A secretive quasi-governmental condo blacklist is growing exponentially, making it difficult for owners in scores of troubled buildings in Miami and South Florida to sell or get loans for repairs even as their associations face a fiscal and time crunch to meet stringent new state safety regulations.

The number of local condos on the list, which is maintained by federally chartered mortgage finance corporation Fannie Mae, has more than doubled in the past two years, according to new data released by a law firm that has been tracking it.

The total number of condo buildings on the confidential database in Miami-Dade, Broward and Palm Beach counties sits at 696 as of March, the data from Allcock Marcus, which obtained it from a confidential source, shows. That’s nearly half the 1,438 condo buildings that Fannie Mae lists as ineligible for its backing in all of Florida.

Owners in those buildings, which typically end up on the list because of financial, insurance or critical maintenance issues, will find it nearly impossible to sell to buyers seeking conventional mortgage financing. Owners and associations whose condos are on the list also have a harder time getting loans approved for repairs, said Jake Marcus, a Miami attorney for Allcock Marcus.

“I think it’s the perfect financial storm for condominiums in Florida,” Marcus said. “There is just a lot happening in Florida with all the new requirements.”

The latest blacklist tally means it’s likely having a wider impact in South Florida and the rest of the state than previously understood. Those affected make up a small percentage of South Florida’s estimated 13,000 condo associations, but the ineligible list still encompasses thousands of individual condo owners who may face financial difficulties because of it.

A hurdle to mortgage loans

Banks and mortgage lenders adhere closely to standards set by Fannie Mae and a second mortgage agency, Freddie Mac, which together financially back around 70 percent of residential loans in the United States. Both are overseen by the Federal Housing Finance Agency.

Non-conforming mortgages that don’t need Fannie or Freddie backing are available, but can be significantly more expensive and harder to qualify for. The Fannie and Freddie rules don’t affect cash deals, which are common in South Florida.

It’s unclear whether Freddie Mac, which has enacted similar criteria for condo mortgages and loans, also maintains a list of ineligible properties or evaluates them on a case-by-case basis, though Marcus believes it does have its own blacklist. His firm has been able to obtain the Fannie Mae list thanks to a source, but doesn’t have access to Freddie Mac information, he said.

Because Fannie Mae hasn’t come through with a promise to make its list publicly accessible to condo owners and associations, however, many don’t find out their condo is on it until a lender rejects an application from a buyer.

Getting off the list is possible but laborious, said Marcus, whose firm will help associations find out if they’re on it and develop strategies to contest the listing.

The sharp increase in ineligible properties is almost certainly driven by stricter requirements put in place by Fannie Mae for the loans and mortgages it backs after the 2021 collapse of the Champlain Towers South condo in Surfside, Marcus said. Typical reasons why the corporations won’t back mortgages at a condo include inadequate reserves or insurance, structural or construction issues, too many delinquencies, and too high a percentage of rentals.

After the Surfside disaster, Fannie Mae began requiring condo associations to fill out extensive questionnaires detailing their finances and building conditions to submit to a bank or lender when a unit owner wants to sell to a buyer who is seeking financing. The rationale was to reduce the risks involved in making loans on older condos like Champlain Towers that may have undisclosed or unaddressed maintenance, repair or financial issues.

The agency said at the time that it would no longer back mortgages in condos facing “critical repairs” or material deficiencies such as mold or water intrusion, or that have deferred maintenance resulting in “advanced deterioration.” Ongoing routine maintenance or repairs are not an issue. But buildings that have not set aside sufficient funds to pay for needed critical work are also ineligible.

Crackdown after Surfside

The existence of the secret list first came to public light in 2023 as some condo associations realized applications for loans and mortgages in their buildings were being rejected at an increasing rate.

The Fannie Mae crackdown has dovetailed consequentially with expanded requirements for condos enacted by the Florida Legislature in 2023 and 2024.

Those new rules vary depending on condo age and location, but for the first time require those three stories or taller to conduct regular inspections to determine building conditions, then to build up enough money in reserves to cover the cost of expected repairs for structural issues and other critical building elements, such as electrical systems.

Many Florida condos, however, have struggled to meet the new requirements and have not filed required inspection and reserve reports with the state that were due at the first of the year. Many condos had taken advantage of an explicit loophole in Florida law that allowed associations to waive creation of financial reserves until the 2023 reforms largely barred the practice, meaning they were suddenly faced with having to raise thousands of dollars quickly.

At the same time, condo insurance rates have skyrocketed. That confluence has made already shaky finances for many older and less-affluent associations and owners even more tenuous and, in some cases, unsustainable, Marcus said.

And that’s reflected in the Fannie Mae data, he said.

In Florida, the most common reason for a condo ending up on the blacklist is lack of adequate insurance coverage, with deferred maintenance and unmet critical repair needs a close second, the data shows. Some condos are on the list because of multiple issues, Marcus noted.

Another common factor is being set up as a condo-hotel, because that can raise questions about financial stability or commercial uses that make a building ineligible for Fannie Mae-backed financing.

The new financial stresses have heightened market uncertainty over the value of Florida condos, especially those older than 30 years that have to meet the new state standards. The inventory of condos listed for sale has risen markedly even as sales fall.

The dynamic has put some condo owners in a double bind, Marcus said — unable to afford special assessments for repairs or rising maintenance fees and insurance rates, but also unable to sell their units for a reasonable sum. Some associations are also having trouble obtaining loans to make the required repairs, he said.

One likely consequence is that condominium living is becoming significantly more expensive than in the past, when condos were “the more affordable option” for Florida residents looking to own homes, Marcus said.

An opening for developers

Another repercussion, he and other condo experts say, is that the financial pressure on condo associations to sell in bulk to developers will probably increase.

Though some prominent sales have happened in Miami and South Florida, the floodgates haven’t opened yet because bulks purchases remain a hard deal to pull off, Marcus said. That’s in part because a small percentage of owners can effectively veto a sale under Florida condo laws.

But there’s already lobbying in Tallahassee to ease those rules.

“They’re going to see the need for it,” Marcus predicted. “People are going to lobby for it as a better way out than levying special assessments of hundreds of thousands of dollars and still leaving associations in deep disarray.”

Fannie Mae did not respond to a request for comment submitted through its website. The agency has disputed the characterization of its database of ineligible condos as a blacklist.

At first, law firms like Allcock Marcus, which represents associations and first obtained the list in May of 2023, believed it had been in place for only for a couple of years. They have since learned that it was launched at least 21 years ago, though no one realized it existed because the number of condos on the list was relatively small for most of that time, Marcus said.

Allcock Marcus won’t release the list publicly because doing so could harm the condos’ reputations and potentially lower property values, creating liability issues.

But it has set up an online link where condo association officers can ask the firm for help determining whether they’re on the list. The firm can also help condos get off the list. The firm has received hundreds of inquiries since setting up the link two years ago, Marcus said.

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