5701.3: Ineligible projects (11/19/18)

Except for 2- to 4-Unit Condominium Projects, Detached Condominium Units and Freddie Mac-owned "no cash-out" refinance Condominium Unit Mortgages delivered in accordance with the requirements in Section 5701.7, Mortgages secured by units in any of the following types of projects are not eligible for sale to Freddie Mac.

(a) Projects in which the unit owners do not have an undivided ownership interest or leasehold interest in the land on which the project is located

A project in which, when control of the Homeowners Association (HOA) has been or will be turned over to the unit owners, the unit owners do not have either: (1) an undivided ownership interest in the land on which the project is located; or (2) a leasehold interest in the land on which the project is located.

(b) Condominium HotelAny project that is a Condominium Hotel or similar type of transient housing.Projects that have one or more of the following characteristics are considered a Condominium Hotel or similar type of transient housing, and are ineligible projects:

Projects that include hotel type services and characteristics such as registration services, rentals of units on a daily basis, daily cleaning services, central telephone service, central key systems and restrictions on interior decorating
Condominium Projects that are conversions of a hotel (or a conversion of a similar type of transient housing) unless the project was a Gut Rehabilitation and the resulting Condominium Units no longer have the characteristics of a hotel or similar type of transient housing
Projects with mandatory or voluntary rental-pooling and revenue-sharing agreements (or similar agreements that restrict the unit owner's ability to occupy the unit such as blackout dates and occupancy limits) to assure an inventory of units for rent on a frequent basis, such as daily, weekly, monthly or seasonally, and
Projects and/or HOAs that are licensed as a hotel, motel or similar type of transient housing

If owners of Condominium Units in projects in resort locations rent their units (either individually or through a rental management company) on a short-term basis, this alone does not indicate that the project is to be considered a Condominium Hotel. Sellers must fully analyze all the characteristics of the project and related information to determine if the project is a Condominium Hotel. Related informational resources may include but are not limited to, Project Documents (e.g., by-laws, project budgets and financial statements), offering statements (or their equivalent) and marketing materials, web sites, contracts for sale and appraisal reports.

(c) Project with multi-dwelling units

A project in which an owner may hold a single deed evidencing ownership of more than one dwelling unit.

(d) Project with excessive commercial or non-residential space

A project in which more than 35% of the total above and below grade square footage of the project (or more than 35% of the total above and below grade square footage of the building in which the project is located) is used as commercial or non-residential space.Section 5701.11 provides additional details on projects with excessive commercial or non-residential space.

(e) Tenancy-in Common apartment projectA tenancy-in-common apartment project is owned by several owners as tenants-in-common or by a Homeowners Association (HOA). Individuals have an undivided interest in the residential apartment building (including the units) and land on which the building is located, and may or may not have the right of exclusive occupancy of a specific apartment unit in the building.

(f) Timeshare project or project with segmented ownership

A project in which there is an arrangement under which a purchaser receives an interest in real estate and the right to use a unit or Amenities, or both, for a specified period and on a recurring basis such as the 15th week of the year, or ownership that is for a limited period such as for the subsequent five years.

(g) Houseboat projectA project comprised of boats that have been designed or modified to be used primarily as dwelling units.

(h) Project in which the unit owners do not possess sole ownership of the Common Elements

A project in which the unit owners are not the sole owners of, and do not have the right to the use of, the Common Elements, including all buildings, roads, parking, facilities and Amenities is not eligible except as specified below.A project with shared Amenities is eligible if two or more HOAs share the Amenities (such as recreational or fitness facilities, swimming pools and clubhouses) for the sole use of the unit owners, and the HOAs have an agreement specifying:

A description of the shared Amenities and the terms of the unit owners' permitted use of the shared Amenities
How the shared Amenities will be funded, managed and maintained, and
The method for resolving disputes between the HOAs regarding the shared Amenities

The developer must not retain any ownership interest in the Common Elements, facilities and Amenities, except as unit owner. The Common Elements, including parking and Amenities, such as recreational facilities, must not be subject to a lease between the unit owners or the HOA (as lessee) and any other party (as lessor), with the exception of commercial leases for parking, or permit arrangements for parking, entered into with parties unrelated to the developer.

(i) Project in litigation

A project in which: (i) the HOA is named as a party to pending litigation, or (ii) the project sponsor or developer is named as a party to pending litigation that relates to the safety, structural soundness, functional use or habitability of the project.If the Seller determines that the reason for the pending litigation involves minor matters that do not affect the safety, structural soundness, functional use or habitability of the project, the project is eligible if the litigation is limited to one of the following:

1. The litigation amount is known, the insurance company has committed to provide the defense and the litigation amount is covered by the insurance policy

2. The litigation amount is unknown, the Seller has documented the Mortgage file with a copy of the complaint, or the most recent amended complaint, and with an attorney letter that supports the Seller's determination that the litigation involves minor matters. The attorney letter must state: (i) the reason for the litigation; (ii) that the insurance company has committed to provide the defense; and (iii) that any potential monetary judgment against the HOA, or settlement with the HOA, including punitive damages, will likely be covered by the HOA's insurance policy. If the attorney indicates the matter will not likely be covered by the HOA's insurance policy, then the project is ineligible; or

3. The matter involves:

i. A non-monetary neighbor dispute or right of quiet enjoyment, or

ii. The HOA is the plaintiff in a foreclosure action or action for past due HOA assessments, or

iii. The HOA is the plaintiff in the litigation seeking reimbursement for expenditures made to repair the project's component(s) which may have included items that related to the safety, structural soundness, functional use or habitability of the project, the repair permanently resolved the defect or issue and the expenditures did not significantly impact the financial stability or future solvency of the HOA.

The Seller must retain documentation to support its analysis that the reason for the dispute meets Freddie Mac's requirements for minor matters as described above.

(j) Project with excessive single investor concentration

Any project in which an individual or a single entity such as an investor group, partnership or corporation owns more than the following total number of units in the project:

Number of units in the project	Total number of units owned by individual or single entity
Two to four	One1
Five to 20	Two
21 or more	25%

1 This requirement applies to Condominium Projects reviewed under the following review types: streamlined review (Section 5701.4), Established Condominium Projects review (Section 5701.5), New Condominium Projects review (Section 5701.6) and reciprocal review (Section 5701.9)

Vacant units being actively marketed by the developer are not included in the calculation of the developer's percentage of ownership. Any units leased by the developer must be included in the calculation of the developer's percentage of ownership.

(k) Continuing Care Retirement Community (CCRC)

A CCRC is a residential project designed to meet the health and housing needs of seniors as their needs change over time. CCRCs are distinguished from age-restricted communities in that residents in CCRCs contract in advance for a lifetime commitment from the facility to care for them, regardless of the future health or housing needs. CCRCs may also be known as Life-Care Facilities.

(l) Manufactured Homes

Mortgages secured by Manufactured Homes, except when approved through the Fannie Mae Project Eligibility Service (PERS) process (refer to Section 5701.9(a) for additional information).

(m) Project with mandatory dues or similar membership fees for use of Amenities such as clubhouses or recreational facilities

Projects with mandatory dues or similar membership fees, including initiation or joining fees, which allow for the use of Amenities such as clubhouses or recreational facilities are ineligible unless the HOA and/or Master Association solely own the Amenities and Condominium Unit owners within the HOA or Master Association are the only persons or entities eligible for membership. Full rights and privileges to the use of these Amenities are the primary benefit of membership.