CONDO QUESTIONNAIRE: What You Don't Know CAN Hurt You - Part II

by Joe Savage, Real Estate Broker

This is a continuation from last month about the Condo Questionnaire required by lenders who are considering making a loan for the purchase of a condominium unit, which loan would later be sold to Fannie Mae or Freddie Mac, the GSEs (Government Subsidized Entitiesthe secondary market.) Last month, we discussed the section of the questionnaire dealing with the status of the condominium and its homeowner association (HOA.) This month we will talk about items which deal with the nature of the condominium.
This questionnaire is used by Fannie and Freddie to determine the nature of the property. They do not want to make loans on apartment complexes or resort hotels that are masquerading as a condominium. They ask questions about whether hotel services are available on the condo property, or if the HOA is actively involved in short-term rental activities. Things like a check-in desk on property, daily maid service, revenue sharing, and limited owner use are all hallmarks of a condotel or condohotel. It is very difficult to get a loan from Fannie or Freddie on these types of properties. A high percentage of pure investor-owned rental units is another cue that the condo may just be an apartment complex that the unit owner really never intends to stay or use the unit at all just press it into rental service.


We will not address time shares because none of the Plantation properties are a time share, but comment that the GSEs do not look favorably on loans for the purchase of time shares.


None of the condominiums at the Gulf Shores Plantation are condotels or apartment complexes. There is no checkin desk on any property (MHI operates its registration center on its own private property, no differently than any other property management company in town). There is no limit to how often an owner may use their property, and the HOAs are not involved in any rental activities as it might pertain to private units or common amenities. Almost all of the units are second homes and are actively used by their owners at least a minimum of 14 days a year. There are some investors who own units at GSP, but they amount to less than 10% of the units.


All four condominiums at GSP are legally formed condominiums which meet the necessary criteria for the GSEs. However, that does not mean that an underwriter cant misinterpret the questionnaires contents if it is not completed in such a way as to prevent such misinterpretation. In GSPs situation and setting, it could be easy for an underwriter to merely dismiss the condos in the development as resort hotels and avoid the chance they may get in trouble for agreeing to loan on them. Thus, it is critical to the value of each homeowners investment that care and time be taken to ensure that an underwriter be helped to understand the true nature of the condominiums at the GSP.