Chapter 1

Attributes and Characteristics

Section 101

Generally

Requirements

For 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. to be eligible for purchase, it must be secured by a multifamily residential property that meets all of the following:

  • contains at least 5 dwelling units;
  • has suitable bathroom and cooking facilities located within each unit;
  • is located in 1 of the 50 states of the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, or Guam;
  • is located on a publicly dedicated, all-weather road, or is accessible by a satisfactory easement from this type of road;
  • consists of either a single parcel or contiguous parcels that adjoin or are separated only by dedicated or private streets;
  • has adequate water and sewer service, which may be delivered by a public utility or, where commercially acceptable for the market area, by a private system or utility;
  • offers a suitable level of utility service (e.g., electrical, natural gas, plumbing, refuse removal, etc.) for the market area;
  • either complies with all applicable statutes, rules, regulations, and housing and building codes, or is being appropriately remediated;
  • does not contain any Modular HousingModular HousingProperty on which the Improvements consist of factory-built housing not built on a permanent chassis, such as modular, prefabricated, panelized, or sectional housing and is not considered manufactured housing.; and
  • has access to police and emergency services.

When a PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). consists of multiple parcels, these parcels must:

  • be operating as a single project;
  • be within the same submarket;
  • not be separated by a major traffic artery; and
  • make available to all tenants the amenities located on any parcel.

Guidance

You should also consider the following when a PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). consists of multiple parcels:

  • Rents at a parcel should not be lower because amenities are located on another parcel.
  • Vacancy levels at a parcel should not be higher because of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).’s configuration.
Section 102

Property Ownership; Leasehold

Requirements

You must ensure that the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is owned in fee simple, unless the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is held under an acceptable LeaseholdLeaseholdProperty held under a long-term lease or Ground Lease. estate.

Section 103

Ground Leased Properties
103.01

Generally

Requirements

If the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is subject to a Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis., you must include the LeaseholdLeaseholdProperty held under a long-term lease or Ground Lease. estate as part of the collateral for 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., unless

  • the ground lessor executes the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. and grants a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on its fee estate, or
  • the absence of the LeaseholdLeaseholdProperty held under a long-term lease or Ground Lease. estate would not have a material adverse effect on the operation or value of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code)..
103.02

Terms
103.02A

Ground Lease Rents

Requirements

You must establish an escrow for ground rents and ensure that the BorrowerBorrowerPerson who is the obligor under the Note. deposits sufficient funds for you to make all payments due under the Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis..

103.02B

Ground Lease Terms

Requirements

When a LeaseholdLeaseholdProperty held under a long-term lease or Ground Lease. estate is included as part of the collateral for 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., you must ensure that the Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. complies with the Ground Lease Review Checklist (Form 6479).

103.03

Ground Lease Estoppel Certificate

Requirements

You must obtain a Ground Lessor Estoppel Certificate that:

  • follows Modifications to Multifamily Loan and Security Agreement (Ground Lease Defaults) (Form 6206); and
  • includes any provisions required by Form 6479 that are not already contained in the Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis..
103.04

Ground Lease Review

Requirements

You must:

  • review and analyze the Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. to ensure compliance with the requirements of this Section; and
  • retain the completed Form 6479 in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender..
Section 104

Minimum Occupancy
104.01

Residential Occupancy

Requirements

You must ensure that the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). meets the following minimum occupancy levels:

  • 85% physical occupancy; and
  • 70% economic occupancy.

These minimum levels apply at the time of the CommitmentCommitmentContractual agreement between Fannie Mae and the Lender where Fannie Mae agrees to buy a Mortgage Loan from the Lender at a future date in exchange for an MBS, or at a specific price for a Cash Mortgage Loan, and the Lender agrees to Deliver that Mortgage Loan to Fannie Mae. and for the preceding 3-month period.

104.02

Qualified Occupants

Requirements

When calculating occupancy, you must only include tenants who

  • have an initial lease with a term of 6 months or more,
  • physically occupy the unit, and
  • are paying rent.

Guidance

You may include any tenant who:

  • was under a standard lease for at least 6 months, then converted to a month-to-month lease when the lease expired; or
  • is under a lease with a term of less than 6 months, if shorter-term leases
    • are commonly accepted in the market area, and
    • do not reflect weakness in the market.

