© Freddie Mac Single-Family Seller Servicer Guide
To be eligible for the Established Condominium Projects review type, the Condominium Project must meet the definition of an Established Condominium Project.
In addition to the project review and eligibility requirements in Section 5701.2, if the Mortgages secured by Condominium Units in Established Condominium Projects do not comply with the eligibility requirements for streamlined reviews in Section 5701.4, the Mortgages must comply with all of the following eligibility requirements:
(a)Â Project completion requirements for Established Condominium Projects
All units, Common Elements and Amenities must be complete.
(b)Â No Manufactured Homes in the Established Condominium Project
There must not be any Manufactured Homes in the Established Condominium Project.
(c) Owner-occupancy requirements for Established Condominium Projects1. If the property will be used as a Primary Residence or second home, there is no owner-occupancy requirement for the Condominium Project
2. If the property will be used as an Investment Property:- At least 50% of the total number of Condominium Units in the Condominium Project (including 2- to 4-Unit Condominium Projects comprised of 2 or 4 units) must have been conveyed to purchasers who occupy their units as a Primary Residence or second home
- For 2- to 4-Unit Condominium Projects comprised of 3 units, all but one unit in the Condominium Project must have been conveyed to purchasers who occupy their units as a Primary Residence or second home
(d)Â Project budget requirements for Established Condominium Projects
The project's budget must comply with the following:1. Be consistent with the nature of the project
2. Appropriate assessments must be established to manage the project
3. There must be appropriate allocations for line items pertinent to the type and status of the Condominium Project
4. There must be adequate funding for insurance deductible amounts
5. At least 10% of the budget must provide funding for replacement reserves for capital expenditures and deferred maintenance based on the project's age, estimated remaining life and replacement cost of major Common Elements- The replacement reserve percentage is determined by dividing: (i) the annual budgeted replacement reserve allocation by (ii) the HOA's annual budgeted assessment income (including regular common expense fees)
- The calculation may exclude: (i) special assessment income, (ii) income in reserve accounts, (iii) incidental income not relied upon for maintenance operations or capital improvements and (iv) amounts collected from unit owners (but usually paid individually by them) for items or utilities such as internet access
6. A Seller may rely on a reserve study instead of the project budget providing a replacement reserve of at least 10%, provided the conditions in section (f) below are met
Mortgages secured by Condominium Units in 2- to 4-Unit Condominium Projects are not required to comply with the requirements in this Section 5701.5(d).
(e)Â Delinquent assessments for Established Condominium Projects
No more than 15% of the total number of units in a project are 60 or more days delinquent in the payment of their HOA assessments, or, if the project is a 2- to 4-Unit Condominium Project, none of the units are 60 or more days delinquent in the payment of their HOA assessments.
(f)Â Requirements when a Seller relies on a project reserve study for Established Condominium Projects
The reserve study must comply with the following requirements:1. The reserve study generally must include:- An inventory of major components of the project
- Financial analysis and evaluation of current reserve fund adequacy, and
- Proposed annual reserve funding plan
2. A reserve study's financial analysis must validate that the project has appropriately allocated the recommended reserve funds to provide the Condominium Project with sufficient financial protection comparable to Freddie Mac's standard budget requirements for replacement reserves
3. The reserve study's annual reserve funding plan, which details total costs identified for replacement components, must meet or exceed the study's recommendation and conclusion
4. The most current reserve study (or update) must be dated within 36 months of the Seller's determination that a Condominium Project is eligible (see Section 5701.2(a)(3))
5. The reserve study must be prepared by an independent expert skilled in performing such studies (such as a reserve study professional, a construction engineer, a certified public accountant who specializes in reserve studies or any professional with demonstrated experience and knowledge in completing reserve studies)
6. The reserve study must meet or exceed requirements set forth in any applicable state statutes
7. The reserve study must comment favorably on the project's age, estimated remaining life, structural integrity and the replacement of major components
If the Seller relies on a reserve study that meets the requirements of this section, the project's budget must contain appropriate allocations to support the costs identified in the study.
The Seller must obtain and retain in the Mortgage file a copy of the reserve study. The Seller must also perform an analysis of the study and retain this analysis in the Mortgage file.
Mortgages secured by Condominium Units in 2- to 4-Unit Condominium Projects are not required to comply with the requirements in this Section 5701.5(f).
Note: If the requirements for Established Condominium Projects in this Section 5701.5 are met, then the Seller is not required to comply with the requirements for any of the other project review types in Sections 5701.4, 5701.6, 5701.7 and 5701.9.