Here is my story: I have worked hard to maintain my 10-year-old townhouse here in New Town. It has recently been painted and I have always been quick to fix issues identified by the NTRA’s Asset Maintenance Committee. I have even updated everything in the kitchen and have installed a new furnace and air conditioner. I was ready to sell so that I could buy a single-family home in Charlotte Park. My townhouse went on the market and the real estate agent said it should sell quickly. Within a week I received three offers and I selected the best one. It fell through just two days before closing, the buyer couldn’t get a mortgage on the townhouse. The second and third potential buyers had the same problem. No one would lend money for my beautiful, well-maintained, and upgraded townhouse. I just don’t understand it.
The above story is fictional, but situations like this are happening all over the United States, and it could happen here in New Town due to changing lending requirements. Mortgage companies are in the business of making loans on local properties, and then selling those loans at a profit to investors in the secondary mortgage market. In most cases Fannie Mae and Freddie Mac are the companies that purchase secondary market mortgages.
These two government-sponsored organizations control about 70% of the mortgages written in the United States. They control almost all of the secondary mortgage market with a list of criteria that must be met by a mortgage before they will buy it. Almost every mortgage company in the United States uses these criteria to evaluate a property and write a loan on it because they want to be able to sell the mortgage in the future. The loan requirements used by Fannie Mae and Freddie Mac have been tightened significantly over the past several years.
One of the tools currently used is a blacklist of over 2300 condominiums, homeowner associations, and cooperatives that are not considered to be eligible for mortgages if they are going to be bought on the secondary market. This blacklist of associations is growing at a rate of about 100 associations per month. If your homeowner association is on this blacklist, most financiers will not write mortgages on any of the properties in the Association because they want to be able to sell those mortgages in the future. This forces all sales in blacklisted communities to go to cash buyers or to buyers using less favorable loan firms that specialize in non-warrantable properties. The Fannie Mae and Freddie Mac blacklist results in depressed sale prices and low homeowner values throughout the affected community.
Homeowner associations may be placed on this blacklist simply by deferring maintenance and/or having unfunded repairs totaling more than $10,000. In some cases, they may find themselves on the blacklist just because the Association is slow at repairing properties damaged by fire. Problems in one part of a community affect the writing of mortgages in the entire community whenever that community is on the blacklist. Even when associations are in the process of making the repairs and have signed contracts for the work, banks have been known to refuse to write mortgages throughout the community until all of the work is completed.
This is why it is so very important that we get the Village Walk siding issues and leaking rooftop decks resolved, and the Village Walk Replacement Reserve funded at the recommended levels sooner rather than later. If we delay much longer, the New Town Residential Association might find ourselves on the mortgage blacklist and the property values for all of us will decline significantly. Plus, getting off of the mortgage blacklist is difficult and generally requires expensive legal intervention.
Paying assessments, especially additional special assessments, is never popular. But it is essential that we accomplish the needed Village Walk repairs and fund the replacement reserve to recommended levels as soon as possible. The repairs and associated additional funding are needed to maintain the well-being of those living in Village Walk homes and to protect the property values and salability of all of the homes throughout our community.
More information and specific examples of associations that have found themselves to be in trouble and on the blacklist can be found in the January-February 2024 issue of Common Ground (pages 27-29). This Community Associations Institute publication is written to support homeowner associations like the NTRA. A copy of this publication is available in the NTRA meeting room.