We have all felt the credit squeeze. Especially as a Realtor trying to get our buyers financing for distressed condos as a short sale, pre-foreclosure or REO. In NW Florida, from Panama City Beach to Destin there are only a few lenders that will write mortgages for condos and even fewer for condotels. The difficulty in finding financing is due to lenders being very cautious with condo developments that are not financially sound and HOAs that are in financial trouble. Due to the large surge in condo developments, many new condos are vacant and the units that have sold are mostly in foreclosure. This puts the HOA in a death spiral. As Realtors we find ourselves and buyers in a difficult position. We need to sell the distressed inventory to financially sound buyers to revive the condo developement and infuse much needed HOA dues. Financially solid buyers will get the condos out of their death spiral. However, if lenders will not write mortages for these developments and Fannie Mae will not back them, then there is no way to get out of the financial death spiral.
During the condo boom Fannie Mae loosened up their condo pre-sale requirements from 70% down to 51%. In a letter to Cynthia Shelton, President of the Florida Association of Realtors, the old requirements have been re-instated and now all new condo pre-sale requirements are 70% of units must be under contract. I believe this to be a good move. Fannie Mae is also requiring that at least 85% of condo units in established projects must be current on their condo fees. This requirement has been expanded to new construction.
The tightening of the HOA guidelines makes it very difficult for a condo development to get out of financial difficulties and back on track. Buyers are jumping in to the market taking advantage of the incredible prices and low mortgage rates, hopefully we will work through this condo dilemma and get everything back on track.
You can read the letter that Deborah Tretler of Fannie Mae gave to Cynthia Shelton of FAR here.