What Happens When Your Condo Fails the Lender Questionnaire

When a condo project fails the lender questionnaire, the loan is denied and the whole building becomes non-warrantable, so conventional financing disappears for every unit, not just the one being sold. Buyers are pushed to cash or high-rate portfolio loans, sellers cannot refinance, and values slide. Most projects can recover, but only after the board fixes the failing item, delinquency, reserves, litigation, insurance, or repairs, and documents it back to Fannie Mae.

The deal is halfway to closing. The buyer is approved, the appraisal is ordered, then the lender sends the HOA a questionnaire and the answers come back wrong. Delinquencies are over the line, or the reserves are too thin, or there is a lawsuit nobody flagged. The loan is denied, and not because of anything the buyer did. The building failed.

This is happening at scale. As of March 11, 2025, roughly 5,175 condo projects nationwide sat on Fannie Mae's confidential ineligible list, up from a few hundred before the 2021 Surfside collapse, and the count is still climbing (National Mortgage News, reporting Wall Street Journal data). More than 1,400 of those projects are in Florida, the most of any state. Behind almost every one is a questionnaire that failed.

This guide explains what the questionnaire is, which answers make a building ineligible, what happens the moment it does, and, for boards and buyers alike, how to see the failure coming before it kills a sale. For the underlying definition, see our explainer on what a non-warrantable condo means.

What the Lender Questionnaire Actually Is

The questionnaire is the HOA's signed statement about the project's finances, insurance, and legal status, tested against Fannie and Freddie rules.

When a buyer applies for a conventional mortgage on a condo, the lender does not just underwrite the borrower. It also has to confirm the project is eligible, because Fannie Mae and Freddie Mac will only buy the loan if the building meets their standards. The instrument they use is the condo project questionnaire.

The standard long form is Fannie Mae Form 1076 / Freddie Mac Form 476, the Condominium Project Questionnaire, with a shorter Form 1077 / 477 for streamlined reviews. After Surfside, the agencies added the Form 1076A addendum, which asks specifically about the date of the last structural inspection and whether it found anything affecting safety, soundness, structural integrity, or habitability. The HOA or its management company fills out and signs the questionnaire, and lenders rely on those answers, so an inaccurate or incomplete response can sink a loan and expose the signer.

The lender feeds the answers into Fannie Mae's Condo Project Manager (CPM) and evaluates them under the Selling Guide review rules (Limited Review, B4-2.2-01, and Full Review, B4-2.2-02). One important shift is already scheduled: under Lender Letter LL-2026-03, the streamlined Limited Review is being eliminated for projects of more than 10 units for loan applications dated on or after August 3, 2026, pushing most condos onto Full Review and the full questionnaire. The 2026 Fannie and Freddie condo rules cover that timeline in detail.

The Answers That Make a Building Fail

A single disqualifying answer, high delinquency, thin reserves, active litigation, or an insurance gap, flips the entire project to ineligible.

The questionnaire is pass or fail at the project level. One answer over the line makes the whole building ineligible, and it applies to every unit at once. These are the items that most often do it, each tied to a Fannie Mae Selling Guide rule.

Insurance and repairs dominate the actual failures. Insufficient master property insurance and critical repair issues are the two most frequently reported reasons a project lands on the ineligible list, both a legacy of the post-Surfside rules that are now permanent in the Selling Guide (B4-2.1-03). Larger projects must also carry fidelity or crime coverage sized to the funds the association holds, and flood insurance is required where any part of the project sits in a Special Flood Hazard Area. The 15% delinquency rule and the reserve funding minimum are the two most frequently missed by otherwise healthy buildings.

What Happens the Moment It Fails

The loan is denied mid-underwriting. The project is flagged ineligible, and every unit in it loses conventional financing at once.

A questionnaire usually comes back late in the process, after inspection and appraisal money has already been spent, because the lender orders it during underwriting. When an answer fails, the project is marked ineligible. In Fannie Mae's system that can show as "Unavailable" (Fannie has affirmatively placed the project on its ineligible list) or "Ineligible" (the data entered in Condo Project Manager shows the project fails a requirement). Either flag blocks the loan.

The important thing to understand is that the flag is attached to the building, not the unit. It is not that this one buyer was turned down. Once the project is ineligible, no conventional buyer in the building can get a Fannie or Freddie loan until the underlying problem is fixed and documented. The sale that triggered the questionnaire is usually the first casualty, and it collapses through no fault of the buyer or seller.

What a Failed Questionnaire Does to the Buyer

Conventional and often FHA and VA loans vanish. The fallback is a portfolio loan at 20–30% down and a higher rate, or an all-cash purchase.

