Florida-based law firm Katzman Chandler and Massachusetts-based law firm Allcock Marcus joined forces to address the hidden "Condo Blacklist" maintained by Fannie Mae.
The firms say they are committed to helping condominium and cooperative associations currently on the blacklist, or at risk of being added, navigate this complex issue. Fannie Mae, a government-sponsored enterprise, uses the blacklist to designate properties ineligible for conventional financing, affecting thousands of residents and potential buyers.
It also impacts lenders who can't close and sell loans to Fannie Mae in buildings on the list, which is being kept as part of the temporary requirements that Fannie Mae instituted in 2021 barring the purchase of mortgages secured by condominium or cooperative units with significant deferred maintenance and public repair directives related to unsafe conditions.
To tackle this problem, Katzman Chandler is launching CondoBlacklist.com, an informational resource for communities to check their blacklist status and explore removal options. The two law firms plan to expand their efforts nationally through strategic alliances with other Community Association Law Firms.
Fannie Mae said in a statement that it does not maintain a condo exclusionary list.
"We publish project eligibility statuses in Condo Project Manager (CPM), a free, web-based tool for use by lenders that sell mortgage loans to Fannie Mae. These include approval statuses as well as information and statuses for projects that currently do not meet our requirements," the GSE said. "...CPM enables lenders to determine if the project already has a Fannie Mae eligibility status or to quickly and easily certify a condo project through their own review."
Fannie Mae added that: "As of June 2023, just 1.2% of the projects in CPM were assigned an “unavailable” status."
The law firms say that properties on Fannie Mae's Condo Blacklist face significant hurdles in buying and selling individual units through conventional financing. This restriction often forces owners to sell units at reduced prices to cash buyers or walk away from their investments, adding financial strain to affected communities.
"In practice, owners of units in blacklisted communities seeking to refinance, or a potential buyer seeking to obtain a mortgage on a unit, would not be able to borrow from traditional banks or mortgage lenders that seek to ultimately sell their mortgages on the secondary market," said Leigh Katzman, Esq., Founding Partner at Katzman Chandler. "Many times, this leaves owners who want or need to sell or refinance their units with no option other than to sell their units well below market value to cash buyers or walk away from their units compounding financial stress upon the already blacklisted community associations."
Following the tragic collapse of Champlain Towers South Condominium in Surfside, Florida, in 2021, Fannie Mae updated its lender questionnaires to include inquiries into structural aspects, financial health, and reserve funds of condominiums. While these changes aimed to address safety concerns, they have led to an increase in properties being added to the blacklist, disproportionately affecting struggling communities.
The Condo Blacklist, which the law firms say has existed since approximately 2005, continues to expand, with various issues contributing to properties' blacklisting. These concerns include insurance challenges, changes to commercial spaces, transient unit owners, structural integrity, and reserve requirement changes. However, they say the lack of transparency surrounding the blacklist has raised concerns, as affected communities typically only discover their status when a potential buyer applies for a mortgage.
CondoBlacklist.com, initiated by Katzman Chandler, allows association members, board members, and property managers to check if their community is on the blacklist. Furthermore, it offers guidance on potential removal from the list. This initiative, according to the law firms, aims to empower community stakeholders with the information they need to navigate Fannie Mae's Condo Blacklist and protect the financial health of their associations.
Fannie Mae said: "It is not the CPM “unavailable” status that causes a project to be ineligible – a project’s failure to meet one or more of our Selling Guide eligibility requirements makes the project ineligible, regardless of whether Fannie Mae is aware of that condition and makes note of it in CPM. Our CPM database does not contain eligibility information concerning all condo projects in the United States, and there may be projects that do or do not meet our eligibility criteria for which we do not have knowledge."
