After Rich Engels’ mother died earlier this year, Engels decided to sell her condo unit in Sunrise Lakes Phase 4.
He lined up a buyer, but he said the deal fell apart after the lender learned that the condo building had no wind insurance.
Lenders won’t approve mortgage loans on buildings that are not insured with full replacement coverage.
It’s a growing problem as South Florida condominiums face a perfect storm of rapidly increasing insurance costs, tougher requirements to maintain reserves to cover repairs, and heightened scrutiny of inspections by lenders who rely on Fannie Mae and Freddie Mac, the federally-created guarantors of most U.S. home loans.
Engels eventually sold the condo to a buyer who could pay cash. But he says he settled for $40,000 less than what he was offered by the customer seeking the mortgage loan.
“We were planning to put some of the money away for each of the grandkids and give some to our kids,” Engels said. “I had to break my promise. It hurt a lot.”
an analysis of the new guidelines by the Massachusetts law firm Moriarty Bielan & Malloy LLC.
A list of ineligible properties are available to lenders and real estate agents, but they are not allowed to share it publicly.
“Prior to September, the mortgage companies would ask about the condition of the building and a general response was good enough,” says Ryan Papy, president of Keyes Insurance, an affiliate of Capital Partners Mortgage Services. “Now they want the full inspection and they go through it item by item. A large population of condos in our area do not pass this test and will only be suitable for cash buyers.”
Property managers and associations are still becoming familiar with the process, he said, adding, “Right now, it is chaotic to say the least.”
Reserve study requirement adds pressure on associations
And it comes as associations are figuring out how to comply with new legal requirements for condo buildings three stories or taller to complete Structural Integrity Reserve Studies no later than Dec. 31, 2024.
The study, currently required only in Miami-Dade and Broward counties, must include evaluations of specific structural elements, including the roof, load-bearing walls, foundation, floor, plumbing, waterproofing and fireproofing, windows, electrical systems, and any other item with a repair or replacement cost of more than $10,000 that would negatively affect the structure of a building if not corrected.
The studies will have to identify the remaining useful life of the common areas being inspected and recommend annual reserves that associations must raise to repair or replace the elements.
Effective Dec. 31, 2024, associations will no longer be permitted to waive or reduce funding for the reserve items in their annual budgets, or use reserve funds earmarked for the required structural items for any other purpose.
The studies will reveal more roofs that have reached the ends of their useful lives, along with other damage requiring immediate repairs to keep buildings insurable.
The costs associated with the required studies, along with costs to make required repairs and the rising cost of insurance threaten to make Florida condo life unaffordable for a growing number of retirees, Abramowitz said.
“Obviously something has got to give at some point,” he said.
Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at [email protected].