Condo buyers may soon find it difficult to secure financing, because of new regulations. Above: A sand sculpture seen near the 12-story oceanfront condo, Champlain Towers South, seven days after the building collapsed. The building has since been demolished and the site cleared. Pedro Portal In most places, condominium and cooperative apartments are considered among the most affordable ownership options. But if they haven’t already, buyers in some buildings may soon be finding it difficult to secure financing because of new rules regarding deferred maintenance, structural issues and underfunded reserve accounts.

According to a poll from the Community Associations Institute, 77% of condo boards and management companies queried are worried they would be exposed to liability for answering the probing questions now posed by Fannie Mae and Freddie Mac. (CAI is a 43,000-member group that advocates on behalf of the 74 million folks who live in places run by owner-controlled community associations.)

One of the questions asks if management is aware of any deficiencies related to the safety, soundness, structural integrity or habitability of their properties. Another wants to know if the project will be the target of building code violations about such deficiencies in the future. These are fair questions, especially for current occupants and potential buyers, who should want to know their places are safe. That’s why, in the aftermath of last summer’s collapse of Champlain Towers South in Surfside, which killed 98 people, Fannie and Freddie put the rules in place. The government-sponsored enterprises not only purchase mortgages on the secondary market but are also intended to protect lenders and investors from losing their money in a similar calamity. Many lenders work with the GSEs, but even those that don’t often follow their requirements.

The rules require lenders to, among other things, ensure appraisers document deferred maintenance that may affect the safety and soundness of the unit or the overall property and its amenities. They also must review the previous six months’ worth of owners’ association meeting minutes to determine if deferred maintenance, special assessments and inadequate reserve funding may have been discussed.

A sand sculpture seen near the 12-story oceanfront condo, Champlain Towers South, seven days after the building collapsed. The building has since been demolished and the site cleared.

But some condo association boards and property management companies are balking, calling the rules too onerous. On the advice of counsel, some have decided not to answer the questions at all — in effect, throwing in the towel on Fannie-Freddie financing.

Adams Stirling, one of the largest law firms in California dealing with common interest subdivisions, is advising its roughly 2,000 clients to answer the “draconian” questions as best they can — but with an addendum that they are doing so to the best of their ability, “with no guarantee.” “We’re getting hundreds of calls a day from boards, asking ‘What do we do?’” partner Adrian Adams told me. “It’s not like normal, where you can answer and move on. And it’s impacting everybody. It’s going to force people to look to alternative forms of financing,” which are “not nearly as plentiful.”

In the CAI survey, nearly 9 out of 10 condo management outfits fear exposure to liability for answering some questions, and a quarter said buyers have been denied funding because the questions have gone unanswered. Nearly half said lender approval has been delayed. “They understand the intent,” the CAI’s Dawn Bauman told me. “But some questions are not yes-or-no questions, and condo boards usually don’t have that kind of expertise. They are willing to provide the documentation, but they say lenders should make the decisions.”

Even though the rules are said to be temporary, the CAI has called on Fannie and Freddie to delay their implementation for a year, saying they caught many stakeholders “by surprise.” Then there’s the issue of who is going to pay for all the documentation now required to appease lenders and investors. The extra paperwork is not normally covered in condo board budgets. And the law in many places only requires sellers to disclose specific information regarding their owners association, including all official documents, covenants and restrictions and a statement of dues and assessments. Typically, condo associations charge to produce these docs, and it isn’t cheap — between $200 and $500, in most places.

But in Chicago, where there are “hundreds of old buildings that are falling apart,” said Don DeBat, the former real estate editor of the Chicago Sun-Times, some boards charge as much as $1,200. It’s usually the buyer who pays, adding just one more expense to an already burdensome list of closing costs. And if boards are required to produce minutes, engineering reports and so on, the fee is likely to jump significantly. “That’s the elephant in the room,” said DeBat.

Meanwhile, as of March 1, Fannie Mae has placed 1,034 properties on its “unavailable” list of projects for which it will not backstop buyers. About 40% of those are in Florida alone. Granted, some were on the list prior to the new rules.

“It’s doubtful the company has reviewed that many in just two months,” says Orest Tomaselli, the head of project reviews at CondoTek, a company that helps lenders with documentation requirements. Granted, too, some are listed as ineligible for other reasons, such as being identified as a condo-hotel or because a single entity owns too many units. But the Peppermill at Kendale Lakes West property in Miami is verboten because of “possible structural damage to balconies.”

And 111 East Chestnut in Chicago is out because it sits on a parking garage where excessive concrete degradation called “spalling” has been spotted. Tomaselli, whose staff reviews more than 2,000 properties a month, suspects that perhaps as many as 10% of all condominium buildings are “unwarrantable,” meaning they are not eligible for GSE funding. Eventually, he figures, they will make it onto Fannie’s “Do Not Buy” list.

He says maybe 80% to 90% of those need some work but will be cleared in due time. But, he warns, the remaining 10% are “devastatingly behind the eight ball.”

At one Manhattan condo he describes as “eerily reminiscent of Surfside,” the board chose to cover exposed rebar and cracking cement with steel plates rather than deal with the problems directly. As Tomaselli sees it, the properties that find the new rules too ruthless are the ones that have failed to address structural issues and reserve accounts. “You have to pay attention to this stuff,” he said. “After all, what’s the price of a life?”