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A condo questionnaire is a critical document that lenders use during the mortgage approval process for condominium purchases. It provides detailed information about the condo complex's financial health, rules, regulations, and overall condition. Problems with the condo questionnaire can create delays or complications during the closing process. Here are some common issues that might cause problems:
1. Financial Health Concerns
High percentage of owner-occupancy: Many lenders require that at least 50% (or more) of the units in the complex be owner-occupied rather than rented. If a condo complex has too many renters, it could impact the lender’s willingness to approve a loan.
Reserve fund issues: Lenders typically want to see that the condo association has sufficient funds in its reserve account for future maintenance and emergencies. If the reserve fund is too low or non-existent, it raises concerns about the financial stability of the association, leading to potential loan rejection.
Delinquencies in condo fees: A high rate of delinquencies in the condo association fees can signal financial instability, which lenders may view as a risk. This can delay or halt the approval process.
2. Insurance Coverage Problems
Lack of adequate insurance: Lenders require that the condo association carries specific types of insurance, including property insurance and liability coverage. If the condo association's insurance policy doesn’t meet the lender's criteria, the loan may be delayed or denied.
Insufficient flood insurance: If the condo is in a flood zone, the association is required to have flood insurance. A deficiency in this area can cause significant issues with closing.
3. Pending or Recent Litigation
Ongoing lawsuits: If the condo association is involved in a lawsuit (e.g., against contractors, residents, or local authorities), it can be a red flag for lenders. Lawsuits can create financial and legal uncertainty, so lenders may hesitate to approve a loan until the matter is resolved.
History of litigation: Even if the condo association is not currently involved in litigation, a history of legal problems could still concern lenders and complicate the approval process.
4. Non-Compliance with Condominium Guidelines
Failure to meet FHA/VA guidelines: Some buyers are using FHA or VA loans, which have specific guidelines regarding condo developments. If the condo does not meet these criteria (for example, not having enough unit owners, or a commercial component taking up too much space), it can prevent the buyer from securing the loan.
Non-compliant rules or by-laws: If the condo association's rules or by-laws are outdated or do not comply with lender requirements (such as restrictions on renting out units), it can create issues.
5. Discrepancies or Incomplete Information
Incomplete or missing information: If the condo questionnaire is not fully completed or there is missing information about the financials or maintenance issues, lenders may hold up the approval process.
Incorrect or inconsistent data: Discrepancies between the information provided in the questionnaire and the condo association’s financial statements can raise red flags, requiring additional clarification or investigation.
6. Excessive Commercial Units or Mixed-Use Properties
High commercial occupancy: If a condo development has a high percentage of commercial space or mixed-use properties (residential and commercial), lenders might view this as risky. Lenders prefer predominantly residential complexes since they have a lower risk profile.
7. Special Assessments
Upcoming or recent special assessments: If the condo association has recently passed a special assessment (a fee charged to condo owners for unexpected repairs or improvements) or plans to do so in the near future, it can lead to concerns about the financial health of the complex and may affect the lender's decision to approve the loan.
8. Age of the Building
Older buildings with deferred maintenance: Lenders might be cautious about approving loans for condos in older buildings that have not been well-maintained. They may require detailed maintenance records or a building inspection to ensure that the property is in good condition.
Conclusion
Issues with the condo questionnaire that could cause problems during closing typically revolve around the financial stability, legal status, and physical condition of the condo association and its property. It's important for both the buyer and the seller to address these issues early in the process by working with the condo association to provide accurate, complete, and compliant documentation to the lender.
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