The Surfside collapse in Florida changed condo mortgages around the country, including in the DMV. You might wonder how a Florida condo disaster affects you in buying a condo in Bethesda MD or Tysons Corner Virginia. It turns out that the Surfside condo tragedy has had a lasting effect on borrowing.
The History of the Surfside Collapse
Early in the morning on June 24, 2021, Champlain Towers South, a 12-story beachfront condo in Surfside, a Miami suburb, partially collapsed, causing the deaths of 98 people and a number of injuries to others. Approximately 35 were rescued the same day from the un-collapsed portion of the building, which was demolished ten days later.
A contributing factor under investigation is long-term degradation of reinforced concrete structural support in the basement-level parking garage under the pool deck, due to water penetration and corrosion of the reinforcing steel. The problems had been reported in 2018 and noted as “much worse” in April 2021. A $15 million program of remedial works had been approved before the collapse, but the main structural work had not started. Other possible factors include land shifting, insufficient reinforcing steel, and shoddy construction.
How Fannie Mae and Freddie Mac Responded to the Surfside Collapse
Following the collapse of the condo building in Surfside, both Fannie Mae and Freddie Mac implemented temporary lending restrictions on condo and co-op buildings with significant deferred maintenance or structural safety concerns. Buildings subject to evacuation orders due to unsafe conditions became ineligible for financing.
Fannie Mae and Freddie Mac required lenders to assess the financial and physical health of condo and co-op associations before approving loans. Buildings with substantial special assessments or inadequate reserve funds faced stricter scrutiny. Fannie Mae’s “Unavailable Condo Project List” was introduced, barring loans in buildings with serious safety or financial concerns. There also is a Fannie Mae approved condo list which you can search.
Fannie Mae mandated that condo associations allocate at least 10% of their annual budget to reserve funds, reducing reliance on special assessments for major repairs. Freddie Mac implemented similar guidelines, requiring clear documentation of a building’s financial ability to maintain structural integrity.
Lenders are required to collect and review recent engineering and inspection reports before approving loans for condo units. Buildings that fail to meet maintenance and inspection standards could be deemed ineligible for financing.
Of course, this meant that some condo sales were delayed or blocked due to stricter eligibility criteria. Buyers and condo associations must provide more extensive documentation, increasing transaction complexity. The measures helped mitigate financial and safety risks but also created challenges for older buildings with deferred maintenance.
These changes reflect Fannie Mae and Freddie Mac’s broader efforts to prevent financial exposure to unsafe buildings while promoting responsible lending and structural safety in the condo market.
How Fannie Mae and Freddie Mac Responded to the Surfside Collapse
These increased requirements have had ripple effects through the condo market. Lenders have imposed tighter restrictions on condo loans, especially for older buildings, as a result of the Surfside collapse. The lenders are looking more carefully at the building’s Reserves & Maintenance history: Borrowers seeking mortgages for condos now have to face this increased scrutiny regarding the building’s reserve funds and maintenance history. Some lenders require structural inspections and engineering reports before approving loans. Other lenders will not finance mortgages on units in buildings with major renovation projects. For example, several major lenders stopped loaning on the Promenade, a coop in North Bethesda when the building applied for permits to repair the piers in its garage.
Higher Costs for Borrowers and Associations
Lenders are rejecting buildings with deferred maintenance, older buildings or those with inadequate reserves, limiting buyer options. Condo associations are now required to have higher reserves to cover future repairs, leading to higher HOA fees. In addition, there are increased examples of special assessments for repairs, which make units less affordable for buyers.
Older buildings (especially pre-2000) in coastal areas saw a drop in demand due to financing difficulties while cash buyers became more dominant in the condo market, because financed buyers faced hurdles.
Insurance Companies Responded Negatively to the Surfside Collapse
Property insurance rates have increased nationally, but rates for condos have spiked even more, making it harder for buildings to meet financial standards for loans. Some insurers have pulled out of entire states, such as Florida and California, reducing coverage options and further complicating lending approvals, while other insurers have significantly increased the cost of insurance.
Are You Thinking of Buying a Condo?
We should clearly chat if you are considering buying a condo in the DC metro area. There are lots of condos to choose from, some with low condo fees and others which are much higher and more inclusive. Some condo fees only cover the common area maintenance while other condo buildings include all the utilities, insurance, exterior maintenance, pools and tennis courts, exercise and party rooms, roof decks and barbecue grills plus 24 hour front desks and on site maintenance staff.

