Good News for Condos with Minor Litigation with Fannie Mae and Freddie Mac:  If the lender determines that pending litigation involves MINOR matters with no impact on the safety, structural soundness, habitability, or functional use of the project, the project is eligible provided the litigation meets one or more of the following conditions:

• non-monetary litigation including, but not limited to neighbor disputes or rights of quiet enjoyment;
• litigation for which the insurance carrier has agreed to provide the defense, and the amount is covered by the HOA’s insurance;
• the HOA is the plaintiff in the litigation and upon investigation and analysis the lender has reasonably determined the matter is minor and will result in an insignificant impact to the financial stability of the project;
• the reasonably anticipated or known damages and legal expenses are not expected to exceed 10% of the project’s funded reserves;
• the HOA is seeking recovery of funds for issues that have already been remediated, repaired, or replaced and there is no anticipated material adverse impact to the HOA if funds are not recovered;
• litigation concerning localized damage to a unit in the project that does not impact the overall safety, structural soundness, habitability, or functional use of the project; or
• the HOA is named as the plaintiff in a foreclosure action, or as a plaintiff in an action for past due HOA assessments.

Major Litigation with Fannie Mae and Freddie Mac:   Projects in which the HOA is named as a party to pending litigation, or for which the project sponsor or developer is named as a party to pending litigation that relates to the safety, structural soundness, habitability, or functional use of the project are ineligible for sale to Fannie Mae/Freddie Mac.

Litigation that involves personal injury or death does not meet criteria for minor litigation unless

• the claim amount is reasonably anticipated or known,
• the insurance carrier has agreed to provide the defense, and
• the reasonably anticipated or known damages are covered by the HOA’s insurance.

Construction defect litigation in which the HOA is the plaintiff are not considered a minor matter unless the HOA is seeking recovery of funds for issues that have already been remediated, repaired, or replaced. In addition, there is no anticipated material adverse impact to the HOA if the funds are not recovered.