Condo crisis in California

Jim Porter

Solano Real Estate Scene: Jim Porter

Article By: Jim Porter – May 3, 2024

When a person buys a condo and needs a loan, the buyer must qualify, the condo must be appraised, and the condo project and HOA must be analyzed and approved by the lender.

The last time the condo market experienced a crisis was after the crash of 2008 when an estimated 10,000 condo owners across California stopped making their house payments and many stopped paying the HOA dues. By 2010, condo projects all over California were loaded with bank-owned foreclosures and huge levels of HOA delinquency.

Remember folks, when you buy a condo, you are buying the airspace inside your unit and are partners on the entire condo complex. If 50 of your 100 partners are not paying their HOA dues, guess who must make up for this loss of revenue? Thankfully, nearly every condo project in Northern California has recovered financially from the crash but now a new crisis has hit the condo market.

Shelter Creek condos in San Bruno is an example of why the condo market has softened even more so than the single-family dwelling market that has suffered through 7% loan rates.

Shelter Creek is a beautiful 1,296-unit condo complex that was built in 1972 and is financially solid with $3 million in cash reserves, less than 5% HOA delinquency, 72% of the units are owner occupied, and the property has been cared for over the years with three swimming pools, a gym, and all kinds of walking trails to support the studio and one- and two-bedroom homeowners.

Over the past few years, the homeowner’s insurance has jumped from $600,000 per year to $2 million per year, and monthly HOA dues are now $566 but will probably have to be increased next year.

The other big problem that some of the homeowners have suffered through over the past year is Fannie Mae blacklisting them for critical repairs, which makes it almost impossible for homebuyers to get a good loan, which brings down prices and makes low housing inventory worse because people don’t want to sell in a buyer’s market, which is what it is when people cannot get VA, FHA or conventional loans.

The tragic loss of life and collapse of the Surfside, Florida, condos has Fannie on a mission, and some say on a rampage, making housing affordability and inventory an even bigger problem for first-time homebuyers and Realtors.

Out of the 1,296 condos at Shelter Creek only 72 of the units needed critical balcony and deck repairs, most of which will be repaired and replaced within the next several months. It seems like Fannie could have blacklisted the 72 units rather than punish the entire community.

Bridgeview Heights in Benicia was recently blacklisted for critical repairs. I do not have the details on this project, but Fannie Mae recently announced that they are committed to now making their secret blacklist public for everyone to see.

I am sure Fannie has some HOA projects dead to rights and guilty of neglecting health and safety repairs and have allowed a property’s worst enemy – water – to infiltrate and cause dry rot. Fannie does not want their borrowers to die or get seriously injured and fall behind on their house payments when the balcony collapses during a summertime barbecue.

Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.

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