At GetDocsNow, we don't cater to the mortgage industry by offering "over 5,000 bank-specific forms". Instead, we prefer to keep our alliance with our client, the management company. So, we are focusing on the newest Fannie Mae/Freddie Mac form for this article.
Lender Questionnaire requests are a daily grind for condominium management companies. In a previous article (The Truth About Lender Questionnaires), I discussed that the management company has no obligation to complete any forms or provide any information to lenders. This hasn't changed. But what has changed is the Fannie Mae/Freddie Mac underwriting guidelines.
In the wake of the tragic collapse of the Champlain South Tower in Surfside, Florida, Fannie Mae and Freddie Mac have updated their loan purchasing underwriting guidelines. The new guidelines include twelve new questions (with sub-questions) under the heading of "Building Safety, Soundness, Structural Integrity, and Habitability".
When was the last building inspection from a licensed professional?
Did the inspection have any findings related to the safety or structure of the buildings?
Is the association aware of any deficiencies related to the safety or structure of the buildings?
Are there any outstanding violations related to the safety or structure of buildings?
Is it anticipated that the project will, in the future, have such violations?
Does the project have a funding plan for its deferred maintenance?
Does the project have a schedule for its deferred maintenance?
Has the HOA had a reserve study completed in the last three years?
What is the total of the current reserve account balance?
Are there current special assessments?
Are there planned special assessments?
Has the HOA obtained any loans to finance improvements or deferred maintenance?
(This is a summary of the questions, not the actual questions. There are also sub-questions for additional details.)
These twelve questions all come down to two real questions for the association.
1. Is our building safe? If we don't know, we should have it inspected.
2. Do we have a plan for future maintenance or improvements and proper reserves or financial planning to pay for them?
I have heard from some managers that (1) the board doesn't want to spend the money on a reserve study, and (2) the board doesn't want to raise the dues to fund future projects. They would rather "keep the dues as low as possible".
Although this responsibility falls on the association and the board of directors, they need you as their manager to have the tough conversation and explain how important these two questions are. As a professional, you have to think of it this way, do you want the liability of being the manager that wasn't proactive and a tragedy strikes? You may be better off to "fire" the association that doesn't want to be proactive and take the correct precautions.
In addition to adding the questions, Fannie Mae made suggestions to lenders regarding sources of information that may help them with their underwriting of loans. These suggestions include:
· The lender is expected to obtain the financial documents necessary to confirm the association can fund any repairs.
· It is best practice for HOAs to obtain a reserve study, keep it updated, and follow its recommendations for reserves and maintenance schedules. However, projects that budget less than 10% of the HOA's assessment income may be at increased risk for significant deferred maintenance and special assessments.
· As a best practice, the lender should review the past six months of a project's HOA meeting minutes and obtain information about any maintenance or construction that may have significant safety, soundness, structural integrity, or habitability impacts on the unit or the project.
· We recommend that lenders review any available inspection, engineering, or other certification reports completed within the past five years to identify deferred maintenance that may need to be addressed.
You will notice that the lender is the one (Expected, Should, Recommended) who is to obtain and review these items. Many states have laws regarding resale disclosure documents that the seller must provide to the buyer (click here for more on state laws). One of the reasons for these laws is so the seller (current member of the association) can share this information with the buyer (not a current member of the association), which protects the fiduciary responsibilities of the management company. It also gives the buyer all of the documents that their lender needs. The buyer is the customer for the lender, right? Your attorney may advise NOT to provide the lender with association documents such as financials or BOD minutes. You can tell them: if the real estate agent followed the law, their customer (the buyer) already has the documents, and they can get them from their customer.
For us at GetDocsNow, a resale document provider company started by real estate agents and brokers, this is particularly frustrating. We understand the process and provide an easy solution for the process to be followed and documents to be shared. It is amazing how many real estate agents and lenders have no idea how to serve their clients, the home buyers. They seem to expect all of the research burden to fall to the management company and then don't want to pay for the "leg work" that goes into providing all of the information.
As a result, we have had an onslaught of lenders asking for additional information, reports, documents, etcetera. If you have had any experience with these lenders, you know they don't usually ask, they demand that you provide these items to them. I would suggest conferring with the association's legal counsel before giving any documents or information that has not previously been approved for dissemination to lenders or any non-members of the association.
Our firm belief is that the management company has no obligation to the lender and should not provide any answers, information, or documents they are not 100% confident in providing. However, for most management companies, this just isn't their reality.
We recommend, at a minimum, asking the association's legal counsel to join you at the next board meeting and take the newest Fannie Mae 1076/Freddie Mac 476 form, and with the board and legal counsel, answer as many questions as possible. Also, take that opportunity to discuss what additional information the association is willing to give to lenders. This will remove both the question of how and what to answer and protect the management company from providing incorrect or unapproved information.
Many of the questions on the form may require an answer such as "N/A" or "Not Tracked" even though the answer options on the form are only "YES or NO". Don't be afraid to write in those answers. At GetDocNow, we have made provisions for out-of-the-box answers. We have several answer options to choose from and offer text boxes for custom answers.
Although many lenders "insist" on completing their forms, the Fannie/Freddie form has been established as the national standard form since its release in March of 2016. It is impossible to meet with the board and/or legal counsel for every lender questionnaire request to complete various forms. This is why we suggest sticking to the one form and having it completed, approved, and updated periodically by the association's board and legal counsel.
Are you allowing lenders to control your processes and increase your liability risk (by completing their forms or allowing your document provider to complete them on your behalf)? If so, it's time to take back the control. Whether you choose to work with GetDocsNow to gain power or take it on alone, don't stay at the status quo regarding your lender questionnaires.
Have a question? I can be reached at bgreene@getdocsnow.com or to schedule a conversation click here. For more on this topic check out our video content discussing lender questionnaires.