Condominium Unit Mortgage FAQ

The temporary requirements will be retired on September 18, 2023. At that time, Sellers must comply with the new Single Family Seller/Servicer Guide (Guide) requirements for projects in need of critical repairs and special assessments for all new applications. However, Sellers may implement the new requirements immediately.

Sellers are expected to apply these requirements to any mortgages with application dates on or after September 18, 2023. However, Sellers may implement the new requirements immediately. If a Seller has an unexpired project review completed prior to September 18, 2023, they must still confirm compliance with these requirements for applications taken on or after that date.

This requirement only applies to condominium and cooperative projects consisting of 5 or more attached units.

However, Sellers are still required to ensure the mortgaged premises are safe, sound, and structurally secure as outlined in Guide Section 5601.1(a) Eligible properties.

Note: A Seller may not accept an ACE appraisal waiver if they become aware of conditions that could affect the property’s value or marketability. See Guide Section 5602.3(d), Ineligible Mortgages, for details.

Question: Under Exempt From Review (Guide Section 5701.7), Sellers are not required to determine compliance with the requirements relating to projects in need of critical repairs and special assessments for mortgages secured by detached condominium units. What if the detached condominium unit is located in a condominium project consisting of both detached and attached condominium units, does the Seller need to review the condominium project for critical repairs and special assessments?

Answer: If the subject unit is detached, the Seller is not required to comply with the requirements for projects in need of critical repairs and special assessments.

However, Sellers are still required to ensure the mortgaged premises is safe, sound, and structurally secure as outlined in Section 5601.1(a) Eligible properties.

Note: A Seller may not accept an ACE appraisal waiver if they become aware of conditions that could affect the property’s value or marketability. See Section 5602.3(d), Ineligible Mortgages for details.

Question: Under Exempt From Review (Section 5701.7), Sellers are not required to determine compliance with requirements relating to projects in need of critical repairs and special assessments for mortgages secured by detached condominium units and mortgages secured by units in a 2-4 unit condominium project. What if the project and unit meet the requirements for Exempt from Review but the amenities only, such as the clubhouse, require critical repairs? Is the project ineligible?

Answer: Mortgages secured by detached condominium units and by units in a 2–4-unit condominium project, are not required to comply with the requirements relating to projects in need of critical repairs and projects with evacuation orders. However, Sellers are still required to ensure the mortgaged premises is safe, sound, and structurally secure as outlined in Section 5601.1(a) Eligible properties. If during the Seller’s normal review (i.e., review of appraisal, sales contract, title, etc.) an issue is discovered that impacts the common areas/amenities, the Seller must review to ensure there is no negative impact to value or marketability of the property as outlined in Guide Section 5605.1, Appraisal report requirements, property description and analysis.

Note: A Seller may not accept an ACE appraisal waiver if they become aware of conditions that could affect the property’s value or marketability. See Section 5602.3(d), Ineligible Mortgages for details.

Question: Revised requirements state that critical repairs include “any project that failed to pass state, county, or other jurisdictional mandatory inspections, or certifications specific to structural safety, soundness, and habitability”. Are there any exceptions for excluding municipal inspections?

Answer: No municipal inspections are not excluded from the requirements. Projects that have failed to pass any local regulatory inspection(s) are not eligible.

No. The recertification process must be complete with evidence the project has passed all the required inspections. Typically, the local jurisdiction will issue a letter indicating the project has passed the recertification process.

Yes. Any project that failed to pass state, county, or other jurisdictional mandatory inspections and/or certifications specific to structural soundness, safety and habitability is not eligible as outlined in the Glossary definition of Critical Repairs.

The project remains ineligible until the required repairs and/or inspection report have been completed and documented. Our project review requirements require Sellers to determine the project is safe, is not in need critical repairs, and passes any regulatory inspection and/or certifications specific to structural soundness, safety, and habitability. The requirement is not specific to any jurisdiction and should be applied consistently across all jurisdictions as applicable.

There are various sources that may provide the information, including the homeowners’ association’s (HOA’s) meeting minutes, financial statements, engineer’s reports, or other documents as provided in Sections 5701.3 and 5705.3. These sources are neither prescriptive nor exhaustive. Sellers are responsible for determining which documents they need to review. Parties with an interest in the transaction such as the real estate agent, seller, buyer, or unit owner may provide the documentation.

Question: 11. When the HOA or management company returns a project questionnaire that does not answer questions related to critical defects and significant deferred maintenance or states the information is unknown or not applicable, are Sellers required to obtain additional documentation to support no critical repairs are required?

Answer: The GSE Condo Questionnaire and the associated addendum are optional forms.

• Sellers often use their own forms or find other types of documentation to help them complete their project review. 
• When a Seller is using a questionnaire during their underwriting process and the questionnaire does not provide the information the Seller needs to determine compliance with our project review and general eligibility requirements, then the Seller will need to obtain additional information or documentation to make the determination.
• Freddie Mac provides examples in Sections 5701.3(n) and 5705.3(q) of additional documentation that may be helpful to review.

