Condo Certificate Concerns

How Condo Certificates Affect Sales

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Q:  Marsha, I recently sold a condominium in Santa Barbara. We were able to close our sale, but I ran into a totally unexpected problem: the condo certificate. The way our Homeowners’ Association (HOA) management company filled out the condo certificate threatened to squelch the buyer’s loan. I thought the HOA management company worked for the owners. Why would they try to derail a sale?

A:  There is a lot to your question. First, what is a condo certificate (or condo cert), who fills it out, and what is it for? Secondly, why would an HOA management company fill it out in such a way as to endanger an owner’s sale? Who does the HOA manager owe their loyalty to: their own company or the owners in the condo complex?

First, a condo certificate is a one-page document that declares what the current state of the condo complex is. The buyer is represented by a mortgage broker who researches and locates the best loan and lender for their buyer. The lender is the entity that wants to see the condo certificate.

Once a loan closes on a property, the lender will often quickly sell your loan to a Government Sponsor Enterprise (GSE) such as Fannie Mae or Freddie Mac. This keeps the money flowing back to the lenders so that they can lend on more homes and condos. It’s a well-lubricated cycle, and having the condo certificate meet certain standards is crucial.

During the loan process, an underwriter will make sure all of Fannie Mae’s requirements and loan conditions are satisfied. An underwriter is a financial expert who looks at two aspects of the loan: your credit and ability to repay and the property value of your purchase. The underwriter assesses how much risk the lender will take on if they approve your loan. They want to ensure the loan will be purchased by Fannie or Freddie.

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The condo certificate tells the lender basic information about the HOA: the ratio of owners to renters, the HOA’s finances and reserves, and the maintenance on the complex. The condo certificate is a standard form and rarely causes a problem, until it does. And then it can be a large problem.

I’ve had condo sales in which the condo certificate threatened to torpedo the sale. One HOA management company refused to fill out the condo certificate in a coherent manner. They wouldn’t say if routine maintenance was performed in the complex. The underwriters felt the HOA’s management company was hiding something. The irony was that it was a lovely, well-maintained complex. After needless headaches and wrangling, the issue was resolved.

The HOA has a fiduciary duty to the owners in their complex. The HOA hires the management company. If the management company is undermining the owners’ best interest and ability to sell their home, the HOA directors need to be made aware of this and give the management company better direction.

Marsha Gray has worked in Santa Barbara real estate for more than 25 years. She works at Allyn & Associates, where she helps her clients buy and sell homes and with lending services. To read more of Marsha’s Q&A articles, visit Contact Marsha at (805) 252-7093 or

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