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Impact of Recent Condo Legislation and Changes to Condo Questionnaire James Marx

The effects of the collapse of the Surfside Champlain Towers have led to recent adjustments. Read this changes to the condo questionnaire and the effect of recent condo legislation | James A. Marx

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Impact of Recent Condo Legislation and Changes to Condo Questionnaire James Marx

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  1. Impact of Recent Condo Legislation and Changes to Condo Questionnaire James “Jamie” Marx

  2. Recent Changes are a result of repercussions from the Surfside Champlain Towers Collapse.

  3. Lending Restrictions Recent Revisions to Condo Questionnaires used for Institutional Financing.

  4. Lending RestrictionsFannie Mae – Lender Letter (LL-2021-14) Lender letter “In the wake of the tragic collapse of the Champlain Tower in Surfside, Florida, residential buildings with aging infrastructure and significant deferred maintenance are a growing concern around the nation. This concern is expected to increase over the next decade ...”

  5. Lending RestrictionsFannie Mae – Lender Letter (LL-2021-14)

  6. Lending Restrictions Historically questionnaires for Freddie Mac and Fannie Mae have included questions in the following categories: • Basic Project Information, • Project Completion Information (when not complete), • Newly Converted or Rehabilitated information (when applicable), • Financial Information, • Ownership, and • Insurance Information and Financial Controls

  7. Lending Restrictions Updated Disclosures requiring more information concerning: • Inspections, • Structural soundness, • Financial ability to pay for deferred maintenance and replacement.

  8. Lending RestrictionsCondo Project Questionnaire: • When was the last building section by a licensed architect, licensed engineer, or any other building inspector? • Did the last inspection have any findings related to the safety, soundness, structural integrity or habitability of the project(s) building(s)? • Is the HOA/Cooperative/Corporation aware of any deficiencies related to the safety, soundness, structural integrity, or ability of the project’s building(s)? • Are there any outstanding violations (zoning ordinances, codes, etc.) related to the safety, soundness, structural integrity, or ability of the project’s building(s)? • Are violations anticipated for the future? • Is there a funding plan for deferred maintenance?

  9. Lending RestrictionsMore questions: • Schedule for deferred maintenance? • Reserve study completed? • Current reserve account balances? • Current special assessments? • Planned special assessments? • HOA loans?

  10. Lending RestrictionsQuestionnaires Require: • Five pages to be completed by the association or management, • Interpretation of governing documents, • Disclosure of all litigation, • Evaluation of multi-uses and insurance • Though stated as “temporary,” there is no end date in the printed materials.

  11. Lending RestrictionsScope of Regulations: • National in scope, • This applies to all condominiums with five units or more, • Limited to mortgages purchased by Freddie Mac and Fannie Mae, which does not buy all mortgages, but guidelines are likely to impact other loans,

  12. Lending RestrictionsAnticipated (and for many, unanticipated) consequences: • The additional information required is likely to overwhelm management, counsel, other professionals and condo board members. • Units at condominiums with critical repair needs will not qualify. • Recalcitrant management, association counsel and board members (who choose not to fully answer the questionnaire) may cause many units not to qualify for financing, and this in turn may cause contractual problems for buyers (putting their deposits at risk); particularly if they discover this after being approved for financing

  13. Lending RestrictionsMore consequences: • As stated in Michael Gelfand's excellent article in ActionLine, Summer 2022, Surfside's Repercussions … "The true cost of homeownership may be a stark wake-up call!" • Maintenance costs, including insurance costs, will likely increase substantially. • There will likely be more condominium terminations, • There may be a significant decline in sales prices.

  14. Lending RestrictionsOpportunities and take aways: • For cash buyer's, "cash has always been king" but this is likely to be even more so for those buyers that are interested in units that do not qualify for institutional financing.  With opportunity comes risk, and these buyers will be well advised, preferably by legal counsel, to conduct appropriate due diligence. • Condo associations will be similarly well advised to conduct their due diligence (reviewing the questionnaire requirements, and documenting and closely monitoring maintenance and reserve requirements) and to address these issues early and often.

