Environmental Hazards and Condos

By: Stephanie Diana Wilson- Gast

As many of us are aware there has been well published issues with environmental hazards going on within the country.  Most notably recently on national news has been found in Flint Michigan and Porter Ranch in California.   This being said it seems like the best time to discuss the FNMA Environmental Hazards guidelines.
First let us get the CYOB aspects out of the way.  We are only noting based on publicized documentation from FNMA. You may find these guidelines online at https://www.fanniemae.com/content/guide/sel121515.pdf .  If you have questions please reach out to your underwriter or real estate professional. 
Now that we have gotten this out of the way as noted above this information is pulled from the FNMA seller guide dated 12/15/15 which is the most current guideline at the time of writing this article.  The section for this information can be found in section B4-2.1-03 through section B4-2.1- 05. 
Section B4-2.1-03 starts out with the types of Environmental hazard assessments.  In this case there are 2 phases of this section.  Phase I is done by the lender or someone employed by the lender where information is obtained from various sources to evaluate the environmental soundness of the project as a whole.  One comment I get a lot is, “the environmental issue is not in the building the subject unit is located in”.  To them I have to point out that this is nice but in Condo review we don’t care about the individual unit but rather the project as a whole.  These sort of issues in a project are a form of collateral issue within the project as a whole which is why FNMA has these items reviewed.
In phase II of this section these reviews are done by an environmental consultant.  This being said phase I must be done and problems with the project must be identified.  Then it needs to be determined if the issue is inconclusive or not?  Also please see FNMA’s guideline in this section on acceptability of consultants. Where FNMA doesn’t currently have a format for consultant’s report they do want the following items addressed.
include a full description of the sampling procedures
include the laboratory results
include the consultant’s recommendations
follow all regulatory standards and good management practices at all times,
especially when physical sampling and laboratory analysis are involved
include the signature of an officer of the consulting firm that conducted the work
include a certification in the report that:
the assessment was performed diligently and in accordance with all regulatory and good management standards; and
to the best of the consultant’s knowledge, the results are complete and accurate
Section B4-2.1-04 goes into Unacceptable Environmental conditions.  Please see the list and the limits of concentration on page 682 of this guideline.  Section B4-2.1-05 covers remedial actions and it details that remediation can be done under the advice of a qualified environmental consultant.  But, all remedial actions must be taken in accordance with all regulatory and good management standards.  However, this section notes the following:
“The following conditions:
•A qualified environmental consultant states in writing that remedial work needed to make the property eligible under the environmental standards can be completed within 90 days.
The project’s developer or sponsor signs a contract with a qualified firm to perform the remedial work within 90 days.
The lender must warrant that the job has been satisfactorily completed and the property meets Fannie Mae’s environmental eligibility standards.
The project developer or sponsor must provide a performance escrow equal to 150% of the gross contract amount to ensure the completion of the remedial work.”

Hopefully this article will help shed more light on environmental issues in condo projects.  If this article helped with your research please like us on facebook and twitter.  Also remember sharing is caring.

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