You may include non-revenue producing units such as

  • management units,
  • employee occupied units,
  • maintenance units, and
  • model units.

Such units should not exceed what is usual and customary for stabilized properties in the market.

Section 105

Certificates of Occupancy

Requirements

For any PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). with construction or rehabilitation work completed within the last 12 months, you must:

  • ensure that all units have a certificate of occupancy;
  • obtain copies of all certificates of occupancy from the BorrowerBorrowerPerson who is the obligor under the Note.; and
  • retain them in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender..

For all other PropertiesPropertiesMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code)., you must:

  • determine whether each unit had a certificate of occupancy at some point;
  • attempt to obtain copies of all certificates of occupancy; and
  • retain them in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender..

Guidance

If you are unable to obtain copies of certificates of occupancy for a PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). (for example, because of the age of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). or the records of the jurisdiction where it is located), you should look for other evidence that certificates of occupancy had been issued.

If you cannot obtain a copy or other sufficient evidence of a certificate of occupancy, you should analyze the risk to the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). if one had never been issued, by considering whether:

  • your physical inspection reveals any life safety issues;
  • all units are accessible through normal access routes (and not, for example, through a former janitorial closet);
  • the insurance excludes coverage of a casualty originating from a unit without a certificate of occupancy; and
  • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is located in a market that exhibits low vacancies and barriers to entry.

You should exclude the income generated by any units without a certificate of occupancy but include all expenses (including replacement reserves) for the maintenance of such units.

Section 106

Phased Properties

Requirements

If the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is a Phased PropertyPhased PropertyProperty that is one section of an existing or future complex and the Property is intended to be operated together with another property in the complex, and/or with shared access and amenities., you must evaluate

  • how the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). will be affected by other phases of the complex, and
  • whether the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). will be able to succeed independently from other phases.

Guidance

In determining whether a Phased PropertyPhased PropertyProperty that is one section of an existing or future complex and the Property is intended to be operated together with another property in the complex, and/or with shared access and amenities. is viable as a separate PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code)., you should consider whether:

  • its ownership and operation are separate from all other phases of the complex;
  • the BorrowerBorrowerPerson who is the obligor under the Note. is able to provide a separate leasing office for the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).;
  • your underwriting has discounted any benefits derived from staff or facilities that the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). shares with other phases;
  • the records and accounts used to underwrite the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). are separate from the records and accounts of other phases;
  • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is marketable to tenants or a new owner, separately from other phases;
  • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is visible to the public without passing through another phase of the complex;
  • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is accessible from a public roadway;
  • any cross-easements for the complex will survive an adverse action against another phase; and
  • any development of a future phase could materially interfere with or disturb the occupancy, marketability, or living environment of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code)..

In assessing the impact of future phases on a PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code)., you should consider

  • the short-term impact of construction activity, and
  • long-term implications for the continued economic viability of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code)., taking into account the allocation of costs for shared facilities (such as roadways).

Requirements

You may only DeliverDeliverMeeting all of the data delivery requirements in , and submitting an acceptable Mortgage Loan Delivery Package per Part IV A: Mortgage Loan Commitment, Delivery and Purchase Procedures, Chapter 5.  A Mortgage Loan is “Delivered,” when all documents, data, and information are correct, accurate, and… 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. on a Phased PropertyPhased PropertyProperty that is one section of an existing or future complex and the Property is intended to be operated together with another property in the complex, and/or with shared access and amenities. if Fannie Mae holds all other Mortgage LoansMortgage LoansMortgage 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 other phases of the complex.

When the Phased PropertyPhased PropertyProperty that is one section of an existing or future complex and the Property is intended to be operated together with another property in the complex, and/or with shared access and amenities. is owned or 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 BorrowerBorrowerPerson who is the obligor under the Note. or PrincipalsPrincipalsPerson who owns or controls specified interests in the Borrower per Part I: Mortgage Loan, Section 303. as the other phases in the complex:

  • all Fannie Mae Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. on each phase must be cross-defaulted and cross-collateralized; and
  • 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 have a Prepayment Premium Period End DatePrepayment Premium Period End DateLast date on which a Borrower owes a Prepayment Premium for a voluntary Mortgage Loan prepayment. that is on or before the Prepayment Premium Period End DatePrepayment Premium Period End DateLast date on which a Borrower owes a Prepayment Premium for a voluntary Mortgage Loan prepayment. of the other Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents or a mortgage debt obligation with a Fannie Mae credit enhancement. on the other phases.

