In an effort to keep you up to date on changes in the law and regulations, in this edition we want to update you on lender questionnaires for condominium communities and a new law regarding the termination of association management contracts.
Lender Questionnaires – A Call to Action
Two entities, Fannie Mae and Freddie Mac, are the backers for, or purchasers of, most of the conventional loans in the country. These two government sponsored enterprises began developing additional guidelines for project standards after the Champlain Towers South condominium collapse in Florida in June 2021. If you haven’t seen questionnaire changes already you will likely be seeing them in the near future. This is significant for two reasons: (1) your preparations for answering the questionnaires and (2) the implications it has for your association’s maintenance projects and financial status being properly handled.
The additional requirements you will see include requests for insurance policies, budgets, financial reports, reserve studies with funding schedules, documentation regarding special assessments, and building inspection reports. If the association does not provide this information in sufficient detail, the project may be deemed ineligible and put on an ineligible list. In addition, based on information a community must provide it will likely be deemed ineligible for lending if the project (i) needs critical repairs, (ii) there are unfunded repairs totaling more than $10,000 per unit, (iii) the property insurance coverage is not for replacement value, (iv) the budget doesn’t have adequate funding for insurance deductibles, (v) more than 15% of owners are more than 60 days delinquent in paying their assessments, or (vi) commercial space accounts for more than 35% of the total above and below grade square footage.
The reserve study must meet or exceed requirements set forth in state statute, and must comment favorably on the age, estimated remaining life, structural integrity, and the replacement of major components of the property. Building inspection reports and pending litigation also come into play.
We recommend that you notify the unit owner and the purchaser when a request for a completed questionnaire is received from a lender, and obtain written approval to provide the requested information. A copy of the questionnaire should be provided to the unit owner and the purchaser when you request approval to proceed. This recommendation is made because there is some degree of risk of loan denial due to information you provide in response to the questionnaire. Requiring the affected unit owner acknowledge prior approval of completing the questionnaire can potentially avoid any liability to the association or its management.
Management Contracts – Right to Cancel
The 2023 General Assembly passed a bill which sought to provide more certainty and fairness in the relationship between associations and their managing agents with respect to terminating the relationship. Most agreements contain automatic renewal clauses. The termination clauses in management agreements vary greatly relative to the rights of each party to cancel. This new law provides needed certainty, particularly for associations which generally do not negotiate terms with the management companies. The new statute is very short and to the point – it provides the following: A management contract that contains an automatic renewal provision may be terminated by the association or the common interest community manager at any time without cause upon not less than 60 days’ written notice. This new provision is found in Section 55.1-1837 of the Property Owners Association Act and Section 55.1-1940.1 of the Condominium Act.
In the event you have questions about the content of this update please give us a call. Please get access our website at www.vahoalaw.com for more informative articles and legal updates.
