Perfect Storm: 100’s Of SFL Condos On Mortgage Blacklist

A little-known quasi-governmental condo mortgage blacklist is growing at an alarming rate, making it increasingly difficult for owners in struggling buildings across South Florida, including Miami, to sell their units or secure financing for repairs.

This list, maintained by the federally chartered mortgage finance corporation Fannie Mae, has more than doubled over the past two years. Recent data from Allcock Marcus, a law firm tracking the list, reveals that as of March, 696 condo buildings in Miami-Dade, Broward, and Palm Beach counties are now included. This represents nearly half of the 1,438 condos in Florida deemed ineligible for Fannie Mae-backed loans.

Condos typically land on this list due to issues like financial instability, inadequate insurance, or significant maintenance problems. For owners in these buildings, selling to buyers who rely on traditional mortgage financing is nearly impossible, and obtaining loans for repairs becomes a major challenge. Jake Marcus, a Miami attorney with Allcock Marcus, describes the situation as a “perfect financial storm” for Florida’s condos, noting that numerous new regulations are adding to the strain.

While the affected condos represent only a fraction of the 13,000 condo associations in South Florida, the impact on individual condo owners can be severe. The vast majority of mortgages in the U.S. are backed by Fannie Mae and Freddie Mac, which together fund around 70% of all residential loans. Mortgages that don’t rely on Fannie or Freddie backing are available but are often more expensive and harder to qualify for. Cash buyers are not affected by these restrictions, which remain a common payment method in South Florida.

Although Fannie Mae’s list of ineligible properties is not publicly available, some condo owners find out their buildings are on the list only after being denied financing. Marcus’ firm is helping associations discover if they’re on the list and explore ways to challenge their status. It’s possible to remove a property from the list, but it is a difficult and time-consuming process.

The rapid rise in ineligible properties is believed to be linked to stricter Fannie Mae requirements following the 2021 collapse of the Champlain Towers South condo in Surfside. Fannie Mae now requires condo associations to submit detailed financial and building condition reports when a unit owner attempts to sell to a buyer seeking financing. If a building has unresolved structural issues or lacks the necessary financial reserves for repairs, it will not be eligible for Fannie Mae-backed mortgages. Fannie Mae’s strict stance aims to reduce the risks associated with older buildings that may have undisclosed maintenance or safety concerns.

The introduction of Fannie Mae’s crackdown coincides with new state regulations that have placed further financial burdens on condo associations. Florida’s new laws, passed in 2023 and 2024, require condo buildings three stories or taller to undergo regular inspections and build up adequate reserve funds for future repairs. Many older condo buildings, however, are struggling to meet these new requirements, and the deadline for filing reports passed at the beginning of this year.

These regulatory changes, combined with skyrocketing insurance rates, have exacerbated financial instability for many condo owners. The most common reasons for a condo’s inclusion on the blacklist are insufficient insurance coverage, deferred maintenance, and the need for critical repairs. Additionally, properties that are set up as condo-hotels often face eligibility issues due to concerns about financial stability or commercial use.

The resulting uncertainty over condo values is evident in the rising number of units listed for sale, even as sales decline. Some condo owners now find themselves in a difficult position, unable to afford the costly special assessments needed for repairs, but also unable to sell their units at reasonable prices. Moreover, condo associations are often struggling to secure financing for necessary repairs.

The financial pressures faced by these associations are driving some to consider selling their buildings in bulk to developers. While large-scale sales have occurred in Miami and elsewhere in South Florida, the process remains complex, as Florida condo laws allow a small group of owners to block bulk sales. However, there is growing pressure in Tallahassee to ease these laws, as many owners and associations see it as a way to avoid costly assessments.

Fannie Mae has not responded to inquiries about the list, but it has disputed the characterization of its database as a “blacklist.” The list was first publicly revealed in 2023, and many law firms initially believed it had only been established recently. However, Allcock Marcus has learned that the list has been in place for over two decades, although it wasn’t widely known because the number of ineligible condos was relatively small until recently.

To protect condo owners’ privacy and prevent further damage to property values, Allcock Marcus has chosen not to release the list publicly. However, it has created an online portal where condo association officers can check whether their buildings are on the list and get assistance in challenging their status. Since launching the service, the firm has received hundreds of inquiries.

This rising wave of condo financial struggles is a stark reminder of the increasing difficulties facing Florida’s condo market. As owners grapple with new regulations, rising costs, and mortgage challenges, the future of condo living in the state could be significantly altered.