Guidance

If a future phase is expected, consider issuing the first phase MBSMBSMortgage-Backed Security with a potential future cross.

Section 107

Commercial Leases
107.01

Material Commercial Leases
107.01A

Lease Review

Requirements

You must analyze all aspects of each Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other… and the tenants.  Tenant refers to each tenant, grantee, or other beneficiary of the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other….

If Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other… approval is required by the terms of Part II, Chapter 1: Attributes and Characteristics, Section 107.01B: Lease Approval you must:

  • prepare a written summary of the material terms of the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other…; and
  • keep a copy of your summary in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender..

Guidance

As you analyze the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other…, you should consider the following questions:

  • Does each tenant have the ability to fulfill its financial and other performance obligations under the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other…?
  • Are the insurance provisions of the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other… consistent with the insurance requirements in the applicable Loan DocumentsLoan DocumentsAll documents evidencing, securing, or guaranteeing the debt obligation executed for a Mortgage Loan and approved by Fannie Mae. or otherwise prescribed by Fannie Mae?
  • Is each tenant required to obtain the Lender'sLender'sPerson approved by Fannie Mae to sell or service Mortgage Loans. consent before making any assignment, sublease, subcontracting, or other transfer of the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other…?
  • Does the tenant have early termination clauses and if so, what are the conditions under which the tenant can terminate?  For example,
    • if there is a material casualty or condemnation, or
    • if the landlord cannot substantially restore the premises in a reasonable period of time following a casualty or condemnation.
107.01B

Lease Approval

Requirements

Material Commercial Lease Type

Lease with Property Assessed Clean Energy (PACE) Financing

You must not approve any Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other… that includes PACE financing.

Other Material Commercial Leases

You must only approve other Material Commercial LeasesMaterial Commercial LeasesLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other… if they comply with Part II, Chapter 1: Attributes and Characteristics, Section 107: Commercial Leases.

Guidance

Material Commercial Lease Type

Solar Power or Other Power Generation Lease

You may underwrite and approve a solar power, thermal power generation, or co-power generation Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other… and any related power purchase agreement.
107.01C

Lease Modifications

Requirements

As you review each Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other… modification, you must consider the following questions:

  • Does it violate any of the requirements of this Section?
  • Does it contain terms that are inconsistent with 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.?
  • Does it present risks that are inappropriate 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.?

If the answer to any of these questions is “yes”, then you must:

  • require the BorrowerBorrowerPerson who is the obligor under the Note. to modify the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other… appropriately; or
  • address the items in the Tenant Estoppel Certificate (Form 6413) and/or the Subordination, Non-Disturbance, and Attornment Agreement (Form 6415).
107.01D

Tenant Estoppel Certificate

Requirements

You must obtain a Tenant Estoppel Certificate (Form 6413) for each Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other….

107.01E

Subordination, Non-Disturbance and Attornment

Requirements

You must:

  • evaluate whether an SNDASNDASubordination, Non-Disturbance and Attornment Agreement (Form 6415) is necessary to provide for subordination and attornment or would be beneficial for other reasons; and
  • use Form 6415 if the Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other… contains provisions for the BorrowerBorrowerPerson who is the obligor under the Note. to assume liability or other risks as landlord that would not be acceptable to the LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. in case of a Foreclosure EventForeclosure EventAny of the following: Foreclosure under the Security Instrument; any other exercise by the Lender of rights and remedies (whether under the Security Instrument or under applicable law, including Insolvency Laws) as holder of the Mortgage Loan and/or the Security Instrument, as a result of….

You must ensure that each Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other… (including any renewal or extension):

  • is subordinate to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents.; and
  • requires the tenant to attorn to the LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. under 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..
107.02

Non-Material Commercial Leases
107.02A

Tenant Estoppel Certificate; Lease Modification

Requirements

You must make reasonable efforts to get a Form 6413 for each non-Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other…, other than leases relating only to equipment or maintenance services.

