|
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:
-
Delinquencies. No more than 15 percent 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.]
-
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.]
-
Renters. At least 51 percent 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 percent 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.]
-
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.
Very truly yours,
Adrian Adams, Esq.
Adams Kessler PLC
Kessler’s
Condo Court: The Case of the Common Area Criminal
Attack
What are an association’s
responsibilities to residents after a crime is committed
in the common area? Can the association and its manager
be held liable? Could a manager who did not know about
prior criminal acts nevertheless be held liable for
telling a prospective resident that the complex is safe
and there is no crime in the area?
See Gary Kessler’s
discussion of
Tan v. Arnel Management Co. |
