Fannie Mae now requires robust reserves

Q: Can you describe some of the key points of the new Fannie Mae condominium lender guidelines?

A: Effective Jan. 1 this year, the Federal National Mortgage Association (otherwise known as Fannie Mae) established new regulations that now require certain types of community associations to provide extensive information associated with the condition of its building/s in order for purchasers/owners to obtain a loan insured by FNMA.

These regulations will specifically impact an association when an owner sells or seeks to refinance their unit. Upon sale or refinance, the association may need to respond to a lender questionnaire providing additional information than typically provided in connection with a sale regarding the association's long-term financial condition, structural integrity, deferred maintenance information and building code issues. Projects with unsafe conditions and/or significant deferred maintenance may be considered ineligible for FNMA mortgages. Additionally, special assessments will be reviewed more stringently.

It's important to note that under the new requirements, at least 10% of the association's budget must be allocated toward reserves. Noncompliance with this requirement may jeopardize the owner's sale or ability to refinance their unit. This is a new and critical requirement that board members will need to address.

Q: The board of our condominium association has been approached by someone who wants to buy the entire condominium building. Can you provide a couple of reasons why the owners in a condominium would want to do this?

A: Sales of all of the units in a condominium association is a continuing trend in the Chicago area, and it is governed by Section 15 of the Illinois Condominium Property Act. There are two most common reasons associations consider these transactions, and they both concern money.

First, many purchasers of an entire condominium building pay a substantial premium over that which a unit owner would receive as a sales price in a "normal" sale of their unit alone. Next, many associations have substantial unfunded deferred maintenance that may have to be funded through a large special assessment. A sale of the entire building may avoid the association having to perform this deferred maintenance and adopting the special assessment, thereby saving unit owners a lot of money.

Q: As a board, we are considering various ways to enhance security in our association. Can our association require all residents to provide the association with a headshot photograph?

A: The general view on this is that it is probably going too far to require residents to provide their photograph to the association. If the issue is whether a person belongs on the property, the less intrusive approach would be to require the person to present identification.

Q: The board of our condominium is planning on adopting a special assessment. Can a special assessment be payable in periodic installments, or must it be payable in a lump sum?

A: The board can adopt a special assessment that is payable in periodic installments, or the board can adopt a special assessment that is payable in a lump sum. Most periodic installments of a special assessment are payable monthly; however, some are payable quarterly.

Q: Our association is considering an amendment to the declaration. Can we adopt and record the amendment now, but have the amendment effective a year from when it is recorded?

A: An amendment to the declaration or bylaws is deemed effective upon recording in the office of the county recorder of deeds, unless the amendment sets forth a different effective date. Yes, the amendment can be effective a year from the date it is recorded. However, the amendment needs to include language that clearly describes when it will be effective, if other than the date it is recorded.

• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.