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Photo Vincent Guadazno
Rick Tourgee of Century 21 Shoreland is holding a seminar on lenders’ new credit requirements. |
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In credit crunch, condo associations need bylaw changes to enable sales
By Pru Sowers
Banner Staff
PROVINCETOWN — The current financial crisis in the national housing market is forcing local condominium associations to make dramatic changes in their bylaws in order to prevent values from further declining.
Fannie Mae and Freddie Mac, two of the largest secondary mortgage federal lenders have significantly tightened their credit requirements, according to Rick Tourgee, owner and manager of Century 21 Shoreland, one of the local branches of the national real estate firm (see Provincetown Realty Group story this page). Primary lenders have to make sure that those requirements are met or there may be no funding available. Those stricter requirements are aimed particularly at condominium purchases, which Fannie and Freddie consider riskier than single-family homes.
“[The federal lending agencies] are looking to see if 10 percent of an association’s annual budget is set aside for reserves. They’re looking at association meeting minutes. A condo can’t be smaller than 600 square feet or seasonal. Probably 50 percent of the condos in Provincetown are less than 600 square feet,” he said.
Many if not most local condo associations are unaware of the new credit rules. As a result, if the association bylaws do not include language that meets the new criteria, a prospective buyer cannot get a loan. Tourgee said he recently had a buyer ready to make an offer on a condo unit at the 41-unit Braemar Resort, 132 Shore Road in Beach Point. But because the complex has a rental office onsite to help owners rent their units to vacationers, neither Freddie Mac nor Fannie Mae will approve a loan because the complex looks more like a motel than a condominium complex, Tourgee said.
“Obviously this will hurt their value. They can’t sell unless it’s an all-cash deal,” he said.
Maryann Taormina, a real estate agent working for Mortgage Masters, a broker and lender, said she has run into similar difficulties for a 40-unit condo association in Provincetown that she wouldn’t name. Because the association isn’t putting 10 percent of its annual budget into a reserve account, buyers — and owners looking to refinance their mortgages — can’t get a loan.
“This is a real issue for associations to look at what they have in place to protect their owners. I do a lot of business in town. Unfortunately, it’s coming up on every other [sale],” she said.
Taormina and Tourgee are holding a seminar for condo association trustees and owners on Dec. 13 to outline the changes in the credit requirements. The seminar will be held in the Century 21 Shoreland office at 68 Shank Painter Road from 10 a.m. to noon. The purpose will be to help associations working on their 2009 budgets to include the language necessary to make the condos credit worthy, Tourgee said.
The language is fairly complex and will need to cover prospective buyers putting less than 25 percent down on a condo they intend to use as a second home. Unless that 25 percent threshold is met, the lender will require what is called a full review, Taormina said, and a limited review for buyers putting more than 25 percent down.
“Currently, if anyone is putting less than 25 percent down to purchase an attached condo as a second home … a full review will be required by the lender of the master deed, declaration of trust, bylaws, budget, minutes of the last two year’s annual meeting and satisfactorily completed condo questionnaire,” she said. “Needless to say, in today’s real estate environment, it would behoove the associations to ensure that they are in full compliance with the guidelines.”
psowers@provincetownbanner.com
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Dec 4th, 2008