Safer Buildings = Lower Interest Rates
Whenever you see scaffolding outside of a building in NYC, chances are the building is undergoing Local Law 11.
What Is NYC Local Law 11?
New York City's “Façade Inspection Safety Program” (FISP), also known as Local Law 11, requires that buildings with more than six stories have their exterior walls and appurtenances (appurtenances are anything attached to the building's facade, including balconies, railings, and fire escapes) inspected for safety every five years. Currently, about 12,000+ buildings in the city are subject to Local Law 11.
Local Law 11 and the NYC’s Department of Buildings can deem some buildings “Unsafe” and if this happens, a bank will deem the building risky to lend to. This can affect a purchaser’s possibly of being able to obtain financing, and ultimately close on the apartment within the buidling.
New Classification System
Local Law 11 also amended its report classifications. Under Local Law 10, the reports were merely “pass” or “fail.” Now the report has three classifications, “safe,” “unsafe,” or “safe with a repair and maintenance program.” The new classification is aimed to ensure that buildings can address needed repairs prior to the next inspection.
A crackdown on Carryover Conditions
Under the current version of Local Law 11, the Department of Buildings (DOB) has started cracking down on repair issues that were classified as “safe with repair and maintenance” that an owner never fixed. Essentially, if not fixed by the next cycle/inspection, the DOB will classify the repair as unsafe even it’s not actually unsafe, just so the owner is forced to correct the issue immediately.
What requirements have changed with Fannie Mae?
The temporary requirements will be retired on Sept. 18, 2023. At that time, lenders must comply with the new Guide requirements for projects in need of critical repairs and special assessments for all new applications. However, lenders are still required to ensure the property complies with our requirements outlined in B2-3, Property Eligibility Requirements in which the property must be safe, sound, and structurally secure.
Elise Leve of Citizen’s Bank shared her insight, “I think it’s more about the Importance of knowing up front if a building is Warrantable Vs. Non-Warrantable to set your expectations on rate and product options. It’s ideal to align yourself with a lender who is well versed in being able to successfully close in all circumstances. Warrantable means that the project is meeting Fannie Mae guidelines. Non-Warrantable is not necessarily a negative, it just means that it’s not fitting in the box of what Fannie Mae requires. If you seek your financing from a Portfolio lender such as Citizens Bank, then we are able to finance both situations.”
What does this mean?
If a building is deemed “Unsafe” on the DOB website, then the loan cannot be sold to Fannie Mae and must be a portfolio loan. This limits the potential lenders who will lend on a building, and could affect the rate at which a buyer/borrower can finance their purchase.
To learn more about how you can secure a mortgage to purchase a piece of property in Manhattan, Brooklyn and Queens - please reach out to me and I’ll put you in touch with one of my preferred lenders who can create unique loans for your needs.