If a non-Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes that comprises 5% or more of the Property’s annual EGI, or relates to: solar power, thermal power generation, or co-power generation, or for the installation of solar panels or any other… has terms that are inconsistent with the terms of 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. or present inappropriate risks 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., then you must:

  • require the BorrowerBorrowerPerson who is the obligor under the Note. to modify the lease appropriately; or
  • address any inconsistencies or risks in a Form 6413.
107.02B

Non-Material Commercial Lease Types

Requirements

Non-Material Commercial Lease Type

Telecommunications and Cell Tower Leases

You must review any telecommunications and cell tower lease to ensure that it does not:

 

  • comprise more than 5% of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).’s Effective Gross IncomeEffective Gross IncomeOn an annual basis or any specified period, the total of Net Rental Income plus other income per Part II: Property, Section 202 and the applicable products and features in Part III.;
  • negatively impact the value, visibility, livability, or marketability of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).;
  • impose an undue financial or operating burden on the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). or the BorrowerBorrowerPerson who is the obligor under the Note.;
  • obligate the BorrowerBorrowerPerson who is the obligor under the Note. to rebuild any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). following a casualty or condemnation;
  • have a lease term (including extension options) in excess of 25 years;
  • contain a purchase option; or
  • convey any right to the tenant other than simple lessee rights (e.g., a perpetual easement, a purported sale of a portion of the ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code)., unjustified exclusivity, etc.).
Communications Service Agreement

You do not need to subordinate the service agreement to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. if:

 

  • the BorrowerBorrowerPerson who is the obligor under the Note. certifies to you that neither the BorrowerBorrowerPerson who is the obligor under the Note. nor any Key PrincipalKey PrincipalPerson(s) who control and/or manage the Borrower or the Property, are critical to the successful operation and management of the Borrower and the Property, and who may be required to provide a Guaranty. or PrincipalPrincipalPerson who owns or controls specified interests in the Borrower per Part I: Mortgage Loan, Section 303. is an AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… of the communications service provider; and
  • the lease does not contain provisions for the BorrowerBorrowerPerson who is the obligor under the Note. to assume liabilities and risks as landlord that would not be acceptable for you (as lender under 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.) in the context of a Foreclosure EventForeclosure EventAny of the following: Foreclosure under the Security Instrument; any other exercise by the Lender of rights and remedies (whether under the Security Instrument or under applicable law, including Insolvency Laws) as holder of the Mortgage Loan and/or the Security Instrument, as a result of….

If a communications service agreement is accompanied by a lease or easement, then the lease or easement must end automatically when the service agreement expires, unless the service agreement is subordinated to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents..

Mineral Rights; Oil and Natural Gas Leases

You must review each lease of mineral rights or rights relating to subsurface oil and natural gas to ensure that it does not:

 

  • comprise more than 5% of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).’s Effective Gross IncomeEffective Gross IncomeOn an annual basis or any specified period, the total of Net Rental Income plus other income per Part II: Property, Section 202 and the applicable products and features in Part III.;
  • grant surface entry for any purpose (e.g., pipes, access across, or storage on the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).);
  • grant subsurface rights within 250 feet below the surface of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code)., or within 600 feet from any PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). boundary line;
  • have a material adverse effect on public health and safety, air quality or noise levels, or on the marketability or occupancy of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).;
  • permit oil or gas well activities that could have a negative effect on access, visibility, or storm water drainage at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).;
  • have a negative effect on the zoning or allowable density of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).;
  • facilitate drilling, storage, or processing of oil or gas on the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). or any adjacent property; or
  • fail to require the lessee to indemnify and hold harmless the BorrowerBorrowerPerson who is the obligor under the Note., as lessor, for any damage to the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). or any other damage or liability caused directly or indirectly as a result of the lease activities.