For the buyer, a failed questionnaire usually means the conventional loan is dead. Fannie Mae and Freddie Mac will not buy it, so the mainstream lender will not make it. The remaining paths are narrower and more expensive: a portfolio or non-QM lender that keeps the loan on its own books, typically at 20 to 30% or more down, with rates commonly 0.5 to 2 percentage points above conventional and up to about 4 points for non-QM loans (Homebuyer.com), or an all-cash purchase. The appraisal can also come in low, because comparable sales in a non-warrantable building close at a discount.

Government-backed loans are not a reliable backstop. FHA uses a project-approval system of its own (HRAP or DELRAP review, Form HUD-9992), and a building that fails the conventional standards on insurance, delinquency, or repairs will usually fail FHA too. VA maintains an approved-condo ID list and approves the whole project, not individual units. One nuance worth flagging: VA does not enforce a hard dues-delinquency cutoff the way Fannie, Freddie, and FHA do, so a VA-eligible building is possible even where a conventional loan is not, but that has to be confirmed with the lender for the specific project.

What It Does to the Seller and the Whole Building

Owners cannot sell to financed buyers or refinance. The market narrows to cash, prices slide, and non-warrantable units commonly trade 5–15% lower.

The failure does not stop at one deal. Because the flag freezes the entire building, every owner is affected simultaneously. A seller can no longer reach financed buyers and is left with the smaller pool of cash and portfolio buyers, who know the constraint and price for it. Non-warrantable units are commonly estimated to sell 5 to 15% below comparable warrantable units (JVM Lending).

Owners also lose the ability to refinance, including a cash-out refinance that might have helped them pay a looming special assessment. That is the trap: the building often needs money to fix the very condition that caused the failure, but the failure has cut off the owners' access to financing. Sales stall, prices drift down, and it becomes harder to pass and fund the assessment needed to climb back out. Florida, which holds more of these ineligible projects than any other state, shows the effect at the community level. In Seminole County alone, one real estate agent reported losing 10 deals in a single year to the issue (News 6 Orlando).

How Boards Find Out Too Late

Fannie's status database is lender-facing, so most boards learn their building is non-warrantable only when a member's buyer is denied a loan.

Most boards do not see this coming, because the information sits on the lender's side of the wall. Fannie Mae's project status lives in Condo Project Manager, which owners and boards cannot query directly. The problem usually surfaces the hard way: a member goes to sell or refinance, the lender runs the questionnaire, the answer fails, and only then does the board learn the building has been non-warrantable, sometimes for months.

The asymmetry is structural. Boards answer questionnaires transactionally, one deal at a time, and rarely monitor warrantability as an ongoing metric. Since December 2023, associations have been able to request their own project's status through Fannie Mae, but many boards do not know the option exists, and confirming status still generally runs through a lender. The result is that the same distress signals, rising delinquencies, an aging reserve study, a new lawsuit, sit in the association's own documents for a year or more before anyone connects them to a financing cliff.

How a Board Documents Its Way Back

Most projects recover. Fix the failing item, then prove it to Fannie Mae with dated reports, updated coverage, or engineer-verified repairs.

Ineligible is not permanent. Most projects can regain eligibility once the underlying issue is fixed and the fix is documented back to Fannie Mae. There is no automatic re-review, so the board or management company has to be the one to resolve the item and resubmit. The path depends on which answer failed.

The recurring theme is documentation. Fixing the problem is only half the job. The board also has to prove the fix, with dated reports, updated policies, or an engineer's sign-off, and submit it so the flag can be lifted. For the reserve path specifically, our guide to the 15% reserve rule for boards walks through the study exception in depth.

How to Screen a Building Before You Buy

Every failing signal already lives in the documents. Read the budget, reserve study, minutes, insurance, and delinquency report before you offer.

The best defense is to run the questionnaire's logic yourself, from the documents, before you write an offer, instead of discovering the problem during underwriting. Every disqualifying condition leaves a trace in paperwork the association already produces:

• Budget. Check the reserve contribution as a share of assessment income against the 10% floor (15% from 2027), and watch for a looming assessment. Our HOA budget red flags guide shows what to look for.
• Reserve study. Confirm it is current (within 3 years) and note the highest recommended funding level, the figure that unlocks the reserve exception. The reserve fund calculator helps you sanity-check the numbers.
• Meeting minutes. The earliest narrative signals of litigation, special assessments, failed inspections, and deferred maintenance show up here first.
• Insurance certificate. Look for 100% replacement-cost hazard coverage, adequate liability and fidelity, and flood coverage where required.
• Delinquency report. Ask for the percentage of units 60-plus days past due, and confirm it is under 15%. See our delinquency-rate guide.
• Project status. Have your lender confirm the building's standing in Condo Project Manager early, before you spend on inspection and appraisal.

This turns a reactive, deal-killing surprise into a pre-offer screen. For a document-by-document walkthrough that applies to any condo purchase, see the complete condo buying checklist.