Section 302

Borrower Organizational Structure

302.01

Single-Asset Entity

Requirements

You must ensure:

  • the BorrowerBorrowerPerson who is the obligor per the Note. is a domestic single-asset entity formed for the sole purpose of owning the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
  • if the BorrowerBorrowerPerson who is the obligor per the Note. is ultimately owned by foreign persons or entities, it has at least 1 domestic tier of ownership; and
  • you review
    • the Borrower'sBorrower'sPerson who is the obligor per the Note. complete formation documents, and
    • all amendments or restatements.

Guidance

As you analyze the BorrowerBorrowerPerson who is the obligor per the Note. and its organizational documents to confirm that it has been a single-asset entity since formation, consider the following questions:

  • Can the BorrowerBorrowerPerson who is the obligor per the Note. acquire any additional real property, personal property, or assets?
  • Can the BorrowerBorrowerPerson who is the obligor per the Note. participate in any business other than managing and operating the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ?
  • Are the Borrower’sBorrower’sPerson who is the obligor per the Note. assets or funds commingled with anyone else’s?  If so, can these assets or funds be separated and identified?
  • Are the Borrower’sBorrower’sPerson who is the obligor per the Note. financial statements, accounting records, and other organizational documents maintained with anyone else’s?
  • Has the BorrowerBorrowerPerson who is the obligor per the Note. assumed, guaranteed, or obligated itself to cover anyone else’s liabilities?

Requirements

If the BorrowerBorrowerPerson who is the obligor per the Note. owns more than a single asset, the BorrowerBorrowerPerson who is the obligor per the Note. may still qualify as a single asset entity if you:

  • Obtain an operating statement for each real property owned.
  • Obtain proof that the BorrowerBorrowerPerson who is the obligor per the Note. has no existing debt secured by a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on any of the Borrower’sBorrower’sPerson who is the obligor per the Note. real property, other than a Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. purchased by Fannie Mae.
  • Obtain proof that no direct or indirect equity interest in the BorrowerBorrowerPerson who is the obligor per the Note. is subject to mezzanine financing.
  • Ensure that the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. prohibit the BorrowerBorrowerPerson who is the obligor per the Note. from
    • acquiring any additional debt (except for supplemental debt on existing Fannie Mae loans),
    • increasing any existing debt, or
    • acquiring any additional real property.

Guidance

As you analyze the BorrowerBorrowerPerson who is the obligor per the Note. that owns more than a single asset, you should consider whether its other real estate assets are only

  • multifamily properties, or
  • other types of real estate that do not pose an environmental risk to the BorrowerBorrowerPerson who is the obligor per the Note. .
302.02

Co-Tenant Borrowers

Requirements

You must ensure that any Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. meets these eligibility requirements:

302.02A

Tenancy-in-Common Agreement

Requirements

You must ensure that a validly executed Tenancy-in-Common Agreement is in place prior to or at the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. closing.

You must review the agreement to ensure that:

  • Each co-tenant is bound by the terms of the agreement.
  • The PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has a manager of its day-to-day business and affairs, which can be
    • a single co-tenant (or the Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. of such co-tenant) known as the “co-tenant representative”, or
    • a validly-appointed property manager.
  • Distributions to the co-tenant representative are subordinate to
    • all payments under any Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. secured by a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , and
    • the terms and conditions of any such Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. .

Guidance

As you analyze the Tenancy-in-Common Agreement, consider the following questions.  The term “co-tenant” also includes any Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. who has the rights of the co-tenant.

Representation

  • Have the Co-Tenant BorrowersCo-Tenant BorrowersBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. given the co-tenant representative the power to deal with the LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. through the Tenancy-in-Common Agreement or an irrevocable power-of-attorney?
  • Has each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. waived its right to reside in the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ?

Buy outs

  • Does each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. have buy out rights to any other co-tenant?
  • Is each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. financially able to buy out any other co-tenant?

Communication

  • Does each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. have a name, address, telephone number, and percentage of ownership interest listed?
  • Has each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. agreed to promptly notify all other Co-Tenant BorrowersCo-Tenant BorrowersBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. and you if their address or telephone number changes?
  • Has a single Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. of the co-tenant representative agreed to receive any communication from you on behalf of all Co-Tenant BorrowersCo-Tenant BorrowersBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. ?
302.02B

Key Principal Execution of Guaranty

Requirements

You must ensure that:

  • each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. names at least 1 Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. ; and
  • if a GuarantyGuarantyPayment Guaranty, Non-Recourse Guaranty, or other guaranty by a Guarantor for the Mortgage Loan. is required per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 311: Execution of Non-Recourse Guaranty, a Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. from each Co-Tenant BorrowerCo-Tenant BorrowerBorrower consisting of tenants-in-common that own the Property in equal or unequal shares. must become a GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. and execute either a Non-Recourse GuarantyNon-Recourse GuarantyGuaranty executed by a Key Principal on Form 4501 series or Form 6015 series, or approved by Fannie Mae. or Payment GuarantyPayment GuarantyGuaranty executed by a Key Principal on Form 4502 series or Form 6020 series, or approved by Fannie Mae. .
302.03

Joint and Several Borrowers with Multiple Properties

Requirements

If a Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. not in a Credit FacilityCredit FacilityStructured Transaction governed by a Master Credit Facility Agreement requiring Mortgage Loans and Properties to be cross-defaulted, and cross-collateralized. is secured by multiple PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). and any PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is owned by a different BorrowerBorrowerPerson who is the obligor per the Note. , you must require each BorrowerBorrowerPerson who is the obligor per the Note. to:

  • execute a single set of Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. with joint and several liability for the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. ;
  • comply with the “single purpose entity” requirements per Modifications to Multifamily Loan and Security Agreement (Co-Borrowers) (Form 6274);
  • be owned, directly or indirectly, by the same PersonsPersonsLegal person, including an individual, estate, trust, corporation, partnership, limited liability company, financial institution, joint venture, association, or other organization or entity (whether governmental or private). having the same percentage ownership interests;
  • be ControlledControlledPossessing, directly or indirectly, the power to direct or cause the management and operations of an entity (e.g., through the ownership of voting securities or other ownership interests, or by contract). by the same SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). or Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. ;
  • execute Form 6274, restricting PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). Transfer/AssumptionTransfer/AssumptionTransaction changing the ownership of the Borrower or Property. or release during the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. term;
  • execute an acceptable Contribution Agreement complying with Form 6274; and
  • if separate Security InstrumentsSecurity InstrumentsInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. are recorded to encumber PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). in different counties, execute separate Modifications to Security Instrument (Co-Borrowers) (Form 6322) for each Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. .

Each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). securing the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. must: