LENDER QUESTIONAIRES HEAT UP
In our October update regarding FNMA’s Lender Letter 2021-14 (which outlines policy changes in response to the tragic building collapse in Miami (Surfside), Florida we noted that we expected condominium questionnaires to ask more about the financial health of associations as well as whether there are any problems with the structural integrity of the buildings and/or infrastructure, in the days ahead. Unfortunately, our expectation was spot on, and in the last few weeks our office has fielded many questions from clients regarding how to address the new questions, what information should or should not be released, and whether the association is taking on additional liability by responding to the requests.
Our advice to clients is to be careful answering all questions and releasing information to third parties. For many years we have recommended to clients that before any information is released to a third party, such as a real estate broker, buyer, or mortgage lender, an indemnity agreement should be signed by the Owner of the Unit (as well as the Buyer if it is a sale) in order to protect the association, members of the board, and their property managers and agents.
Our advice stands, and a copy of this type of release agreement can be found here [CLICK HERE].
Although it can be tempting to answer questions regarding the structural integrity of the property with the assumption that nothing is wrong (especially when the pressure of the sale of a unit is involved) the questions we are seeing so far are overly broad, almost unlimited in scope, and potentially can be difficult or impossible to answer.
For this reason, we recommend either declining to answer the question, or, if an answer is provided, to limit the scope of the response as much as possible. Like other responses given on condominium questionnaires, board members and managers should seek legal review prior to releasing responses and should require the use of a release agreement. This is even more important now that lenders will be requesting (and expecting) that associations provide copies of documents and reports such as reserve studies, in order to assess the health and viability of the community.
If you need specific guidance on this issue please reach out to our attorneys (all of whom have been closely following this issue).