Laundry Lease

You do not need to subordinate the lease to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. if you confirm that the lease:

 

  • is not with an AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… of the BorrowerBorrowerPerson who is the obligor under the Note. or any Key PrincipalKey PrincipalPerson(s) who control and/or manage the Borrower or the Property, are critical to the successful operation and management of the Borrower and the Property, and who may be required to provide a Guaranty. or PrincipalPrincipalPerson who owns or controls specified interests in the Borrower per Part I: Mortgage Loan, Section 303.;
  • has market terms;
  • contains an acceptable termination for cause provision; and
  • meets recognized industry standards.

Equipment or Related Maintenance Services Lease

You must ensure that the lease:

 

  • is subordinate to the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents.;
  • contains an acceptable termination for cause provision; and
  • meets recognized industry standards.

Guidance

Non-Material Commercial Lease Type

Storage Unit Lease

You do not need to subordinate the lease to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. if you determine that the unit is being leased pursuant to a residential LeaseLeaseWritten agreement between an owner and the tenant of a Property stipulating the conditions for possession and use of real estate for a specified period of time and rent..
107.03

Short Term Rentals

Requirements

You must ensure that:

  • the residential nature of any PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). with units available for STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… is maintained, even though any LeaseLeaseWritten agreement between an owner and the tenant of a Property stipulating the conditions for possession and use of real estate for a specified period of time and rent. of an STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… unit will be
    • classified as a commercial lease, and
    • subject to the space and income limitations per Form 4660Form 4660Multifamily Underwriting Standards identifying Pre-Review Mortgage Loans and containing the minimum underwriting requirements (e.g., debt service coverage ratio, loan to value ratio, interest only, underwriting floors, etc.) for all Mortgage Loans.;
  • no more than 5% of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).’s units (not counting recreational vehicle sites) are available for STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer…; and
  • the Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 202: Income Analysis and the applicable products and features in Part III. accurately incorporates all STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… income.

You must include the following information in your underwriting analysis:

  • a description of the STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… arrangement;
  • length of time the STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… has been in place;
  • BorrowerBorrowerPerson who is the obligor under the Note.’s action plan for handling liability issues for
    • STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… tenants at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code)., and
    • safety concerns for non-STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… tenants;
  • BorrowerBorrowerPerson who is the obligor under the Note.’s strategy for implementing STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer…;
  • whether the STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… units are furnished or unfurnished;
  • confirmation that the STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… is legally permissible and in compliance with applicable laws and zoning;
  • confirmation that the BorrowerBorrowerPerson who is the obligor under the Note.’s or master tenant’s insurance covers any STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer…; and
  • confirmation that the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is residential in nature (i.e., not operated as a hotel or other single room occupancy arrangement).

Guidance

Examples of an STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… arrangement include an arrangement between the BorrowerBorrowerPerson who is the obligor under the Note. and:

  • a tenant/master tenant, where the tenant/master tenant has an agreement with an STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… provider or platform (such as Airbnb, VRBO®, etc.); or
  • an STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… provider or platform, where the BorrowerBorrowerPerson who is the obligor under the Note.’s tenants may make their units available for STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer….

You should seek to establish a leasing history of at least 12 months for any STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… unit.

Section 108

Property Management and Agreement
108.01

Property Management

Requirements

You must ensure that the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).’s management team is adequate.

 Guidance

Fannie Mae does not require an independent, professional management company.  However, when analyzing PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). management, you should consider whether the management team:

  • has adequate experience to ensure effective administration, leasing, marketing, and maintenance of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).; and
  • is staffed appropriately for the type and size of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). and the services provided.
108.02

Property Management Agreement

Requirements

If the BorrowerBorrowerPerson who is the obligor under the Note. is not the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). manager, you must ensure:

  • that the BorrowerBorrowerPerson who is the obligor under the Note. has a written management agreement with a PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). management company that allows for cancellation by the LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. without penalty or prior notice in case of a BorrowerBorrowerPerson who is the obligor under the Note. default under 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.; or
  • the BorrowerBorrowerPerson who is the obligor under the Note. and PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). manager complete the Assignment of Management Agreement (Form 6405). 

Guidance

You should ensure that the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). management agreement clearly states

  • the responsibilities of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). manager, and
  • the amount of the management fee (or describes the method for determining the fee).