Getting a loan to refinance or purchase a Florida condominium can be tricky. Especially if the condo or development is involved in a construction defect dispute, has Section 558 actions pending, has too many renters compared to owner-occupants, accepts short-term renters, or has other issues that deter conventional lenders.
But getting a mortgage for these properties isn’t impossible if you know where to look.
If you’ve already been turned down for a mortgage on a condo in Florida, or if you want to purchase or refinance a condominium with pending construction defect claims or other issues that make the development non-warrantable,” keep reading. This article will help you understand why it’s more difficult to get a mortgage for these properties, and how you can find a special situations lender willing to work with you.
What is Section 558 construction defect litigation?
Section 558, also called the Florida Construction Defect Statute, governs how property owners must handle construction defect claims against construction firms and subcontractors.
First passed in 2003, Section 558 requires Florida property owners with construction defect claims to provide a formal written notice to contractors to give them an opportunity to fix the defect or settle before they proceed to actual litigation.
Claimants must provide this written notice to contractors at least 60 or 120 days before filing an arbitration claim or construction defect lawsuit, depending on the size of the development.
The goal is laudable: Reduce the workload on the courts by forcing disputing parties to work things out among themselves before things get to the courtroom. But it does make it harder to get a loan to buy or refinance an affected condominium.
The reason: Condominiums with significant construction problems, or with pending construction defect litigation, are non-warrantable. That is, loans on these properties don’t qualify for Fannie Mae or Freddie Mac backing. In turn, this means they don’t qualify for conventional financing. Nor do they qualify for FHA or VA financing.
As a result, most bank lenders won’t touch these developments with Section 558 actions pending under their standard mortgage programs.
To get a loan on a non-warrantable condominium, you’ll need to go to a specialty lender who focuses on the non-warrantable residential loan market.
How common are construction defect lawsuits in Florida condominiums?
Construction defect lawsuits are common nationwide, and in Florida especially. The collapse of the Champlain Towers has focused attention on construction defect issues, and condo associations and HOAs are moving to protect themselves and identify any potential claims before the 10-year window for bringing an action under the Florida Construction Defect Statute of Repose (section 95.11(3)(c)), expires.
However, construction defect litigation has been rising sharply in Florida for over a decade. In 2008, there were only 31 construction defect lawsuits in Florida courtrooms. By 2017, there were more than 1,000 construction defect lawsuits in the state.
Florida is especially prone to construction defect disputes because its hot, humid climate makes toxic mold growth a problem if not carefully managed. The state’s frequent hurricanes, tropical storms, and sinkholes also sometimes expose construction defects that may have otherwise gone undetected.
In general, however, most condominiums in Florida are actually non-warrantable properties for a variety of reasons.
Why do construction defects make condos unwarrantable for financing?
While pending construction defect litigation is one of the most common reasons a condominium may be deemed non-warrantable, there are several other possible reasons that may apply:
- Construction is incomplete
- The developer has not yet handed over formal control of the HOA to the owners
- A single person or entity owns more than 10% of all the units
- The development or association allows short-term rentals
- Majority of units are rentals rather than owner-occupied
- Too many people are delinquent on their association dues
- Association officers have been involved in fraudulent activity
- 25% of the development or more is commercial space rather than residential
Additionally, there are other factors that may make it more challenging to find a lender for your condominium. For example:
- Insufficient reserves
- Insufficient liability, windstorm, or other insurance
- The project is a “condotel”
That said, if you find the condominium or other property you want to buy is a non-warrantable, don’t give up. While it’s more difficult to find a lender for a non-warrantable condominium loan, it’s not impossible by a long shot.
The market for non-warrantable condominium loans is a specialized one. And many conventional lenders, such as banks, won’t even tell you it exists.
But we operate in this market every day.
What Fannie Mae’s “unavailable” condo list means for litigation financing
Fannie Mae maintains a list of condos deemed ‘unavailable’ for financing, often due to construction defects, litigation, or reserve shortfalls. Even if your building isn’t under a Section 558 lawsuit, being on that list can block conventional loans. We help clients find alternative lending solutions.
Can you get a mortgage on a condo with a Section 558 construction defect lawsuit?
Yes, you can.
You just can’t do it with conventional “conforming” financing.
Getting a mortgage to buy or refinance a non-warrantable condominium will be a little more challenging than getting a conventional, FHA, or VA loan. But depending on the specific issues with the building, the financial status of the condo/HOA board, and the borrower, it’s very possible to find a lender for most units.
The key: You will need to look beyond ‘plain vanilla’ home lenders and brokers who focus exclusively on the warrantable, conventional loan market, and find a broker who can think ‘out of-the-box.’
For the best results, you’ll need a broker with a long list of relationships with non-bank, unconventional, and ‘portfolio lenders’ willing to take on the additional risk of non-warrantable condominium loans.
Real client success stories: Financing condos with Section 558 Litigation
Buying a condo involved in Section 558 construction defect litigation can feel impossible when traditional lenders decline to finance it. At DAK Mortgage, we’ve helped clients in exactly these situations secure the right loans to close on their dream homes. Below are two real examples that show how creative structuring and alternative loan programs make ownership possible even during litigation challenges.
Self-employed jumbo purchase – Non-warrantable condo
Client Profile
A self-employed couple in Miami was ready to upsize for their growing family. They found a spacious four-bedroom condo at Gran Paraiso but quickly hit financing roadblocks.
The Challenge
The condo was classified as non-warrantable, limiting traditional loan options.
The family was relying on a gift of funds from relatives, which many lenders viewed as a complication.
As business owners, they lacked W-2 income, and several banks had already denied their applications.
The Solution We Structured
Our team arranged a jumbo alternative documentation loan, using:
12 months of profit-and-loss statements verified with a CPA letter.