If the Seller is unable to make the determination if the project is in need of critical repairs, then the project is not eligible.

Freddie Mac is not prescriptive on what documentation Sellers obtain to make the determination. See Q5 above for various sources that may provide this information. If the Seller is unable to obtain the information to make the determination, mortgages on units in the project are not eligible for delivery to Freddie Mac.

Question: What options are there if the association or property manager is not willing to provide a copy of any inspection report completed within the past three years, information to confirm the project is not in need of critical repairs, or information on special assessments?

Answer: The Seller must obtain and review a copy of any inspection completed within the past three years. The Seller may be able to obtain the information from parties that have an interest in the transaction such as the buyer, seller, real estate agent, or unit owner for a refinance. If the Seller is unable to obtain the information to make the determination or obtain the required inspection reports, mortgages on units in the project are not eligible for delivery to Freddie Mac.

Question: The requirements relating to projects in need of critical repairs state Sellers must review structural and/or mechanical inspections that have been completed within 3 years of the Seller’s project review date. What if an inspection has not been completed? Is the project ineligible?

Answer: No. We do not require that an inspection be completed for any project. However, if one has been completed within 3 years prior to the project review date, then you must review it. If an inspection has not been completed, Sellers are still required to review other sources of documentation to ensure the project is not in need of critical repairs.

If the Seller is completing a project review under either the Established Condominium Projects or New Condominium Projects review types, the budget must allocate 10% to reserves. Special assessments cannot be used in lieu of the 10% budget reserve allocation.

Authorized Sellers may submit for a Project Waiver Request (PWR) for Established Condominium Projects that do not meet the reserve requirement. Reserves for capital expenditures and deferred maintenance is a PWR project eligibility category.

If the Seller is completing a project review under either the Established Condominium Projects or New Condominium Projects review types, the budget must allocate 10% to reserves. Special assessments cannot be used in lieu of the 10% budget reserve allocation.

Authorized Sellers may submit for a Project Waiver Request (PWR) for Established Condominium Projects that do not meet the reserve requirement. Reserves for capital expenditures and deferred maintenance is a PWR project eligibility category.

Question: The Guide requirement states, “Any unfunded repairs costing more than $10,000 per unit that should be undertaken within the next 12 months (does not include repairs made by the unit owner or repairs funded through a special assessment).” Can Freddie Mac provide further definition of “unfunded”? Would special assessments that are not yet paid in full be considered funded or unfunded? Are association loans an acceptable source of funding for repairs?

Answer: By unfunded we mean the HOA does not have the funds in place to pay for the repairs and must postpone the remediation. It is acceptable if the HOA imposes a special assessment or obtains a loan to fund the repairs. However, if the special assessment is related to safety, soundness, structural integrity, or habitability, all related repairs must be fully completed.

Freddie Mac’s definition of “Critical Repairs” provides examples of some items to consider such as balconies, elevators, foundation, parking structures or other load-bearing structures, stairwells, and electrical systems. Routine repairs are not considered critical and are similar to proactive maintenance repairs. A delay in the repair would not result in critical element or system failure. See the Guide Glossary for definitions of “Critical Repairs” and “Routine Repairs.”

Question: The Guide requirement states, “If damage or deferred maintenance is isolated to one or just a few units and does not affect the overall safety, soundness, structural integrity, or habitability of the improvements, then this project eligibility requirement does not apply.” Is there a percentage guidance that can be provided to define “few”? If repairs are required to a single building in the project but the other buildings do not require repairs, would this be acceptable?

Answer: There is no specific percentage guidance and Sellers should evaluate based on the overall size of the projects. For example, if 3 units are damaged in a 6-unit project the exception would not apply as most of the units in the project are impacted. However, 3 units in need of repairs in a 600 unit project would indicate the damage or deferred maintenance is isolated to just a few units. Sellers must still ensure that the outstanding repairs do not affect the overall safety, soundness, structural integrity or habitability of the project. This requirement applies regardless of the number of buildings impacted.

Note: The same guidance applies to evacuation of just a few units

A project impacted by a disaster has to meet our requirements relating to projects in need of critical repairs which includes material deficiencies, significant deferred maintenance, and special assessments as described in Sections 5701.3(n) and 5705.3(q). See prior question for additional information.

Question: Freddie Mac Guide requirement states that Sellers must review any structural or mechanical inspection report completed within 3 years. Can Freddie Mac clarify what inspections are included in this requirement? Would it be any inspection completed or only mandatory inspections?

Answer: The Seller must review a complete and true copy of any structural or mechanical inspection report (not just mandatory inspections) that has been completed within the past 3 years.

Yes, it is acceptable. Regardless of the means of funding, mortgages in projects in need of Critical Repairs remain ineligible until the repairs have been completed.

No. A Seller should not rely solely on the appraisal to complete its project review as the appraisal may not have or disclose information on critical repairs. Refer to Sections 5701.3(n) and 5705.3(q) for example documents that may be helpful when reviewing for critical repairs.

