which is available for purchase on Mr. Hirzel has been interviewed on community association legal issues by various media outlets throughout the country, such as CBS, CNBC, Common Ground Magazine, Community Association Management Insider, the Dan Abrams Show on SiriusXM Radio, the Detroit News, Dr. Drew Midday Live on KABC Radio, Fox Business News, Fox News,, the Law & Crime Network, Michigan Lawyer’s Weekly, NPR, WWJ News Radio and WXYZ. Mr. Hirzel is a dynamic speaker and frequently lectures on community association law throughout Michigan, as well as nationally at the CAI National Law Seminar, and is a two-time winner of the best manuscript award at the CAI National Law Seminar.

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