How to Sell a Condo With a Pending HOA Lawsuit in Florida

What Florida SB 4-D Requires — and Why So Many Condos Are Now in Litigation

Florida Senate Bill 4-D, signed into law in May 2022 in the wake of the Champlain Towers South collapse in Surfside, imposed the most significant structural safety mandates on condominium buildings in the state's history. The law applies to any condo building that is three stories or taller.

Milestone inspections are now mandatory. A Phase 1 milestone inspection must be completed by December 31, 2024 for buildings that reached 30 years of age on or before July 1, 2022, or by December 31, 2025 for buildings that reach 30 years on or before July 1, 2023. For buildings within three miles of a coastline, the inspection threshold drops to 25 years. If the Phase 1 inspection reveals substantial structural deterioration, a Phase 2 inspection — which is far more invasive and expensive — is required.

The law also eliminated the long-standing Florida practice of waiving reserve funding through a member vote. Under prior law, condo associations could vote annually to waive full reserve contributions, leaving buildings chronically underfunded. SB 4-D ended that. Associations must now fund reserves based on a structural integrity reserve study (SIRS) completed by a licensed engineer or architect. Full reserve funding for structural components — roof, load-bearing walls, foundation, fireproofing, plumbing, electrical — is mandatory beginning January 1, 2025.

The litigation connection is direct. Many associations either failed to fund reserves for years or deferred inspections and repairs. Unit owners have responded with class-action suits against the association. Separately, associations that completed inspections and found serious defects have filed suit against the original contractors or engineers for faulty construction. Insurance carriers are disputing coverage on these claims. The result is a wave of active litigation across Florida condo buildings — and active litigation is precisely what lenders flag on the condo questionnaire.

How Pending Litigation Kills Conventional and FHA or VA Financing

When a buyer applies for a conventional mortgage on a Florida condo unit, the lender is required to evaluate not just the borrower's creditworthiness but the financial health of the entire condominium project. Fannie Mae, Freddie Mac, FHA, and VA each publish approval standards for condo projects, and active litigation is an automatic disqualifier under all four.

The mechanism is the condo questionnaire, sometimes called the condo certification or project approval form. The HOA or management company must complete this document truthfully before any lender will process a loan on a unit in the building. Question sets vary slightly by lender, but every version asks whether the association is currently a party to any litigation — as plaintiff or defendant. If the answer is yes, the lender classifies the project as unapproved or ineligible. No further underwriting takes place.

Fannie Mae's Selling Guide (B4-2.2-04) lists active or pending litigation as a project review trigger that results in ineligibility when the litigation involves the structural integrity of the building, the financial solvency of the association, or the rights of unit owners. Freddie Mac's guidelines mirror this standard. FHA's Condominium Project Approval requirements under Mortgagee Letter 2021-01 similarly exclude projects with pending litigation that could affect the project's financial viability.

The practical consequence for sellers: any buyer who needs financing — which is the overwhelming majority of buyers on the MLS — cannot close. Even buyers who want to purchase are turned away by their lender, not by their own choice. Agents routinely accept offers, run the condo questionnaire, and discover the litigation flag only after weeks of back-and-forth. The deal collapses. The seller goes back to market with a stigma. This cycle repeats until the litigation resolves, which can take years.

There is no workaround within the conventional lending system. The lender cannot waive the litigation question. The title company cannot cure it. The only path to closing with a financed buyer is waiting for the lawsuit to resolve or settle — and even then, Fannie Mae requires a seasoning period before the project is reinstated.

Types of Litigation That Block Financing — and Why Each One Triggers Lenders

Not all lawsuits carry the same weight in the eyes of lenders, but Florida condo buildings are generating three primary types of litigation that all trigger the unapproved project classification.

Unit-owner class actions against the HOA are the most common post-SB 4-D category. When an association failed to fund reserves for years, deferred required structural maintenance, or misrepresented the building's condition in financial disclosures, unit owners have grounds to sue the association for breach of fiduciary duty. These suits frequently allege that the association violated F.S. §718.112, which governs association duties, or F.S. §718.111, which covers the association's obligation to maintain common elements. Lenders treat any suit where unit owners are adverse to the association as an indicator of financial and governance dysfunction — exactly the type of risk that disqualifies a project.

HOA versus contractor litigation is the second category. After milestone inspections revealed serious structural defects in many buildings, associations hired attorneys to pursue original developers, contractors, or engineers under Florida's construction defect statutes. These suits can be worth tens of millions of dollars, and while associations pursue them expecting a recovery, the pendency of the suit — even if the association is the plaintiff in a strong position — still disqualifies the project under lender guidelines. The outcome is uncertain, and lenders do not speculate on litigation results.

Insurance coverage disputes make up the third category. When an association files a property insurance claim for storm damage, structural damage, or defect repair costs and the carrier denies or limits the claim, the association often sues. These disputes are litigation in the eyes of lenders even if they appear more transactional than adversarial. A coverage dispute that reaches the suit-filed stage triggers the same disqualification.

