FANNIE MAE GUIDELINES FOR BUYING SELLING

Getting PERSonal

Board members are finding they must make substantial changes to how their buildings are managed if they want their residents to be able to sell or refinance their homes. "It's pretty cut-and-dry. Comply and you'll get your loans. Don't, and you have to dance," says Josh Koppel, president of H.S.C. Management.

In the case of the Upper East Side condo, Goldstick assumed the building was in the clear. The building had commissioned a $5,000 engineering study in 2010 that found a six percent capital improvement fund was sufficient, and Fannie had granted the property a waiver.

But a year later, the engineering study was no longer enough. The building was left with two choices: Increase its capital-improvement fund or go through a Project Eligibility Review Service (PERS) to get approval. PERS is expensive, valid only for a year, and comes with no guarantee that a building will get Fannie's approval. It costs $1,200 plus $30 for each unit in the building. And that's before legal and appraisal fees.

For all the challenges, there are eight steps condo and co-op board members can take to make their buildings more attractive to lenders, ensuring that their residents won't run into unexpected roadblocks when they try to sell or refinance.

1. Fill the Capital-Improvement Coffers

If there's anything Fannie and Freddie want to see in a building's operating budget, it's a line item stating that 10 percent has been set aside for capital improvements. For buildings that have no capital-improvement reserves, it is time to start saving, says Stephen Beer, an accountant and principal in Czarnowski & Beer.

Take a close look at your building's reserve fund and see if there are places where cash can be moved. If the autumn was unseasonably warm, for example, there may be money left over from the heating-oil budget that can be shifted into the capital-improvement pot. Building managers can either put the entire 10 percent away at once, which can mean a major hike in maintenance fees, or take smaller steps over several years to reach 10 percent. Fannie will sometimes grant a building a waiver if it shows that it is taking significant steps toward meeting the guidelines.

2. Know Your Lenders

If board members don't know where their building stands with the major lenders, find out. Keep abreast of which banks, if any, have denied loans to buyers and find out why. Housing conferences are good places to meet lenders and project review officers.

If no one has sold a unit or refinanced in several years, speak with a loan officer and request a review to find out where the building stands so problems can be addressed before a loan is denied. Lenders have the ability to speak with Fannie directly. "Before we get a loan coming in, let's find out what the problem is," says one loan officer. "There haven't been that many people who've been very proactive." 

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