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You may have read in the news that the implosion of Champlain Towers South has resulted in significant efforts to protect the public from unsafe residential buildings. As such, Fannie Mae and Freddie Mac are increasing their lending requirements regarding condominiums and cooperatives which could have a significant impact with respect to owners’ ability to obtain mortgages. In addition to the increased requirements of Fannie Mae and Freddie Mac (which will impact the ability of owners to obtain mortgages), the State of Florida, likewise, is in the process of implementing legislation to further protect the public. In fact, we understand that Senate Bill 1702, if implemented, will put into place mandatory inspections by licensed architects or engineers for multifamily buildings more than three stories tall at the 30-year mark, as well as require inspections every 10 years thereafter. Additionally, we understand the bill will require the establishment of comprehensive structural and life safety standards for maintaining and inspecting buildings.
While much of the information that we have reviewed to date appears to be primarily geared towards condominiums and cooperatives, we believe that attached multistory residential buildings will, likewise, be impacted by such legislation and requirements. However, the number of stories or the height of a building, may impact whether it will be subject to further regulation and/or to what degree. Nevertheless, we do expect that multi-story residential buildings which are subject to a homeowners’ association will be required to answer questionnaires (e.g., Fannie Mae’s form 1076 condominium project questionnaire) which, ostensibly, will include questions like:
“Is the association aware of any deficiencies related to the safety, soundness, structural integrity or habitability of the project’s building(s)?”
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Of course, the answers and/or failure to answer such question(s) could, and probably will, have a significant impact on the ability of owners to obtain mortgages. Similarly, the answers could create significant liability for an association, especially if it attempts to ignore or conceal problems. In addition to the potential liability an association could encounter if it endeavored to hide issues, is the potential liability associated with an association failing to undertake reasonable action to ascertain whether issues exist regarding the safety, soundness, structural integrity, or habitability of a building. Stated differently, ignorance may not protect the association, especially if it:
- reasonably should have known of such issues;
- should have inspected a building;
- should have, but failed to, timely and reasonably maintain a building; and/or
- failed to hire necessary professionals to advise the association of appropriate and/or necessary maintenance.
Of course, if an association has not performed these functions in the past and owners are precluded from obtaining reasonable mortgages on their units, then in that event, the owners may, likewise, pursue the association for its failure to address these issues properly, previously and/or timely.
It is important for the association to appreciate that depending on the ultimate regulations and legislation that is implemented, the association may need to consider increasing its reserves, as well as potentially amending its budget, not only to fund any necessary increase in its reserves, but to address any material deficiency(ies), should any exist.
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Ultimately, we must acknowledge that we do not know the ultimate impact that Champlain Tower South, as well as its resulting devastation and loss of life, will have on future legislation, as well as Fannie Mae and Freddie Mac requirements. Even now, we question what additional requirements insurance carriers will insist upon for underwriting condominiums, cooperatives, and multistory attached housing. Nevertheless, we must acknowledge that many associations could, and most likely will, encounter significant increased requirements that they will need to fulfill, including potentially:
- performing inspections;
- increasing its maintenance;
- performing additional repairs;
- increasing the funding of reserves, and
- making representations and filling out questionnaires which could expose the association to significant additional liability.
Of course, the above could have a significant impact on assessments, as well as the marketability of the units. Again, however, the number of stories and/or height of a building could have a significant impact on the ultimate requirements.
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Orlando Office: Maitland
The Clayton & McCulloh Building
1065 Maitland Center Commons Blvd.
Maitland, FL 32751
Phone: (407) 875-2655
Fax: (407) 875-3363
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Toll Free: (888) 793-1486
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