Freddie Mac Single-Family Seller/Servicer Guide Section 5701.3 — Ineligible projects

Freddie Mac Single-Family Seller/Servicer Guide Section 5701.3 — Ineligible projects

5701.3: Ineligible projects (05/06/26) This section contains requirements related to: ■ Condominium 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 ■ Condominium Hotel or similar type of transient housing ■ Condominium Project with multi-dwelling units ■ Condominium Project with excessive commercial or non-residential space ■ Tenancy-in-common apartment project ■ Timeshare project or project with segmented ownership Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-13 ■ Houseboat project ■ Condominium Project in which the unit owners do not possess sole ownership of the Common Elements ■ Condominium Project in litigation ■ Condominium Project with excessive single investor concentration ■ Continuing Care Retirement Community (CCRC) ■ Manufactured Homes in Condominium Projects ■ Condominium Project with mandatory dues or similar membership fees for use of Amenities such as clubhouses or recreational facilities ■ Project in need of Critical Repairs ■ Project with an evacuation order ■ Projects terminating or involved in insolvency proceedings Except for Condominium Unit Mortgages delivered in accordance with the requirements in Section 5701.7 relating to Exempt From Review or Section 5701.10 relating to Condominium Projects with a Project Certified status Project Assessment Request (PAR) finding, Mortgages secured by units in any of the following types of projects are not eligible for sale to Freddie Mac. (a) Condominium 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 Hotel or similar type of transient housing Any project that is a Condominium Hotel or similar type of transient housing. (i) Condominium Hotel characteristics Projects with one or more of the following characteristics are considered a Condominium Hotel and are ineligible projects: Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-14 1. Projects and/or HOAs that are licensed, have a permit to operate, or are registered, as a hotel or a motel, even though the units may be individually owned 2. Projects that impose mandatory rental-pooling (or similar agreements that restrict the unit owner’s ability to occupy the unit for living purposes such as blackout dates or occupancy limits on personal use) to assure an inventory of units for rent on a frequent basis, such as daily, weekly, monthly or seasonally 3. Projects with revenue-sharing agreements between unit owners and the HOA, property management and/or rental operator contracted by the HOA or property management (ii) Transient housing characteristics Projects with one or more of the following characteristics are considered a type of transient housing and are ineligible projects: 1. Projects and/or HOAs that are licensed (or have a designated licensed agent), have a permit to operate, or are registered, as a type of transient housing (e.g., vacation rental license, short term rental registrant, etc.) for the rental of non-HOA owned units 2. 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 3. The HOA receives revenue from, or pays expenses for, hotel type services including but not limited to: ■ Registration desk services. This includes a project’s front desk staff also serving as a vacation rentals employee or assisting with an onsite rental operator’s registration desk or any payments received from renting units on a transient basis via the rental registration desk. It does not include any market rate rent paid by a third party for the use of a registration desk. ■ A rental registration website/hosting platform 4. The HOA charges a fee, paid by either the unit owner or the unit owner’s transient renters, when a unit is rented on a transient basis. This includes any surcharge to unit owners who do not elect to rent their units through the HOA’s and/or property management’s preferred rental operator(s). This does not include any fees charged to reimburse the cost of the wear and tear to the project’s facilities and/or Amenities from the transient renters or any fees charged for reviewing the terms of the transient rental contract. Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-15 5. The HOA and/or its management agent, as rental operator or licensed agent, collects and remits required taxes to all applicable jurisdictions (city, county and State) such as transient, short-term rental, and/or hotel occupancy taxes as well as sales taxes, excise taxes, etc. 6. The HOA provides a designated space (e.g., an HOA-owned unit, an area in the project’s lobby or other Common Elements area, etc.) for the operation of an on-site rental operator free of charge to that rental operator 7. Unit owners are required through the Project Documents or other contractual agreement to use a specific rental agency(ies) for their transient rentals 8. The entity that manages the Condominium Project also manages its transient rentals. This does not include an entity that has independent divisions for property management and for transient rentals management, the property management division manages the Condominium Project, and unit owners are not mandated to contract with its transient rentals division. 9. Residential units have restrictions on interior decorating that are imposed by the HOA or its management agent (iii) Examples of personalized services and centralized systems that are common red flags of a Condominium Hotel or transient housing The following are examples of personalized services and centralized systems that are common red flags of a Condominium Hotel or similar type of transient housing: ■ Personalized services ❑ Daily cleaning services ❑ Porters/luggage service ❑ Room service ■ Centralized systems ❑ Any central telephone service ❑ Central key systems Condominium Projects with short-term rentals, personalized services and/or centralized systems may be eligible if the Seller fully analyzes all the characteristics of the project and related information to determine if the project is not a Condominium Hotel or transient housing as described above. Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-16 The Seller must retain, and provide upon request, documentation to support its analysis that the Condominium Project is not a Condominium Hotel or similar type of transient housing as required in Section 5701.2(b)(6). Such documentation may include, but is not limited to, Project Documents (e.g., by-laws, project budgets and financial statements), offering statements (or their equivalent) and marketing materials, websites, contracts for sale and appraisal reports. (c) Condominium 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) Condominium 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. In calculating the amount of commercial or non-residential space, Sellers must determine: ■ The total square footage of the project (or the building in which the project is located); ■ The square footage of the commercial or non-residential space; and ■ The residential space square footage The Seller will then divide the total commercial or non-residential square footage by the total square footage of the project or building to determine the total amount of commercial or non- residential space. Below is a table illustrating what must be included or may be excluded from the calculation of commercial or non-residential space: Excessive commercial or non-residential space Type of commercial or non-residential space Include in the calculation? Retail and other commercial or non-residential space (for example, restaurants and stores) Yes Residential rental apartments, hotels, motels and other similar types of space, although such space may have residential characteristics Yes Non-residential space that the HOA does not own, but that is owned by a private individual or entity outside of the HOA structure (for example, private fitness facilities that are membership-based rather Yes Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-17 Excessive commercial or non-residential space Type of commercial or non-residential space Include in the calculation? than owned by the HOA for the sole use of the residential unit owners) The total square footage of commercial or non-residential space even when the HOA representing the residential owners is different from the association representing the commercial owners Yes Commercial parking facilities No Project Amenities and facilities that are residential in nature, owned by the HOA or unit owners and allocated for the sole use of the residential unit owners No (e) Tenancy-in-common apartment project A tenancy-in-common apartment project is owned by several owners as tenants-in-common or by an 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 project A project comprised of boats that have been designed or modified to be used primarily as dwelling units. (h) Condominium Project in which the unit owners do not possess sole ownership of the Common Elements Except as stated below, unit owners in a Condominium Project must have the sole ownership in and the right to the use of the Common Elements, including all buildings, roads, parking, facilities and Amenities. The developer must not retain any ownership interest in the Common Elements, facilities and Amenities, except as unit owner. Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-18 A Condominium Project that shares Amenities with one or more other residential projects is eligible if the projects share the Amenities (such as recreational or fitness facilities, swimming pools and clubhouses) for the sole use of the unit owners and Shareholders, if applicable. The term “residential projects” includes only residential Condominium Projects, Cooperative Projects and Planned Unit Developments (PUDs). The residential projects must have an agreement specifying: 1. A description of the shared Amenities and the terms of unit owners’ and Shareholders’ permitted use of the shared Amenities 2. How the shared Amenities will be funded, managed and maintained, and 3. The method for resolving disputes between the projects regarding the shared Amenities The Common Elements, including Amenities, such as parking and recreational facilities, must not be subject to a lease between the unit owners or the HOA (as lessee) and any other party (as lessor). Parking provided under commercial leases or permit arrangements for parking, entered into with parties unrelated to the developer are acceptable. (i) Condominium Project in litigation A project in which: (i) the HOA is named as a party to pending litigation or the Seller discovers that the HOA is a party to an Alternative Dispute Resolution (ADR) proceeding, such as arbitration or mediation, or (ii) the project sponsor or developer is named as a party to pending litigation, or the Seller discovers that the project sponsor or developer is a party in an ADR proceeding and, in either case, the dispute relates to the safety, structural soundness, functional use or habitability of the project. If the Seller determines that the pending litigation or ADR proceeding involves only minor matters that do not affect the safety, structural soundness, functional use or habitability of the project, the project is eligible if the litigation or ADR proceeding 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 all of the following: i. The reason for the litigation; Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-19 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. 3. The matter involves any of the following: i. A non-monetary neighbor dispute or right of quiet enjoyment, whether litigated or in an ADR proceeding; ii. A dispute in which the HOA is the plaintiff in a foreclosure action or action for past due HOA assessments; or iii. A dispute in which the HOA is the plaintiff in the litigation or a party to an ADR proceeding and is seeking reimbursement for expenditures made to repair the project’s component(s). The expenditures may have included items that related to the safety, structural soundness, functional use or habitability of the project, provided that the repair permanently resolved the defect or issue, and the expenditures did not significantly impact the financial stability or future solvency of the HOA. 4. The estimated or known amount in dispute in the litigation or ADR proceeding is not expected to exceed 10% of the project’s funded reserves, provided that use of the project’s funded reserves to pay for project litigation or dispute resolution does not violate the applicable jurisdiction’s laws and regulations 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) Condominium 