B4-2.2-03, Full Review: Additional Eligibility Requirements for Units in New and Newly Converted Condo Projects (06/05/2018)

This topic contains information on the Full Review of units in new and newly converted condo projects, including:

• Additional Requirements for Units in New and Newly Converted Condo Projects
• Condo Project Legal Document Review Requirements for Units in New or Newly Converted Projects

Additional Requirements for Units in New and Newly Converted Condo Projects

When performing a Full Review of new or newly converted condo projects, lenders must ensure compliance with the following additional requirements.

Note: Projects consisting of units in new or newly converted projects in Florida must be reviewed by Fannie Mae through the PERS process. See B4-2.2-04, Geographic-Specific Condo Project ConsiderationsB4-2.2-04, Geographic-Specific Condo Project Considerations .

There may not be more than one legal phase per building.

“Substantially complete” means that

• a certificate of occupancy or other substantially similar document has been issued by the applicable governmental agency for the project or subject phase; and
• all the units and buildings in the legal phase in which the unit securing the mortgage is located are complete, subject to the installation of buyer selection items, such as appliances.

Note: Fannie Mae does not require the installation of typical buyer selection items such as appliances, floor coverings, counter tops, or light fixtures that are common and customary for the market, although buyer selections that involve the modification of a unit floor plan must be complete. Lenders are expected to obtain appropriate documentation to verify that all buyer selection items for the unit being financed are properly installed prior to closing.

• For a specific legal phase or phases in a new project, at least 50% of the total units in the subject legal phase(s), considered together with all prior legal phases, must have been conveyed or be under contract for sale to principal residence or second home purchasers.
• For the purposes of this review process, a project consisting of one building cannot have more than one legal phase.

If the project is part of a larger development, and the unit owners are required to pay monthly assessments of more than $50 to a separate master association for that development, lenders must review the overall development plan for the master association to evaluate the acceptability of the project.

• consistency of future and existing improvements,
• time limitations for expansion, and
• reciprocal easements between legal phases.

• cash deposits,
• letters of credit,
• assignments of certificates of deposit, or
• assignments of other assets that can be easily converted to cash.

Similar arrangements must be provided to support assurances against construction and structural defects. The assurances must

• protect each unit against defects that become apparent within one year from the date of its settlement, and
• cover all common facilities for one year from the date on which units that represent at least 60% of the votes in the HOA have been transferred.

Condo Project Legal Document Review Requirements for Units in New or Newly Converted Projects

The table below provides Fannie Mae's requirements for the review of the condo project's legal documents for units in new and newly converted condo projects containing more than four residential units.

Any right of first refusal in the condo project documents will not adversely impact the rights of a mortgagee or its assignee to:

• foreclose or take title to a condo unit pursuant to the remedies in the mortgage,
• accept a deed or assignment in lieu of foreclosure in the event of default by a mortgagor, or
• sell or lease a unit acquired by the mortgagee or its assignee.

The project documents must give the mortgagee and guarantor of the mortgage on any unit in a condo project the right to timely written notice of:

• any condemnation or casualty loss that affects either a material portion of the project or the unit securing its mortgage;
• any 60-day delinquency in the payment of assessments or charges owed by the owner of any unit on which it holds the mortgage;
• a lapse, cancellation, or material modification of any insurance policy maintained by the homeowners’ association; and
• any proposed action that requires the consent of a specified percentage of mortgagees.

No provision of the condo project documents gives a condo unit owner or any other party priority over any rights of the first mortgagee of the condo unit pursuant to its mortgage in the case of payment to the unit owner of insurance proceeds or condemnation awards for losses to or a taking of condo units and/or common elements.

Required provisions related to amendments to project documents are as follow:

• The project documents must provide that amendments of a material adverse nature to mortgagees be agreed to by mortgagees that represent at least 51% of the votes of unit estates that are subject to mortgages.
• The project documents must provide for any action to terminate the legal status of the project after substantial destruction or condemnation occurs or for other reasons to be agreed to by mortgagees that represent at least 51% of the votes of the unit estates that are subject to mortgages.
• The project documents may provide for implied approval to be assumed when a mortgagee fails to submit a response to any written proposal for an amendment within 60 days after it receives proper notice of the proposal, provided the notice was delivered by certified or registered mail, with a return receipt requested. Notwithstanding the foregoing, project documents that were recorded prior to August 23, 2007, may provide for implied approval to be assumed when a mortgagee fails to submit a response to any written proposal for an amendment within 30 days after it receives proper notice of the proposal, provided the notice was delivered by certified or registered mail, with a return receipt requested.

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