  15. Lending RestrictionsContractual Considerations • These considerations should be proactively addressed in purchase and sale transactions for the purchase of condominium unit(s). • Buyers should seek to obtain approval of the condo unit at issue, which necessitates completion of the condo questionnaire in a manner that is satisfactory to lender, prior to the expiration of the "Loan Approval Period."  (as such term is defined in the FR/BAR Contract documents). 

  16. Lending RestrictionsSuggestions for FR/BAR Contract; Additional Language or Addendum • If Buyer is approved for financing pursuant to the FR/BAR Contract prior to the expiration of the Loan Approval Period but the lender has not yet determined if the building/results from condo questionnaire will be acceptable, there is a risk that if the building does not qualify that Buyer will be deemed to be in default and Seller will make a claim to the deposits forthwith. • Suggest adding language to the contract similar: ie, If Buyer is approved for financing but the condo association fails to complete the condo questionnaire or to otherwise complete it to Lender's satisfaction, or if the building is not approved by the Lender for any reason, this shall be deemed to be a Property Related Condition and Buyer will thereupon have the right to terminate the Contract and receive the return of all deposits forthwith.

  17. Lending RestrictionsSources for additional information: • Fannie Mae Lender Letter (LL-2021-14). • Fannie Mae Form 1076 Condo Project Questionnaire and Addendum. • Freddie Mac Condo Project Questionnaire and Addendum. • Real Property Section of the Florida Bar, ActionLine, Summer 2022 Article, Surfside's Repercussions Swamp Residential Resales? Following the Money as Lending Restrictions Lead to Reforms, Michael J. Gelfand

  18. SENATE BILL S-4: Legislation passed in response to the Champlain Towers disaster. • Legislation took effect on May 26, 2022. • Effects, and will result in greater costs, for all condo or co-op buildings that are three stories or higher. • Effects both developer-controlled and owner-controlled associations, with greater impact to older buildings and buildings that have previously waived reserves.

  19. SENATE BILL S-4:2 New Mandatory Requirements • Periodic Milestone Inspections – Not a change to the Condo Act, but a new section to the FL Building Code entitled "Mandatory structural inspections for condominium and cooperative buildings." • Structural Integrity Reserve Studies – Reflected as new provisions in Chapter 718, Fla Statutes.

  20. SENATE BILL S-4:Milestone Inspections – WHEN? • Where CO was issued on or before 7/1/92, the initial Milestone Inspection must be performed by 12/31/24. Fla. Stat. 553.899(4). • Except as above, by 12/31 of the year in which building reaches 30 years of age, and each 10 years thereafter. Fla. Stat. 553.899(3). • If within 3 miles of the coastline, at 25 years, and each 10 years thereafter. Fla. Stat. 553.899(3). • Within 180 days of notice from a “local enforcement agency” (Fla. Stat. 553.71(5), 553.899(6).

  21. SENATE BILL: S-4 Who must perform the milestone inspection • Engineer or architect licensed to practice in Florida. • Report must be submitted by the engineer or architect to the local enforcement agency. Fla. Stat. 553.899(2)(a).

  22. SENATE BILL: S-4 Milestone Inspection has two phases: • Visual examination of habitable and non-habitable areas of the building to provide a qualitative assessment of the structural conditions. If there is no finding of signs of substantial structural deterioration, phase two is not required. Fla. Stat. 553.899(7)(a). • It may involve destructive or nondestructive testing at the inspector’s direction. Fla. Stat. 553.899(7)(b).

  23. SENATE BILL: S-4Milestone Inspection Report • Upon completion, engineer or architect must submit a sealed copy of the report with a separate summary of material findings and recommendations to the Association and building official that has jurisdiction. Fla. Stat. 553.899(8)(a)-(f).

