Freddie Mac Single-Family Seller/Servicer Guide 5704.1 — Purchase of leasehold Mortgages

Freddie Mac Single-Family Seller/Servicer Guide 5704.1 — Purchase of leasehold Mortgages

Effective 2025-06-04 · Freddie Mac's stamp for this section

This section contains information related to: ■ Terms ■ Leasehold estate eligibility requirements ■ Lease provisions ■ Projects on leasehold estates Freddie Mac will purchase a Mortgage secured by either a leasehold estate or a leasehold estate in a ground lease community where there is a demonstrated market acceptance of this type of property ownership. The Mortgage must be secured by a leasehold interest in the land or ground lease and the property improvements to be a leasehold Mortgage. The following property types are eligible to secure leasehold Mortgages: ■ 1- to 4-unit properties ■ Planned Unit Development (PUD) units ■ Condominium Units Refer to the following Guide provisions for details on: Other Guide provisions related to leasehold mortgages Topic Guide location Community Land Trust Mortgage requirements Manufactured Homes located on leasehold estates HeritageOne® Mortgages, including the special requirements for HeritageOne Mortgages that are leasehold Mortgages in Section 4504.8 (a) Terms As used in this chapter, the following terms have the meanings ascribed to them below: Purchase of leasehold Mortgage terms B Basic rent The amount paid for the use of the leasehold estate under the terms of the lease (or sublease, if applicable). Basic rent does not include: ◼ Taxes ◼ Insurance ◼ Utilities for the leasehold estate or common areas, or ◼ Use fees or operating expenses for the common areas, facilities and services G Ground lease community A planned residential development, including infrastructure, common areas and community facilities for use by the individual lessee, with the following characteristics: ◼ Under the terms of the lease, the individual lessee holds a real property leasehold estate in a parcel of land improved by a dwelling and has an undivided common interest in the infrastructure, common areas and community facilities ◼ The ground lease community is either a PUD or Condominium Project, administered by a homeowners association; or the community is administered by the fee simple land owner/lessor that owns, and is obligated under the lease to maintain, the infrastructure, common areas and community facilities for the common use and benefit of the individual lessees L Leasehold mortgagee The mortgagee that has a lien on the lessee’s (or sublessee’s) leasehold estate, including improvements. (b) Leasehold estate eligibility requirements The Seller must ensure that the following eligibility requirements are met: ■ The leasehold estate and property improvement must: ❑ Constitute real property ❑ Be covered by a title insurance policy that complies with the applicable requirements in Chapter 4702 ■ The lease (and any sublease including all amendments) must be: ❑ Recorded in the appropriate land records ❑ In full force and effect, and ❑ Binding and enforceable against the lessor (and sublessor) ■ The leasehold estate and Mortgage must not be impaired by any merger of the fee interest and leasehold interest in the event the same person or entity acquires both interests ■ The term of the leasehold estate must run for at least five years beyond the maturity date of the Mortgage unless the fee simple title vests at an earlier date ■ All basic rent and amounts due (for taxes, insurance, utilities and use fees or operating expenses) relating to the land and improvements must be current, and the Borrower must not be in default under any provision of the lease, nor may the lessor have claimed such a default ■ The lease must not preclude the Borrower from retaining voting rights in the homeowners association, if applicable ■ All applicable Servicing requirements under the Guide and other Purchase Documents must be met (c) Lease provisions The Seller must ensure that the following lease requirements are met: ■ The lease must permit assignments, transfers, mortgaging and subletting of the leasehold (or subleasehold) estate, including any improvements on the leasehold estate ■ The lease must provide that for a notice of lessee’s default (monetary or non-monetary) to be valid, the lessor must send written notice of the lessee’s default to the leasehold mortgagee not more than 30 days after such default. The lease is not required to include a notice of default provision if the Mortgaged Premises is located in Maryland and applicable State law provides for all lessors to register residential leases with the State and requires the lessor to send written notice of default to the leasehold mortgagee no less than 30 days prior to the lessor filing an action of possession. ■ The lease must provide for the right of the leasehold mortgagee, in its sole discretion, to cure a default for the lessee’s (or sublessee, if applicable) account within the time permitted to lessee or take over the rights under the lease (sublease) ■ The lease cannot contain default provisions allowing forfeiture or termination of the lease for non-monetary default ■ The lease must provide for protection of the mortgagee’s interests, including an insurable interest in the subject property (unless otherwise required by law) and interest in the lease, ground lease community and leasehold estate ■ The lease may, but is not required to, include an option for the Borrower to purchase the fee interest; however, there can be no time limit on when the option must be exercised, and the lease and option to purchase must be assignable (d) Projects on leasehold estates Freddie Mac will purchase a Mortgage secured by a unit in a Condominium Project (see Section 5701.2(b)(3)) or PUD (see Section 5702.1(c)) situated on a leasehold estate if the requirements in this section are met.

Source: Freddie Mac Single-Family Seller/Servicer Guide 5704.1 — Purchase of leasehold Mortgages · source URL · snapshot 4c94f67729042dd6