Lending Questionnaires for Condos Revised Regarding Critical Repairs

Fannie_Mae_Freddie_MacEffective September 18, 2023, some updates were made to the eligibility criteria for condominium and cooperative projects by Fannie Mae and Freddie Mac. Known formally as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), these government-sponsored entities play a pivotal role in the U.S. conventional mortgage market by purchasing mortgages from lenders and guaranteeing others. This process includes conducting project eligibility reviews for condominiums and cooperatives, specifically for those with five or more units. These reviews assess various factors, including ownership, reserve funding, litigation, insurance coverage, and notably, the repair status of buildings.

The focus on repair status gained momentum following the catastrophic collapse of the Champlain South Tower in Surfside, Florida, in June 2021. In response, both entities introduced temporary revised guidelines in January 2022 to address concerns over potentially unsafe conditions. Recently, Fannie Mae and Freddie Mac have solidified these guidelines, offering a comprehensive framework for evaluating the condition of condominium and cooperative buildings.

The revised standards clarify the distinction between critical and routine repairs, emphasize the significance of special assessments for maintenance issues, and outline the requirements for inspections, reports, and documentation lenders must gather to verify maintenance status. While these final requirements closely align with the earlier temporary guidelines, they offer greater detail on the expectations for lenders during the review of mortgagee questionnaires. Consequently, board members, as well as property managers, can expect to see some changes on these lender questionnaires.

Legal guidance may be required to assist in completing the questionnaires to help ensure continued eligibility for condominium unit financing through Fannie Mae and Freddie Mac, especially if it is not clear whether ongoing repairs are “critical” or “routine.”
The new language from the Fannie Mae Selling Guide is summarized as follows:

Critical Repairs

Projects in need of “critical repairs” are those needing repairs or replacements that significantly impact the safety, soundness, structural integrity, or habitability of the project’s building(s), or the financial viability or marketability of the project. Critical repairs include conditions such as:

  • Material deficiencies, which if left uncorrected, have the potential to result in or contribute to critical element or system failure within one year;
  • Any mold, water intrusions or potentially damaging leaks to the project’s building(s);
  • Advanced physical deterioration;
  • Any project that failed to pass state, county, or other jurisdictional mandatory inspections or certifications specific to structural safety, soundness, and habitability; or
  • Any unfunded repairs costing more than $10,000 per unit that should be undertaken within the next 12 months (does not include repairs made by the unit owner or repairs funded through an additional or special assessment).

A project with an evacuation order in effect due to an unsafe condition, either for a partial or total evacuation of the project’s building(s), is also ineligible for Fannie Mae or Freddie Mac financing until the unsafe condition has been remediated and the building(s) is deemed safe for occupancy.

If damage or deferred maintenance is isolated to one or a few condominium units and does not affect the overall safety, soundness, structural integrity, or habitability of the project, then the damage or deferred maintenance would not be deemed a critical repair.

Routine Repairs

Routine repairs are not considered critical and include work that is:

  • Preventative in nature or part of normal capital replacements (for example, focused on keeping the project fully functioning and serviceable); and
  • Accomplished within the project’s normal operating budget or through additional or special assessments that are within guidelines.

Special Assessments

Special assessments may be current or planned. Lenders must obtain and review the following information for each special assessment to determine if it addresses a critical repair:

  • What is the purpose of the special assessment;
  • When was the special assessment approved and is it planned or already being executed;
  • What was the original amount of the special assessment and the remaining amount to be collected; and
  • When is the expected date the special assessment will be paid in full.

If the special assessment is associated with a critical repair and the issue is not remediated, the project is ineligible.

Inspection Reports

If a structural and/or mechanical inspection was completed within 3 years of the lender’s project review date, the lender must obtain and review the inspection report. The report cannot indicate that any critical repairs are needed, no evacuation orders are in effect, and no regulatory actions are required.

If the inspection report does indicate there are unaddressed critical repairs, the project is ineligible until the required repairs have been completed and documented accordingly. The lender must review an engineer’s report or substantially similar document to determine if the repairs completed have resolved the safety, soundness, structural integrity, or habitability concerns of the project.


Lenders may need to review a combination of documents to determine if a project meets Fannie Mae’s physical condition requirements. Lenders are responsible for determining which documents are needed to ensure compliance with the requirements of this Guide. Some examples of this documentation include, but are not limited to:

  • HOA board meeting minutes;
  • Engineer report(s);
  • Structural and/or mechanical inspection reports;
  • Reserve studies;
  • A list of necessary repairs provided by the HOA or the project’s management company;
  • A list of special assessments provided by the HOA or the project’s management company; and
  • Other substantially similar documentation.

Takeaways for Community Associations

The ability of condominium units to secure financing through Fannie Mae and Freddie Mac hinges on compliance with these updated guidelines. It is critical for associations to implement a plan for continued and timely maintenance, repair, and replacement so that future work on building components never rises to the designation of “critical repairs,” as the entire project would be deemed ineligible for conventional loan financing. Projects with unaddressed critical repairs are deemed ineligible until remedied and documented. However, when individuals are seeking to obtain financing via a conventional loan, it is important for community associations to understand that it is the lender’s responsibility to verify eligibility of the community, not the community association.

Associations are advised to keep their reserve studies current and submit these, along with any relevant inspection reports, to the lending institution. This enables the lender to independently assess whether any repairs are critical or routine, as Fannie Mae and Freddie Mac mandate the lender to make this certification, not the association. Associations must not only proactively address any identified critical repairs and ensure accurate and comprehensive documentation, but also utilize additional and special assessments carefully to maintain conventional loan financing eligibility. It is also helpful to ensure that reserves are adequately funded to circumvent the necessity for additional or special assessments, which could lead to heightened scrutiny regarding the condominium’s financing eligibility.

Taking a proactive approach will facilitate a smoother financing process and safeguard the eligibility of the project for conventional loan financing. Should there be any uncertainty about whether a repair is considered critical or routine, or if there are questions on how to respond to a lender’s questionnaire, make sure to seek guidance from legal counsel.