New Guidelines for Apartment Loans

The context. Fannie Mae and Freddie Mac, which secure loans for cooperative shareholders and condominium unit-owners, have published certain guidelines related to deferred maintenance and unsafe conditions. They’re looking at deficiencies, defects and substantial damage, and they are looking at buildings’ financial statements that notify owners regarding assessments.

One level deeper. Let me give you an example. A lender reads the audited financial statement and sees that there is a special assessment that is included in the footnotes. The lender is looking for the reason for that assessment, the size and repayment terms of the assessment, and documentation to support that this assessment is not going to negatively impact the financial stability of the cooperative or condominium. The lender is also tying in the footnotes with regard to any capital improvements that are being made. If the capital improvements are related to any severe or substantial safety repairs, improvements or rehabilitation of the building, and the lender sees that this assessment is not supporting all of these repairs, it will turn down the loan request.

Be smart. Make sure you are aware of the financial impact of any projects that you need to do over the next three to five years, and create a capital plan. Before releasing your financial statement, be sure to review it thoroughly with your management company, attorney and accounting firm. Boards need to be very careful about the financial information released to the public, especially since the financial statement is a marketing tool that is used by shareholders and unit-owners to get financing.