Last year was a challenge for associations throughout New Hampshire. Receivables rose. Foreclosures increased. Banks bought units. Deferred maintenance issues came home to roost. Other areas have been hit hard. In Boston, condominium owners faced a $75.6 million special assessment or $70,000 to $400,000 per unit. A property in Miami saw a staggering one out of six units in foreclosure. Thankfully, NH has not seen these headlines.
These national trends have forced a review of lending rules which will impact all condominium properties. In December, the Federal Housing Administration imposed tighter lending standards because of the high delinquency and foreclosure rates. Since the FHA is a key source of mortgage financing for new condominium buyers, tighter rules will likely have consequences by limiting the number of buyers in a condominium that can get FHA insured loans. In addition, the rules restrict loans to buyers in properties with too many delinquent owners, a high number of renter occupied units, and properties with poor finances.
Recently, as the economy began its decline, the condominium market was hit first. Lenders Fannie Mae and Freddie Mac, before receiving federal subsidies, revised their underwriting rules to address mounting loan deficiencies by requiring a more active review of the financial strength of community associations through a loan application process known as “full project review.” This process requires lenders to verify that the association has developed an “adequate budget.” The budget must fund the capital reserve at the rate of 10% of the annual revenues. In addition, the association must have sufficient cash to cover the master insurance deductible. The rules also target receivables by limiting the number of delinquent units to no more than 15 percent. As the economy recovers, the impact of these changes will come into sharper focus.
On a local level, New Hampshire revisited the condominium governance by imposing new rules on the boards of directors of associations. Prior to the amendment, boards were left to manage their affairs using broad discretion under a business judgment standard. In 2009, the legislature imposed specific record keeping and reporting requirements. Effective January 1, 2010 boards must make copies of the minutes of board meetings available to unit owners within 60 days of the meeting or 15 days of the date the minutes were approved, whichever occurs first. The statute does not provide a remedy for failure to comply. While this legislation has been in place for a number of years, many boards are not aware of these statutory obligations and continue to struggle with allowing access to association records. Understand the requirements of the condominium act is a necessity for all board members.