“The Perfect Storm.” Hundreds of Florida Condos are currently on the secret mortgage blacklist

The secret semi-government condominium blacklist has grown exponentially, making it difficult for owners of many troubled buildings in Miami and South Florida to sell or acquire loans for repairs, despite the association’s faces a financial and time crunch to meet strict new state safety regulations.

The number of local condos on the list is maintained by Fannie May, a federally chartered mortgage finance company, but it has more than doubled in the past two years, according to new data released by the law firm tracking it.

The total number of condominium buildings on the confidential databases in Miami-Dade, Broward and Palm Beach counties is 696 as of March. That’s almost half of the 1,438 condo buildings Fannie Mae lists as ineligible for assistance across Florida.

Owners of these buildings are usually listed due to financial, insurance or serious maintenance issues, making it nearly impossible to sell to buyers seeking traditional mortgage financing. The owners and associations of the listed condos are struggling to approve loans for repairs, said Jake Marcus, Miami attorney for Allcock Marcus.

“I think it’s the perfect financial storm for a Florida apartment complex,” Marcus said. “In Florida, there are all new requirements and a lot is happening.”

The latest blacklist tally means it is likely to have a greater impact in South Florida and other states than previously understood. The affected people make up a small percentage of South Florida’s estimated 13,000 condominium associations, but the ineligible list still includes thousands of condominium owners who could face financial difficulties as a result.

Hurdles for a mortgage

Banks and mortgage lenders are closely following the standards set by Fannie May and second mortgage institution Freddie Mac. Both are supervised by federal housing finance agencies.

While non-compliant mortgages that do not require backing Fanny or Freddie are available, they can be more expensive and difficult to qualify. Fannie and Freddie’s rules do not affect cash transactions that are common in South Florida.

Freddie Mac, who has established similar standards for condo mortgages and loans, is unclear whether to maintain a list of ineligible properties or assess them on a case-by-case basis, but Marcus believes it has its own blacklist. His company was able to get Fannie Mae’s list thanks to sources, but he said he has no access to Freddie Mack’s information.

Fannie Mae does not commit to allowing condo owners or associations to be made public on the list, so many people don’t know that the condo is on top of it until the lender rejects an application from the buyer.

It’s possible to get out of the list, but it’s a hassle, Marcus said.

The sharp rise in ineligible traits is almost certainly driven by the stricter requirements Fannie Mae introduced for loans and mortgages following the collapse of the Champlain Towers South Condominium in 2021, according to Marcus. Typical reasons why businesses don’t back mortgages in condos include insufficient reserves or insurance, structural or construction issues, too many late payments and too high rental rates.

After the surfside disaster, Fannie May began requiring that unit owners fill out an extensive survey detailing the financial and building conditions and an extensive survey to submit to banks or lenders when they want to sell to buyers seeking funds. The rationale was to reduce the risks associated with creating a loan in an older condo like Champlain Towers, which may have uncondemned or uncondemned maintenance, repairs, or financial issues.

The agency said at the time it was either retreating mortgages for condominiums facing material defects such as “critical repairs” and mold and water invasion, or postponing maintenance that would lead to “highly degradation.” Continuous regular maintenance or repairs are not an issue. However, buildings that do not have enough funds to pay for the essential work they need are also ineligible.

Enforcement after surfside

The existence of the secret list was first published in 2023 as some condo associations recognized that loans and mortgage applications in buildings were being denied at an increasing rate.

Fannie May’s bullet is confusing as a result of the growing requirements for condominiums enacted by the Florida Legislature in 2023 and 2024.

These new rules will vary depending on the age and location of the condominium, but for the first time you will need more than these three stories to carry out a regular inspection to determine the building’s conditions, and you will need to accumulate enough money to cover the cost of anticipated repairs of structural issues and other important building elements such as electrical systems.

However, many Florida condos are struggling to meet new requirements and have not submitted necessary testing and booking reports for the state that was originally scheduled for the year. Many condominiums were taking advantage of an explicit loophole in Florida law that allowed the association to abandon the creation of financial reserves until the 2023 reforms largely hampered practices.

At the same time, condo insurance premiums are rising sharply. Its confluence has resulted in already volatile finances for many old and not too positive associations and owners.

And that’s reflected in Fannie May’s data, he said.

In Florida, the most common reason for blacklisted condominiums is the lack of proper insurance coverage, indicating a close second when postponed maintenance and critical unmet repair needs are needed, data shows. Several condos are on the list due to multiple issues, Marcus pointed out.

Another common factor is being set up as a condominium hotel. This is because buildings that are not eligible for Fannie Maeback fundraising can raise questions about their financial stability or commercial use.

The new financial stresses have increased market uncertainty about the value of Florida condominiums, especially those over 30 who must meet new state standards. Condo inventory listed for sale is rising significantly even as sales drops.

Dynamic has doubled the owners of some condominiums and Marcus said he cannot afford to get a special rating for increased repairs and maintenance fees and insurance premiums, but he also cannot sell the units for a reasonable amount. Some associations also struggle to get loans to make the necessary repairs, he said.

One possible outcome is that when the condominium was a “more affordable option” for Florida residents looking to own a home, apartment life is becoming much more expensive than it was in the past, Marcus said.

Developer opening

Another impact, he and other condo experts, is likely to increase financial pressure on condominium associations selling large quantities to developers.

While significant sales have occurred in Miami and South Florida, the locks are still not open as bulk purchases continue to be a challenge, Marcus said. This is because a small portion of owners can effectively deny sales under Florida Condominium Act.

But to facilitate these rules, Tallahassee already has lobbying.

“They’ll need that,” predicted Marcus. “People are trying to lobby as a better way to impose special valuations of hundreds of thousands of dollars and leave the association in deep confusion.”

Fannie May did not respond to requests for comment submitted through the website. Agents are challenging the characterization of ineligible condominium databases as blacklists.

Initially, law firms like Allcock Marcus, who first represented the association and obtained the list in May 2023, believed it was only for a few years. They learned it was launched at least 21 years ago, but no one realized it existed because the number of condos on the list was relatively small for most of it, Marcus said.

Allcock Marcus will not publish the list as it can harm the reputation of the condo, reduce property value and cause liability issues.

However, we have set up an online link that we can ask the company to help determine if condo association officials are on the list. The company can also help condos get off the list. The company has received hundreds of inquiries since setting up the link two years ago, Marcus said.