After the collapse of the Surfside condominium building on Florida’s east coast in 2021, more stringent condo association requirements were instituted.
Florida state law now requires a mandatory Structural Integrity Reserve Study (SIRS) to be conducted every 10 years for condo buildings with three or more habitable stories. The same state law now prohibits condo associations from voting to waive or reduce reserve funding for the structural components identified in their SIRS study.
Now the federal government is getting into the act. Effective January 2027, Fannie Mae and Freddie Mac are asking condominium associations to set aside more of their budgets in reserve accounts that can be used to pay for capital projects. The reserve increase is changing from the current mandatory minimum baseline allocation of 10% to 15% (unless supported by a recent three-year reserve study using specific alternative thresholds).
Nationally, 39% of condo associations operate in what is called a “weak” financial state. According to data from Association Reserves, a firm that evaluates condos’ financial health, less than 30% of condo associations have reserve funds.
Prior to the Florida SIRS structural integrity law, condo unit owners could vote annually to completely waive or reduce reserve funding for capital improvements. This practice left many Florida condos underfunded to begin with, and the enactment of the new law will further increase HOA fees to catch up.
It’s not uncommon for condo unit owners to opt for lower HOA fees and depend on special assessments as capital improvements are required. Unit owners who voted for this were betting they would have sold their condo before the bill is due, but those days are over.
Post-Surfside collapse, lender requirements have already negatively impacted condo sales for buyers who are applying for a mortgage. A condo’s lack of adequate reserves could easily kill a buyer’s ability to qualify for a mortgage and a current owner’s ability to secure refinancing on an existing loan. Fannie and Freddie are already beginning to scrutinize more closely a buyer’s ability to qualify for financing and the condo associations’ financial health, especially for low-down-payment buyers, all of which could hurt some condo sales.
Will changing the mandatory reserve percentage really hurt sales? Maybe yes, maybe no.
For condos that have good management and have kept up with maintenance and capital improvements, they will be in a good position to attract buyers no matter what laws are passed. Condos that have deferred maintenance because unit owners voted down increases in HOA fees could have a problem finding buyers who want to finance. And why would a buyer want to purchase property for cash in an association where the ability to finance is iffy?
Fannie Mae and Freddie Mac are also tracking condos with poor insurance ratings, a high number of renters, a high number of conventional loan applications being turned down and multiple special assessments for repairs unrelated to an act of God.
None of this should stop you from buying a condo. It’s still a great, maintenance-free lifestyle; you just may need to dig a little deeper into the association’s financial history and structural integrity. Once you have an accepted offer or are in contract, don’t be afraid to ask questions. Board meeting notes, budgets and reserve schedules as well as a list of special assessments and the reason for them will give you a good understanding of where and what you’re buying into.
Yes, it was easier and less complicated years ago. You accepted the seller’s word and the association’s data, but times have changed. You now have to be your own best advocate.
Despite the tragedy, we have Surfside to thank for the new laws that mandate building safety and make condo associations better financially positioned.