Manual underwriting approval to allow for the gift fund structure and condo reserve exception.
The Outcome
The loan was approved, and the purchase closed successfully. The family moved into their dream condo without delays, preserving their family gift and avoiding the common pitfalls of non-warrantable financing.
Not every family fits the traditional lending box. If your condo loan was denied elsewhere, let’s explore a solution that works for you.
Physician mortgage loan – Condo with construction defect dispute
Client Profile
A resident physician from Mexico, working in Miami on an O-1 visa, dreamed of buying his first home. He set his sights on a luxury high-rise condo in Midtown, close to the city’s medical and cultural hub.
The Challenge
The condo was involved in a Section 558 construction defect dispute, scaring away traditional lenders.
As a non-resident doctor, he faced stricter financing restrictions.
His first two loan applications were denied due to both the litigation and his visa status.
The Solution We Structured
We leveraged a Physician Mortgage Loan program, securing:
90% financing despite ongoing litigation.
A lender comfortable with his O-1 visa status and future earning potential.
The Outcome
Within weeks, the doctor transitioned from renter to homeowner. He closed on his dream condo in June 2023, overcoming both the litigation challenge and residency restrictions with tailored financing.
Are you a medical professional facing barriers to condo ownership because of litigation or complex financials? Our Physician Mortgage programs are designed to help you succeed where others say no.
Related condo financing challenges beyond litigation
While Section 558 construction defect litigation is one of the biggest hurdles for condo buyers, there are many other issues that can affect financing. Explore our full guide to Condo Financing Problems to understand how factors like non-warrantable status, reserve requirements, and HOA litigation can impact loan approval.
Foreign national buyers and condo litigation
Foreign national buyers face additional challenges when purchasing Miami condos, especially when the property is involved in litigation. Our Foreign National Condo Loans programs help international clients overcome these obstacles with tailored financing strategies.
Portfolio lenders vs. conventional lenders: Who finances condos in litigation?
Lenders that operate in the non-warrantable condo space are usually portfolio lenders. That means that when they issue a loan, they don’t plan to sell it upstream to Fannie and Freddie Mac so they can reinvest the cash in another loan. Instead, they plan to carry the mortgage on their own books as part of their own portfolio of investments.
A portfolio lender doesn’t care if Fannie Mae or Freddie Mac won’t buy the loan. It’s irrelevant to them. These lenders are simply interested in generating a steady stream of income from loans to people with the ability to make reliable payments.
These non-bank lenders often fly ‘under the radar.’ They may be hedge funds, development companies, real estate investment trusts, pension funds, wealthy individuals, and families looking to diversify their own portfolios.
Each of these lenders has its own tolerance for risk, investment timelines, and underwriting criteria.
It takes time, effort, and experience to develop a Rolodex of these non-bank, non-traditional lenders and to learn which lenders offer the most competitive pricing for each individual situation.
That’s where we come in.
DAK Mortgage specializes in financing non-warrantable condos
At DAK Mortgage, we specialize in matching borrowers with challenging situations with willing lenders.
It’s important to understand that these non-warrantable condominium loans are riskier for the lender than conventional residential loans. Whenever there is a Section 558 notice, HOA litigation, condo association litigation, or a pending construction defect claim involved, the lender takes on much more uncertainty as long as the loan remains in their portfolio.
That means interest rates and minimum down payments will generally reflect that higher risk. Rates may be higher than the rates you see in mass media advertisements.
Next steps: Exploring your condo financing options
If you have a challenging situation, such as a non-warrantable condominium loan, don’t get discouraged. If you’ve been turned down by other lenders, don’t give up. It’s not over. There is a whole world of mortgage lending beyond conventional financing. One size doesn’t fit all. You may have just been talking with the wrong loan officer.
At DAK Mortgage, we don’t just quote a lowball rate to get you to fill out an app. Instead, we pride ourselves on being problem solvers: We work with you to learn your specific situation and the specific condition of the property and association. Then we leverage our vast number of standard and non-standard lenders who are thinking out-of-the-box, and who actively seek lending opportunities in this market.
That way, we can match you with lenders whose criteria match your circumstances.
We don’t just work on non-warrantable condominium loans. We have solutions for all kinds of real estate and lending challenges.
Chances are, we’ve helped someone just like you get into a great residential loan program.
Contact us today. We’re glad to see if we can help you purchase or refinance a non-warrantable condo.
Frequently asked questions about condo financing and construction defect litigation
Financing a condo involved in Section 558 construction defect litigation can feel confusing. Below are answers to some of the most common questions we receive from borrowers, realtors, and attorneys navigating these challenges
Can I get a mortgage on a condo in litigation?
Yes, financing is possible even when a condo is involved in Section 558 litigation. While most traditional lenders decline, alternative mortgage programs and portfolio lenders can step in. Approval depends on loan structure, reserves, and customized underwriting designed around litigation-related risks.
Do all lenders deny loans for 558 litigation?
Not all lenders automatically deny, but conventional and agency lenders typically will. Some private banks, non-QM lenders, and specialty programs allow flexibility for condos in litigation. Success depends on showing strong borrower strength, proper insurance coverage, and securing exceptions through lenders who understand these unique circumstances.
What loan programs are available?
Loan programs include jumbo bank statement loans, asset depletion programs, physician mortgage loans, and portfolio lending. These products work around W-2 restrictions and HOA red flags. Each option is designed to help qualified borrowers secure financing even when conventional lenders reject applications due to pending litigation.
How does the HOA insurance policy affect approval?
The HOA’s master insurance policy is a key factor in underwriting. Inadequate coverage can block loan approval, especially with litigation claims. Strong coverage for building replacement costs and liability reassures lenders. Supplemental policies or added borrower coverage can resolve gaps, making the condo financeable despite HOA risk issues.
