A secretive
quasi-governmental condo blacklist is growing exponentially,
making it difficult for owners in scores of troubled
buildings in Miami and South Florida to sell or get loans
for repairs even as their associations face a fiscal and
time crunch to meet stringent new state safety regulations.
The number of local condos on the list, which is maintained
by federally chartered mortgage finance corporation Fannie
Mae, has more than doubled in the past two years, according
to new data released by a law firm that has been tracking
it.
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Condos line the Intracoastal Waterway in Sunny Isles Beach |
The latest blacklist tally means it’s likely having a wider impact in South Florida and the rest of the state than previously understood. Those affected make up a small percentage of South Florida’s estimated 13,000 condo associations, but the ineligible list still encompasses thousands of individual condo owners who may face financial difficulties because of it.
A hurdle to mortgage loans
Banks and mortgage lenders adhere closely to standards set
by Fannie Mae and a second mortgage agency, Freddie Mac,
which together financially back around 70 percent of
residential loans in the United States. Both are overseen by
the Federal Housing Finance Agency.
Non-conforming mortgages that don’t need Fannie or Freddie
backing are available, but can be significantly more
expensive and harder to qualify for. The Fannie and Freddie
rules don’t affect cash deals, which are common in South
Florida.
It’s unclear whether Freddie Mac, which has enacted similar
criteria for condo mortgages and loans, also maintains a
list of ineligible properties or evaluates them on a
case-by-case basis, though Marcus believes it does have its
own blacklist. His firm has been able to obtain the Fannie
Mae list thanks to a source, but doesn’t have access to
Freddie Mac information, he said.
Because Fannie Mae hasn’t come through with a promise to
make its list publicly accessible to condo owners and
associations, however, many don’t find out their condo is on
it until a lender rejects an application from a buyer.
Getting off the list is possible but laborious, said Marcus,
whose firm will help associations find out if they’re on it
and develop strategies to contest the listing.
The sharp increase in ineligible properties is almost
certainly driven by stricter requirements put in place by
Fannie Mae for the loans and mortgages it backs after the
2021 collapse of the Champlain Towers South condo in
Surfside, Marcus said. Typical reasons why the corporations
won’t back mortgages at a condo include inadequate reserves
or insurance, structural or construction issues, too many
delinquencies, and too high a percentage of rentals.
After the Surfside disaster, Fannie Mae began requiring
condo associations to fill out extensive questionnaires
detailing their finances and building conditions to submit
to a bank or lender when a unit owner wants to sell to a
buyer who is seeking financing. The rationale was to reduce
the risks involved in making loans on older condos like
Champlain Towers that may have undisclosed or unaddressed
maintenance, repair or financial issues.
The agency said at the time that it would no longer back
mortgages in condos facing “critical repairs” or material
deficiencies such as mold or water intrusion, or that have
deferred maintenance resulting in “advanced deterioration.”
Ongoing routine maintenance or repairs are not an issue. But
buildings that have not set aside sufficient funds to pay
for needed critical work are also ineligible.
Crackdown after Surfside
The existence of the secret list first came to public light
in 2023 as some condo associations realized applications for
loans and mortgages in their buildings were being rejected
at an increasing rate.
The Fannie Mae crackdown has dovetailed consequentially with
expanded requirements for condos enacted by the Florida
Legislature in 2023 and 2024.
Those new rules vary depending on condo age and location,
but for the first time require those three stories or taller
to conduct regular inspections to determine building
conditions, then to build up enough money in reserves to
cover the cost of expected repairs for structural issues and
other critical building elements, such as electrical
systems.
Many Florida condos, however, have struggled to meet the new
requirements and have not filed required inspection and
reserve reports with the state that were due at the first of
the year. Many condos had taken advantage of an explicit
loophole in Florida law that allowed associations to waive
creation of financial reserves until the 2023 reforms
largely barred the practice, meaning they were suddenly
faced with having to raise thousands of dollars quickly.
At the same time, condo insurance rates have skyrocketed.
That confluence has made already shaky finances for many
older and less-affluent associations and owners even more
tenuous and, in some cases, unsustainable, Marcus said.
And that’s reflected in the Fannie Mae data, he said.
In Florida, the most common reason for a condo ending up on
the blacklist is lack of adequate insurance coverage, with
deferred maintenance and unmet critical repair needs a close
second, the data shows. Some condos are on the list because
of multiple issues, Marcus noted.
Another common factor is being set up as a condo-hotel,
because that can raise questions about financial stability
or commercial uses that make a building ineligible for
Fannie Mae-backed financing.
The new financial stresses have heightened market
uncertainty over the value of Florida condos, especially
those older than 30 years that have to meet the new state
standards. The inventory of condos listed for sale has risen
markedly even as sales fall.
The dynamic has put some condo owners in a double bind,
Marcus said — unable to afford special assessments for
repairs or rising maintenance fees and insurance rates, but
also unable to sell their units for a reasonable sum. Some
associations are also having trouble obtaining loans to make
the required repairs, he said.
One likely consequence is that condominium living is
becoming significantly more expensive than in the past, when
condos were “the more affordable option” for Florida
residents looking to own homes, Marcus said.
An opening for developers
Another repercussion, he and other condo experts say, is
that the financial pressure on condo associations to sell in
bulk to developers will probably increase.
Though some prominent sales have happened in Miami and South
Florida, the floodgates haven’t opened yet because bulks
purchases remain a hard deal to pull off, Marcus said.
That’s in part because a small percentage of owners can
effectively veto a sale under Florida condo laws.
But there’s already lobbying in Tallahassee to ease those
rules.
“They’re going to see the need for it,” Marcus predicted.
“People are going to lobby for it as a better way out than
levying special assessments of hundreds of thousands of
dollars and still leaving associations in deep disarray.”
Fannie Mae did not respond to a request for comment
submitted through its website. The agency has disputed the
characterization of its database of ineligible condos as a
blacklist.
At first, law firms like Allcock Marcus, which represents
associations and first obtained the list in May of 2023,
believed it had been in place for only for a couple of
years. They have since learned that it was launched at least
21 years ago, though no one realized it existed because the
number of condos on the list was relatively small for most
of that time, Marcus said.
Allcock Marcus won’t release the list publicly because doing
so could harm the condos’ reputations and potentially lower
property values, creating liability issues.
But it has set up an online link where condo association
officers can ask the firm for help determining whether
they’re on the list. The firm can also help condos get off
the list. The firm has received hundreds of inquiries since
setting up the link two years ago, Marcus said.