Sellers often assume that small or clearly meritless litigation will not matter. That is incorrect. Lenders do not evaluate the merits of a case. The existence of an active docket entry is sufficient to terminate the underwriting process.

Florida Seller Disclosure Requirements for Condos With Pending Litigation

Florida law requires sellers of condominium units to make specific, legally mandated disclosures before or at the time of contract. Pending litigation is a material fact that must be disclosed. Failing to disclose it exposes the seller to rescission of the contract and potential liability for damages.

F.S. §718.503 governs developer and resale disclosures for condominiums. It requires the seller of a resale condo unit to provide the buyer with a current copy of the declaration of condominium, articles of incorporation, bylaws, rules, most recent year-end financial information, and the most recently completed structural integrity reserve study. Critically, any pending litigation involving the association is a material fact that must be disclosed separately under Florida's general real property disclosure standard.

F.S. §689.261 requires sellers of residential real property to disclose all known facts that materially affect the value of the property and are not readily observable. Pending litigation — particularly litigation that would prevent a financed buyer from closing — satisfies every element of this standard. It is known to the seller once it appears in the association minutes or is communicated in any HOA notice. It is not readily observable by a buyer walking through the unit. And it materially affects value because it eliminates a large portion of the buyer pool.

In practice, the disclosure typically happens in two ways. The seller's agent includes it on the seller's property disclosure form. The HOA management company discloses it on the condo questionnaire completed for the buyer's lender. Sellers who sell through a process that does not involve a lender-required condo questionnaire — such as a direct sale to a buyer not seeking conventional financing — still owe the disclosure directly to the buyer in writing before or at contract signing. Title Guaranty of South Florida coordinates this documentation at closing to ensure the chain of disclosure is clean and the deed can transfer without cloud.

Sellers who are unsure whether their building's situation constitutes pending litigation should request a copy of the association's most recent attorney engagement letter or a letter from association counsel confirming litigation status. Do not rely on informal conversations with board members.

How Cash Flow Deals Closes When Lenders Cannot

Cash Flow Deals operates through a novation — a single contract in which CFD steps in as the purchasing party and simultaneously arranges a bank-financed end buyer who takes title at closing. The critical distinction is that CFD's end buyers are not going through Fannie Mae, Freddie Mac, FHA, or VA. They are using direct bank financing or portfolio lending that does not require Fannie or Freddie project approval and does not require completion of the standard condo questionnaire that triggers the litigation flag.

This is not a loophole or a workaround of disclosure law. CFD discloses the litigation status to the end buyer in full, in writing, before contract. The end buyer accepts the property with full knowledge of the pending suit. What changes is the financing path: without the Fannie Mae or Freddie Mac underwriting requirement, the litigation that would kill a conventional loan does not disqualify the transaction.

The novation structure means one contract, one closing, one title transfer. There is no assignment of contract, no double close, no gap in chain of title. Title Guaranty of South Florida handles the escrow, coordinates the attorney review of the pending litigation to confirm it does not create a lien on the unit itself (as opposed to a general dispute involving the association), and issues title insurance at closing. The seller's price is locked at the moment the novation agreement is signed. CFD does not re-trade after inspection, after litigation review, or at any point in the process. The only thing that changes the number is a true title defect — not a negotiating tactic.

CFD's fee appears as a separate line item on the HUD closing statement. The service costs the seller nothing out of pocket. Sellers call 786-891-9111 to get a number. If the number works, the price is locked. If it does not, there is no obligation.

How Closing Works — Title Guaranty of South Florida and the Litigation Review

Closing a condo unit with pending building litigation requires more careful title work than a standard single-family sale, but it is a routine process for an experienced Florida condo title team. Title Guaranty of South Florida performs the specific review steps that protect both buyer and seller when litigation is in the background.

The first step is confirming that the pending litigation creates no lien on the individual unit. Florida law distinguishes between association-level disputes — a suit between the HOA and a contractor, for example — and unit-level liens filed for unpaid assessments. A general lawsuit in which the association is a party does not automatically encumber individual units. Title Guaranty conducts a lien search at both the county level and against the specific unit and confirms the distinction in writing before closing proceeds.

The second step is reviewing any special assessments that the association has levied or is expected to levy as a result of the litigation or the mandated structural repairs. SB 4-D's reserve funding requirements mean that many associations are levying large one-time special assessments to catch up on years of deferred reserve contributions. These assessments, if unpaid, can become liens against the unit. The seller must either pay them current at closing or negotiate their treatment with the buyer before the contract is signed.

The third step is the title insurance commitment. Florida title insurers will issue title insurance on condo units in buildings with pending litigation, provided the search confirms no unit-level lien from the litigation itself. The title policy protects the buyer against any future claim arising from a title defect existing as of the closing date.

The deed records at the county clerk's office in the standard way. The association receives notice of the transfer as required under F.S. §718.116. The seller's obligation to the association ends on the date of closing. Any ongoing litigation continues between the association and the adverse party without involving the former unit owner.