It has been five years since the collapse of the Champlain Towers South, a condominium located in Surfside, Florida. This tragedy placed the spotlight on condominium associations across the country, leading to sweeping legislative changes in many states on the issues of reserve studies, inspections, and reserve funding. It has also caused some to question the long-term viability of condominium associations due to rising insurance costs, deferred maintenance, the age of the structures, and the tightening of lending requirements.
Fannie Mae and Freddie Mac were chartered by Congress to help promote homeownership. They provide banks, savings and loans, and mortgage companies with access to funds and buy mortgages from lenders. Fannie Mae and Freddie Mac have established lending requirements to qualify for federally-backed financing. These lending requirements for condominium associations have evolved over the years and have tightened since the Surfside collapse.
Recent changes to these requirements include revisions to the Condo Project Questionnaire, the document associations provide lenders with information pertaining to the development, insurance coverage, finances, reserves, ownership, and the safety, soundness and integrity of the buildings and structures. In 2023, deferred maintenance and unsafe condition requirements were incorporated into the Fannie Mae Selling Guide.
In March 2026, Fannie Mae published “Lender Letter LL-2026-03” highlighting updates to condominium project standards and property insurance requirements to address challenges of borrowers and condominium associations. According to Fannie Mae, these “revised requirements are intended to improve the financial health of condo projects and promote long-term sustainable homeownership.”
The Revised Requirements Include the Following:
Eligibility Review Process
Starting on August 3, 2026, established condominium projects will no longer be eligible for a streamlined (Limited Review) project review and will have to go through the Full Review process or the Waiver of Project Review process, if applicable.
Reserve Account Allocations
Effective January 4, 2027, condominium associations will be required to allocate 15% of the annual budgeted income assessment to the reserves for capital expenditures and deferred maintenance, up from the current 10% requirement.
Reserve Study Requirements
Starting on August 3, 2026, if a reserve study is used to demonstrate a condo association has sufficient reserves, the condo association’s budget will be required to include the highest recommended reserve allocation amount in the reserve study and lenders will no longer be permitted to use the baseline funding method, which allowed the association’s reserve cash balance to approach but never fall below zero.
Investor Concentration
The 50% owner occupancy requirement has been eliminated.
Insurance Adjustments
In response to concerns expressed by lender’s abilities to comply with certain insurance requirements, various updates are being made to certain property insurance requirements.
No. 1: For condominium projects, the roofs must still be insured; however, the requirement to insure the roofs on a replacement cost basis is being retired. Policies may permit certain roof losses to be settled on an actual cash value basis. This change is in effect.
No. 2: The condo association’s master property insurance policy coverage is required to equal at least 100% of the estimated replacement cost value of the project improvements, including common elements and residential structures. This change is in effect.
No. 3: Beginning July 1, 2026, the maximum allowable deductible per unit for all required property insurance perils covered by a master property insurance policy is now $50,000.
No. 4: Effective immediately, a unit owner will be required to have a unit owners property insurance policy if any portion of the interior of the unit or improvements to the unit are not covered by the master property insurance policy or if the master property insurance policy includes a per-unit deductible.
– The minimum amount of coverage for a unit owners property insurance policy must be at least equal to the greater of an amount sufficient to cover the interior of the unit or improvements to the unit not covered by the master policy or the amount of the per unit deductible.
– The unit owners property insurance policy must provide coverage on a replacement cost basis.
– The maximum allowable deductible for all required property insurance perils is the greater of 5% of the property insurance coverage amount or $2,500.
Meeting these lending restrictions and requirements for certification has a direct impact on the marketability and value of condominium units. As a result, condominium associations and their boards of directors should review these changes and determine what adjustments, if any, need to be made to ensure compliance and to keep the project eligible for this financing.
Depending on the current financial condition of the community, certain adjustments may need to occur, or steps taken to address these changes. Boards of directors should review and evaluate the association’s reserve allocations, current budget, and funding. Future assessments may need to be raised, or special assessments levied. A new reserve study may need to be ordered.
Condominium associations may also consider whether amending their declarations of covenants, conditions and restrictions and other governing documents to help address any shortfalls is a viable option, while also recognizing the limitations that do exist in a successful amendment project.
Boards of directors may communicate with the association’s insurance adjuster to review current insurance policies and ensure the policies meet these new requirements, and whether any cost reductions or savings are available. Adjustments in the association’s policies could shift costs to the unit owners.
Condominium associations and unit owners across the state are feeling the impact of large insurance premiums and deductibles, deferred maintenance, structures in need of repair, insufficient funds, and governing documents frozen in a time that is incompatible with current needs. These factors are primary drivers of declining marketability and property values in the condo market. Buyers are increasingly unwilling to purchase in buildings with high deductibles and aging systems, lenders are tightening approval standards, and refinancing is becoming nearly impossible for many projects. Associations and the unit owners can benefit from staying in compliance with the Fannie Mae and Freddie Mac lending requirements, and doing so will help soften this blow, but compliance alone is no longer sufficient. Proactive capital planning, governing document modernization, and honest assessment of deferred maintenance are now essential to preserving property values and market viability.