  24. SENATE BILL: S-4Association Requirements with Inspection Report • Distribute to each Unit Owner. Fla. Stat. 718.112(2)(h). • Post a copy of the summary on the condo/co-op property. Fla. Stat. 718.112(2)(h). • Publish the full report and summary on the Association’s website. Fla. Stat. 718.111(12)(h). • Must be maintained for 15 years after receipt. Fla. Stat. 718.111(12)(2)15. • The willful failure of an Association to complete the Milestone Inspection as required by statute is a breach of fiduciary duties of officers and directors to the Unit Owners. Fla. Stat. 718.112(2)(h).

  25. SENATE BILL: S-4Structural Integrity Reserve Studies • Defined in Fla. Stat. 718.103(25). Required for future major repairs and replacement of common areas. May be performed by “any person qualified to perform such study” but the visual portion must be performed by a licensed engineer or architect. • Must state the areas, estimated remaining useful life, estimated replacement cost or deferred maintenance expense, and estimated reserves for each item. • Must include at a minimum: roof, load bearing walls, floor, foundation, fire proofing and systems, plumbing, electrical, waterproofing and painting, windows, and any other item that may cost in excess of $10,000 or that may negatively impact any listed items or as determined by engineer or architect.

  26. SENATE BILL: S-4Timing and enforceability • For buildings existing on or before 7/1/22 that are owner controlled, the Structural Integrity Reserve Study must be completed by 12/31/24. • Association’s must complete every 10 years after the condominium’s creation. • The failure of an Association to complete the Structural Integrity Reserve Study as required by statute is a breach of an officer’s and director’s fiduciary relationship to Unit Owners. Fla. Stat. 718.112(2)(g)(4).

  27. No more waivers • Effective 12/31/24 members of a unit owner-controlled association may not determine to provide no reserves or less reserves that required by the revised statute. Fla. Stat. 718.112(2)(g) and (b). • Effective 12/31/24 members of a unit owner-controlled association may not vote to use reserve funds, or any interest thereon, for any other purpose than their intended purpose. Fla. Stat. 718.112(2)(f) and (3).

  28. Further Requirements: • Structural Integrity Reserve Studies must be maintained for at least fifteen years after the study is completed as part of the accounting records; and this includes any other structural or life-safety inspection. • A renter has the right to inspect and copy these reports. • Unit owner that is not the developer must provide a current copy to each prospective buyer along with the milestone inspection report. Fla. Stat. 718.503(2). • These reports must be posted on the association’s website. Fla. Stat. 553.899, 718.301.

  29. If that wasn’t enough… • Community Association Managers must comply with mandatory structural inspections. Fla. Stat. 468.4334(1)(b). • On or before 1/1/23 (now), condo associations existing before 7/1/22 must provide to the Florida Division of Condominiums: number of buildings that are three stories or higher, total number of units in all buildings, addresses, and counties of each building; whereupon the Division must post the list on its website. • Association must provide updates of any changes within six months from any such change. • The Division has jurisdiction to enforce compliance with milestone inspection and structural integrity statutory requirements. Fla. Stat. 718.112(2)(g), 718.501(1).

  30. And… • A local enforcement agency may prescribe timelines and penalties with respect to compliance. Fla. Stat. 553.899(10). • A board of county commissioners may adopt ordinances to require a condominium to schedule repairs for substantial structural deterioration after a phase two report. Such repairs shall be commenced within 365 days after receipt of the report. Failure to do so shall require a review to determine if the building is unsafe for occupancy. Fla. Stat. 553.899(11). • Florida Building Commission shall review the milestone inspection requirements and make recommendations to the legislature and governor by 12/31/22.

  31. Unintended Consequences • May displace thousands from their units and result in a substantial number of condo terminations. • Many unit owners will be unable to afford the increase in assessments resulting from the new mandates.

  32. Additional Sources • Senate Bill S-4. • Florida Bar Journal, November/December 2022, Senate Bill 4-D and the Champlain Towers South Collapse: A Problem in Response to a Problem, Martin A. Schwartz and Kevin M. Koushel

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