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ASSOCIATION RESERVES, INSURANCE AND
DELINQUENCIES UNDER SCRUTINY
Owners in financially unstable associations may
find it impossible to sell their units. Because of recent underwriting changes
by Fannie Mae, the federally chartered company that buys home mortgages and
sells them as securities, lenders are now required to examine an association's
finances before making loans.
For loan approval,
Fannie Mae requires the following:
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Delinquencies. No more than 15% of association's dues can be more than one month
delinquent. [This makes it imperative that boards have written
collection policies in place and that they closely follow those policies.]
-
Insurance.
The operating budget provides adequate funding for
insurance deductibles.
[Boards need to add a line item to their budgets for insurance deductibles.]
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Reserves.
At least 10% of budget is allocated to funding
reserves. [This does not mean
that reserves are 10% funded; it means that at least 10% of the budget is
flowing into reserves each year.]
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Rentals. At least 51% of the total units in the project must have been
conveyed to owner-occupant principal residence or second home
purchasers. [Associations should
amend
their CC&Rs to include reasonable rent restrictions.]
-
Investors.
No single entity (the same individual, investor group, partnership, or
corporation) may own more than 10% of the total units in the
project. [CC&Rs should be amended to limit the number of units any one
person or entity may own.]
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Facilities Ownership.
All facilities must be owned by the membership or the association, not by
the developer.
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Construction. The
project must be substantially complete and a certificate of occupancy
issued.
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Separate
Metering. The individual units should be separately metered. If they are
not,
the project's plans should provide for the ready adoption of unit
metering. [Many associations have already sub-metered their electrical.
If master metered associations have not already done so, they should start
budgeting for sub-metering.]
If an association fails to meet the above
requirements, the development could be red lined, i.e., no loans will be made
on any units. For more information on these requirements, go to
Fannie Mae's website.
Updated by ADAMS KESSLER 9/17/2008 | |