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: Excessive single investor concentration Number of units in the project Total number of units owned by individual or single entity Five- to 10-unit projects part of a Master Association Two Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-20 Excessive single investor concentration Number of units in the project Total number of units owned by individual or single entity Six to 20 21 or more 25% 1. Exclusion from calculation: The following may be excluded from the single investor concentration calculation: i. Vacant units being actively marketed by the developer. Any units leased by the developer must be included in the calculation of the developer’s percentage of ownership. ii. Units that a non-profit entity controls or owns for the purpose of providing affordable housing iii. Units held in affordable housing programs (including units subject to non-eviction rent regulation codes), and iv. Units retained for workforce housing by higher-education institutions 2. Exception for a project with excessive single investor concentration: For purchase transactions, a project with single investor concentration greater than specified above will be eligible provided all of the following are met: i. The purchase transaction will result in a reduction of the single investor concentration ii. The single investor must not own more than 49% of the units in the project iii. The Seller obtains evidence that the single investor is marketing units for sale with the goal to decrease the single investor concentration to 25% or less of the units in the project iv. The single investor is current on all HOA assessments, and v. There are no planned or current special assessments in the project (k) Continuing Care Retirement Community (CCRC) Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-21 A CCRC is a residential project specifically designed to meet the evolving health and housing needs of seniors. Unlike age-restricted communities, residents in CCRCs sign a contract in advance for a lifetime commitment of care from the facility, regardless of the future health or housing needs. CCRCs may also be known as Life-Care Facilities. (l) Manufactured Homes in Condominium Projects Condominium Projects that contain Manufactured Homes are ineligible unless they meet one of the following exceptions: ■ They comply with the Established Condominium Project requirements in Section 5701.5 (see Section 5701.5(e) for additional information specific to Manufactured Homes), or ■ They have an “Approved by Fannie Mae” status designation in Fannie Mae’s Condo Project ManagerTM (refer to Section 5701.9(a) for additional information on reciprocal project reviews) (m)Condominium 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 both of the following are met: ■ 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, with full rights and privileges to the use of these Amenities being the primary benefit of membership (n) Project in need of Critical Repairs Mortgages secured by units in Condominium Projects in need of Critical Repairs, as defined in the Glossary, are not eligible for sale to Freddie Mac. For both current and planned (i.e., unit owners approved but the board has not initiated collection yet) special assessments, Seller must obtain and review the following information for each special assessment to determine if the funds are for a Critical Repair: ■ The purpose of the special assessment, ■ When the special assessment was approved, ■ The original amount of the special assessment, ■ The amount remaining to be collected, and Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-22 ■ The expected date the special assessment will be paid in full If a structural and/or mechanical inspection has been completed within three years of Seller’s project review date, Seller must review that inspection report. There must not be any Critical Repairs needed, as well as no current evacuation orders or similar regulatory actions. Projects in need of Critical Repairs remain ineligible until the required repairs and/or inspection report have been completed and documented. Sellers must review an engineer’s report or substantially similar document to determine that the repairs resolved the building’s safety, soundness, structural integrity or habitability concerns. If damage or deferred maintenance is isolated to one or a few units and does not affect the overall safety, soundness, structural integrity, or habitability of the project, then this project eligibility requirement does not apply. This requirement does not apply to Routine Repairs, as defined in the Glossary. Sellers may need to review a combination of documents to determine a project meets our physical condition requirements. Some examples include but are not limited to: ■ HOA board meeting minutes ■ Engineer’s reports, ■ Structural and/or mechanical inspection reports, ■ Reserve studies, ■ List of necessary repairs provided by the HOA or management company, ■ List of special assessments provided by the HOA or management company, and/or ■ Other substantially similar documentation This list is not prescriptive or exhaustive. Sellers are responsible for determining which documents they need to review to ensure compliance with this requirement. (o) Project with an evacuation order A project with an evacuation order due to an unsafe condition, either for a partial or total evacuation of the project’s building(s), is ineligible until the unsafe condition has been remediated and the building(s) is safe for occupancy. (p) Projects terminating or involved in insolvency proceedings Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-23 A project must not be the subject of any action that would cause the project to cease to exist, including termination, deconversion or dissolution of the project’s legal structure. In addition, a project must not be the subject of a voluntary or involuntary bankruptcy, insolvency, liquidation or receivership proceeding or any substantially similar action under State or federal law. This includes a project that has voted or is in the process of voting on any of the actions or proceedings described above.

Source: Freddie Mac Single-Family Seller/Servicer Guide Section 5701.3 — Ineligible projects · source URL · snapshot 5869ee9e606cd4ae