Closing questions
What is a non-warrantable condo?
A non-warrantable condo fails secondary market eligibility, so conventional financing is unavailable. What causes it and how buyers finance around it.
What is a non-warrantable condo?
Quick Answer
Warrantability is a lending concept, not a legal defect in the building. Fannie Mae and Freddie Mac publish eligibility criteria for condominium projects, and a loan secured by a unit in a project that fails them cannot be delivered into those programs. The unit is still perfectly good real property, but the loan market for it narrows sharply.
The usual triggers are concentration and condition. Too large a share of units held as investment rentals, a single entity or sponsor holding an outsized block, commercial space beyond the permitted proportion, pending litigation involving the association, inadequate reserve funding, or a significant portion of owners behind on common charges.
New construction adds its own issues. A project that has not closed enough units, that is still controlled by the sponsor, or that is being delivered on a temporary certificate of occupancy can fail eligibility on those grounds alone, and the status changes as the building sells out and the permanent certificate issues.
The consequence for a purchaser is financing rather than ownership. Portfolio lenders and non-agency programs will lend on these units, usually on different terms, and cash purchasers are unaffected. The consequence for a seller is a smaller buyer pool, which is why warrantability belongs in the diligence before a contract, not after an appraisal.
How do I find out whether a condo is warrantable?
The lender orders a condominium questionnaire from the managing agent, which reports ownership concentration, arrears, litigation, reserves, insurance and commercial space. Counsel can request the same information alongside the financial statements and the declaration, and it is worth doing early because the questionnaire itself can take weeks to come back.
Can a building stop being non-warrantable?
Yes. Litigation resolves, a sponsor sells down a block of units, reserves are rebuilt, arrears are collected, or a permanent certificate of occupancy issues. Warrantability is a snapshot of conditions the association can change, so a building that failed a questionnaire one year can pass the next.
What else should you read before closing?
In the glossary
- Common chargesThe recurring charge a condominium levies on each unit for building operations and reserves. Real estate taxes are billed to the unit directly and ...
- Assessment (co-op or condo)A charge levied by a co-op or condominium board beyond ordinary maintenance or common charges, typically to pay for a capital project. It is disclo...
- Certificate of Occupancy (C of O)The Department of Buildings document that fixes a building's legal use and occupancy. Lenders and title companies read it to confirm the property c...
- TCO (Temporary Certificate of Occupancy)A Certificate of Occupancy issued for a limited period while construction is completed. Renewals are routine, but a lapse stops closings until the ...
- Lender's policyTitle insurance protecting a lender's lien position, issued in the loan amount. Its coverage falls as the principal balance falls and ends when the...
- Title commitmentThe document offering to insure title on stated terms, with Schedule A facts and Schedule B requirements and exceptions. It is the working agenda b...
- Offering planThe sponsor's filed disclosure document for a co-op or condominium, carrying its budget, share or common interest allocation, building rules and sp...
Questions this raises
- Who pays a co-op or condo assessment at closing?A NYC co-op or condo assessment is allocated by the contract of sale, not by custom. How installments and lump sums get split between seller and pu...
- What does a co-op financing cap mean?A co-op financing cap limits how much of the price a buyer may borrow, set by board policy rather than statute. How it affects contracts and board ...
- What is an alteration agreement?An alteration agreement governs renovation in a NYC co-op or condo: plans, permits, insurance, deposits, work hours and liability. What buyers shou...
- What is the difference between common charges and maintenance?Condo common charges fund operations only, with taxes billed separately. Co-op maintenance bundles operations, property taxes and the underlying mo...
- What should a lender check in a co-op loan file?A co-op lender underwrites the building as well as the borrower: financials, underlying mortgage, arrears, land lease, financing cap and recognitio...
Building types
- Standard condoA New York City condominium unit: real property conveyed by deed, recorded in ACRIS, with an undivided interest in the common elements.
- New-development condoA first sale from the sponsor of a newly built condominium, governed by an offering plan, often delivered on a temporary certificate of occupancy.
- Investor and pied-a-terre condo purchaseA condominium bought to rent out or to keep as a second home, where sublet policy, entity ownership and non-resident tax questions drive the struct...
- Mixed-use condo with commercial unitsA condominium holding both residential and commercial units, where the declaration allocates common charges, voting rights and use restrictions bet...
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Legal Disclaimer: This page is general information about New York practice. It is not legal advice, it does not account for the terms of any particular contract, building or transaction, and reading it does not create an attorney-client relationship. This is attorney advertising. Prior results do not guarantee similar outcomes.