As was expected in the wake of the Champlain Towers collapse in Surfside, the insurance underwriting and quoting process for condo associations, particularly in Florida, became more rigorous. Interestingly, mortgage banks are now taking a similarly cautious approach to their lending practices when it comes to condo associations.
According to a report from the Miami Herald, Freddie Mac and Fannie Mae are now requiring banks to evaluate the condition of buildings prior to approving a loan. The corporations said they will no longer back condo mortgages in buildings facing critical repairs or material deficiencies, such as water intrusions or even mold, or that have deferred maintenance that has resulted in “advanced deterioration.” Buildings that have not allocated sufficient funds to pay for needed critical work will be ineligible for loans in most cases.
From an insurance perspective, this new approach can produce unintended consequences beneficial to the industry. If lenders will be conducting greater due diligence and constructively compelling owners to update and maintain buildings previously not maintained well, it will increase the attractiveness of such risks to underwriters. Condo associations in Florida may ultimately seek to disclose evidence of recent loan approval to underwriters to demonstrate the qualifications and overall underwriting attractiveness of their building.