Delinquency for maintenance fees/assessments and special assessments are calculated separately. For example, 12% of unit owners are delinquent on regular maintenance fees/assessments and 6% are delinquent on special assessments. The delinquency is not added to a total of 18% but, is separately calculated as 12% and 6%.

Yes. Each special assessment is calculated separately. For example, 10% are delinquent on a special assessment that started in 2021, and 8% are delinquent on a special assessment that started in 2022. The special assessment delinquency is 10% and 8% respectively, not 18%.

Effective Dec. 15, 2023, an addendum to Form 476 can help to capture this information. Use of Form 476 is optional.

Freddie Mac’s definition of a master association has not changed since at least 2006. What constitutes a master association has changed since then. As a result, we are updating the definition. Today’s planned communities can consist of retail associations, commercial associations, parking garage associations, recreational associations, condominium project homeowners associations, etc. What applied in 2006 still applies today in that there may be facilities owned by the master association that serve the subject condominium project. These project-related facilities, per Freddie Mac’s current definition of an established condominium project, are required to be complete as well as the condominium project be complete. In the definition of a new condominium project, the project and any related facilities owned by a master association may be incomplete.

In these instances, in addition to all other applicable Guide requirements, Sellers may want to consider at least four (4) things:  a) any condominium hotel and/or transient housing characteristics of the project (Guide 5701.3(b)), b) the commercial space percentage (Guide 5701.3(d)), c) ownership interest in the land on which the project is located (Guide 5701.3(a)), and d) ownership of the common elements (Guide 5701.3(h)). 

1. If the condominium project (not the hotel) has any of the characteristics listed in 5701.3(b), then the project is ineligible. Such characteristics may include, but are not limited to, the upper floors formerly were a part of the hotel and the conversion to condo was a non-gut rehabilitation of the units, shared revenue and/or expenses with the hotel (such as the HOA pays a fee to the hotel to use the hotel’s website for the unit owners’ transient rentals), etc.
2. Sellers must include the commercial/non-residential space of the project or of the building in which the project is located in the numerator of the commercial space calculation (the denominator is the total square footage of the project or building in which the project is located). Thus, the numerator must include the square footage of the floors occupied by the hotel even though those floors are not a part of the condominium project. If the quotient is greater than 35%, then the project is ineligible.
3. In instances where the condominium project begins on an upper floor (e.g., the condominium project consists of floors 9 through 20), there is a high probability that the condominium project does not have a fee simple or leasehold ownership interest in the land on which the project is located. With this example of the hotel being located on the lower floors of the building, it is most likely the hotel, not the condominium project, has ownership interest in the land. The project is then ineligible.
4. In instances where the condominium project is connected either horizontally or vertically to a hotel, there may be only one set of amenities (e.g., one pool, one gym, etc.) and an agreement between the hotel and the project on the maintenance and usage of those amenities. Condominium projects with shared amenities are only eligible when the parties involved are all HOAs. Condominium projects in which amenities are shared between the project and the hotel are ineligible. 

No, finding short term rentals advertised online does not automatically make the project ineligible. Sellers must fully analyze all the characteristics of the project and related information and determine if the project is not a Condominium Hotel or transient housing. Sellers must consider if the HOA and/or the HOA’s property management company facilitates, receives revenue from, or pays expenses or taxes for hotel type services (such as the rental registration website) and/or rental of units on a transient basis. If the unit owner’s contract, of their own accord, with third parties that post transient rentals on their websites, the project may be eligible. Sellers should keep in mind that this third party might be the transient rentals division of an entity that also has hotel divisions, real estate property management divisions, timeshare divisions, etc.  As provided in Guide 5701.3(b)(2)(viii), if such an entity’s (e.g., Aston, Marriott, Wyndham, etc.) real estate property management division manages the condominium project and the unit owners have, of their own accord, contracted to rent their units through the entity’s transient rentals division, the project may be eligible if all other requirements are met.

This is not a new requirement being added but rather a clarification. Although mortgages delivered as exempt from review do not need to comply with the ineligible projects’ requirements in Guide Chapter 5701.3, which include that the project is not a condominium hotel, timeshare project, etc., they still must comply with Guide Section 5601.2, Freddie Mac’s general property eligibility requirements. One of these general property eligibility requirements is that it not be used primarily as a commercial enterprise (condominium hotel, etc.). To eliminate the confusion around this, Guide Section 5701.7 Exempt from review is being updated.

Yes, the data entry screens will be updated at a later date, but Sellers may submit ADR information and documentation using this category immediately.

Information regarding Condo Project Advisor and all of its statuses, including the Not Eligible status, can be found on our Condo Project Advisor FAQ.

Yes. Effective June 2, 2021, we revised Guide Section 4406.2 to allow units in a Cooperative Project as an eligible property type for mortgages secured by properties subject to income-based resale restrictions.

The delivery of the HOA’s TIN is not required. However, there are now ULDD data points to deliver this information and we encourage Sellers to obtain and deliver it.