Condominium rider: What is it, why does my lender require me to sign it?
If you’re buying a condominium, one of the documents you will be required to sign in connection with your loan is a “Condominium Rider.” This rider is an attachment to the document recorded in the land records to secure your loan. In DC, Maryland and Virginia the recorded document is called the Deed of Trust. In Florida, it’s called the Mortgage. I will refer to both as the “Security Instrument.”
In very basic terms, think of the Security Instrument as a document where you’re transferring rights in the property you’re buying to the lender (or to a trustee for the benefit of the lender) as security for the loan.
The form used for the Security Instrument is geared toward single family homes, so it needs a few changes when the property being purchased is a condominium.
One of the most important items contained in the Condominium Rider is the information regarding condominium fees. You might remember from our post entitled Condo Fees and Closing – Why Do We Care? that lenders have an interest in making sure that condominium fees are paid.
In the Condominium Rider, you agree to comply with all of the condominium rules, including paying all dues and assessments imposed by the condominium. If you do not pay these dues and assessments, the lender may pay them, and any amounts that it pays on your behalf will be tacked on to the loan amount to be paid back by you, with interest.
Another key item contained in the Condominium Rider is a waiver of the property insurance requirements contained in the Security Instrument. Because the Security Instrument is designed for single family properties, it contains requirements regarding obtaining and maintaining property insurance, as those would normally be the homeowner’s responsibility.
In the case of a condominium, the condominium association is responsible for obtaining and maintaining a “master” or “blanket” policy on the condominium project. If this policy is satisfactory to the lender, the Condominium Rider waives the requirements: 1) that the borrower make monthly escrow payments to the lender for insurance and 2) that the borrower maintain property insurance.