Q: I’m trying to refinance my condo. My credit was approved but now the bank won’t approve the loan because the condo association’s fidelity bond is too low.
It’s clear that I won’t be able to sell the property if I can’t refinance because of this issue. What should I do?
A: You’ve run smack into the top problem condo buyers and condo owners will have this year: If the condo building isn’t approved by Fannie Mae, Freddie Mac, and FHA, buyers will have trouble getting a mortgage for a condo and condo owners won’t be able to refinance.
You should work with your condo association to get it the condominium documentation up to the standards required by Fannie Mae and Freddie Mac. When it comes to FHA, you might consider getting the association approved by FHA. If you don’t get your condo association approved, or your documentation does not comply with the guidelines required by Fannie Mae or Freddie Mac, I’m afraid your property values will tank because no one will be able to finance their purchase.
Insurance is an issue that has become a hot topic with Fannie Mae and Freddie Mac.
You should talk to a good mortgage lender in your area and assess what insurance coverages you need to conform to lending guidelines. While you do that, you should have that same lender review your budget and financials to determine whether there are any issues in those documents as well.
Another sticky issue is homeowner associations that have cash reserves that are too low or whose budgets do not allocate enough money on a year-to-year basis towards replenishing reserves. Some of these issues will arise in parts of the country where real estate values have declined quite a bit and whose values continue to fall.
Once you have an idea of any problems your association faces, the association can go to its insurance agent and update its insurance coverages and, if needed, update its budget to comply with newer requirement that may affect the association.
Don’t work alone. Talk to your neighbors and alert them to the problem. Get their help in alerting all of the property owners and approaching the condo association with your concerns.
Your condo association board of directors may not even be aware there is a problem if you’re the first person to try to buy in the building or refinance in the last year. They may not realize they have to apply to be approved by Fannie Mae, Freddie Mac and FHA and may not understand how long it will take to get that approval in place.
You should get moving sooner rather than later.