Original article by Tyler Kerns

As part of the sales process for a condominium unit that will be financed with a mortgage, the prospective purchaser's lender will typically require an association representative to complete a condominium questionnaire. The lender may use a standard Fannie Mae/Freddie Mac questionnaire form, or the lender may have their own custom questionnaire.  The questionnaire helps the lender determine if the property and the association meet its lending eligibility guidelines. After the 2021 condominium building collapse in Surfside, Florida, the lender questionnaires started including questions about building safety. The Fannie Mae/Freddie Mac questionnaire form, which is used by many lenders or serves as the model for most custom lender questionnaires, includes a series of questions about the association's most recent building inspection. Specifically, that questionnaire asks:

1. When was the last building inspection by a licensed architect, licensed engineer, or any other building inspector? 

2. Did the last inspection have any findings related to the safety, soundness, structural integrity, or habitability of the project's building(s)?

2a. If Yes, have recommended repairs/replacements been completed?

If the repairs/replacements have not been completed: 

2b. What repairs/replacements remain to be completed? 

2c. When will the repairs/replacements be completed? 

Provide a copy of the inspection and HOA board meeting minutes to document findings and action plan.

Civil Code §5551, the statute that took effect as of 1/1/2020 as a result of Senate Bill 326, requires condominium associations with buildings containing three or more units to have “exterior elevated elements” for which the association has maintenance or repair responsibility inspected by a licensed structural or civil engineer or architect every nine years with the first inspection to have been completed by 1/1/2025. Therefore, condominium associations that have had a Civil Code §5551/SB326 inspection completed would, in most cases, reference that inspection in response to the above questions on a lender questionnaire. 

The SB326 inspection reports are required to include the inspector's recommendations for any necessary repairs or replacement of exterior elevated elements. If any of the exterior elevated elements pose an immediate threat to safety, the inspector is required to notify the local code enforcement agency, and the association is required to take measures to prevent access to those exterior elevated elements until repairs have been completed and the local enforcement agency has inspected and approved the repairs. In many instances, however, the inspector will not find any of the exterior elevated elements to be an immediate threat to safety but will still include in the inspection report recommendations for repairs that do not pose an immediate threat to safety. Importantly, when the lender questionnaire asks about “recommended repairs/replacements,” the question is not limited to items that the inspector may have considered to be an immediate threat to safety. The lender questionnaire wants to know whether even these nonemergency repairs have been completed and, if not, when they will be completed and what the association's “action plan” is for completing the repairs. 

Many lenders refer to the Fannie Mae Selling Guide to determine lending eligibility. Under the Fannie Mae Selling Guide, condominium projects in need of “critical repairs” are ineligible. The guidelines relating to critical repairs are not specifically tied to SB326 inspections and are not necessarily limited to items that pose an immediate threat to safety. The Fannie Mae Selling Guide describes “Projects in Need of Critical Repairs” as “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.” It says critical repairs could include conditions such as “advanced physical deterioration,” among other things, and lists “balconies” as one of several examples of items to consider. We have seen a lender make a determination that exterior elevated elements with recommendations for repair in an SB326 inspection report were “critical repairs” under the lending guidelines even though they were not identified in the report as immediate threats to safety. That lender refused to finance what had been a pending sale of a condominium. 

This underscores the importance of planning for repairs recommended in an SB326 inspection report even if no immediate threats to safety are identified in the report. While Civil Code §5551/SB326 does not include any specific requirement for completing such repairs, lenders are beginning to scrutinize these inspection reports, and boards should anticipate being asked about the status of repairs recommended in an SB326 inspection report.