What is an Unwarranted New Orleans Condo? It is a term used in financing….Important to know and understand….
An unwarranted condo is one that cannot be financed as a Conventional Mortgage that is sold to Fannie Mae. A condo can become unwarranted for a variety of reasons. Some reasons are valid and some will make no sense at all. There are a number of reasons that a condo is considered unwarrantable. The Unwarranted label does change for a variety of reasons.
If the reserves of a condo association falls below 10% of the budget then it will not be approved. This happens in smaller associations when reserves get low due to spending on a big one time item and not doing an assessment. Condo associations need to build reserves as expenses keep rolling in.
If over 25% of the units are rented then it becomes harder to finance as it does fall then into the unwarranted category. This tends to happen at the low end of the condo market when you have too many investors.
It the condo association is new and under 75% of the units are not yet sold then its unwarranted. This one makes little sense in our market when there is not a lot of inventory. It hampers new developments and developers. However if 75% of the units have contracts then it meets the goal.
Lawsuits that are against the condo association where a value of the suit is hard to determine. Its attorney’s holding up the condo association to get their way. Many times the suit is for nothing but hurt feelings and will end up trashed. But attorney’s like to push their point not caring on who they may hurt those trying to sell ones unit.
One such suit is one where the attorney had not paid his dues in 5 years and sued the association for harassment when they kept asking him to pay up. He ended up paying in the end.
The Lofts at 402 Julia Street on one of my sales let the reserves go below 10%. it was corrected in a matter of weeks and the association was approved. This was an easy one.
The condos at 835 Julia were new and there were few lenders in 2008 that would loan on the building. Absolutely nothing wrong with the project or the association other than being new.
One good thing has developed with several local lenders that hold the mortgage and do not go through Fannie Mae. They still check the insurance that the condos have but look at the person as to determine the value of the loan to them. Most of these will require 20% down but have low closing cost since they are not selling the loan. I have all the names so I am able to get most people over this hurdle.
These are the most common reasons that I have run into when trying to finance condos and am sure this has to have something to do with the present shortage of units for sale.