source:
  type: guide
  id: fhlmc-5701.6
  authority: Freddie Mac Single-Family Seller/Servicer Guide Section 5701.6 — New
    Condominium Projects
  description: Freddie Mac Single-Family Seller/Servicer Guide Section 5701.6 — New
    Condominium Projects.
  coverage_tier: operative
obligations:
- id: fhlmc-5701.6-full
  canonical_id: fhlmc-5701.6-full
  section: Freddie Mac Single-Family Seller/Servicer Guide Section 5701.6 — New Condominium
    Projects
  type: do
  tags:
  - regulator-direct
  - fhlmc
  - freddie-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Freddie Mac Single-Family Seller/Servicer Guide Section 5701.6 — New
      Condominium Projects
    source_class: fhlmc-guide
    source_url: https://guide.freddiemac.com/ci-guide
    snapshot_id: 5869ee9e606cd4ae
    fetched_at: '2026-05-23T00:27:40Z'
    content_hash: sha256:9a1b23e5024bb369e7a59d36b3702383c11ace68b5d209fdef791bc8f955c637
    paragraph_quote: '5701.6: New Condominium Projects (05/06/26) This section contains:
      Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26
      Page 5701-35 ■ Project completion requirements ■ Owner-occupancy requirements
      for New Condominium Projects ■ Project budget requirement for New Condominium
      Projects ■ Delinquent assessments for New Condominium Projects ■ Compliance
      with laws ■ Limitations on ability to sell/right of first refusal ■ Conversions
      ■ Mortgagee consent ■ Rights of Condominium mortgagees and guarantors ■ First
      mortgagee’s rights confirmed ■ Requirements when a Seller relies on a project
      reserve study for New Condominium Projects ■ Requirements when a Seller relies
      on contributions to a working capital fund for New Condominium Projects ■ New
      Condominium Project sold with excessive Seller contributions To be eligible
      for the New Condominium Projects review type, the Condominium Project must meet
      the definition of a New Condominium Project. In addition to the project review
      and eligibility requirements in Section 5701.2, Mortgages secured by Condominium
      Units in New Condominium Projects must comply with all of the following requirements:
      (a) Project completion requirements The subject legal phase (or the subject
      building) and any prior legal phases in which units have been offered for sale
      must be substantially complete. “Substantially complete” indicates that the
      Common Elements are complete and the units are complete subject to the selection
      of buyer preference items. For the purpose of determining project completion
      under this Section 5701.6, a single building can only have one legal phase,
      regardless of whether the Condominium Project is comprised solely of that single
      building or multiple buildings. Legal phases are defined by Freddie Mac Single-Family
      Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-36 the Project Documents.
      Construction or marketing phases developed for the convenience of the developer
      are not necessarily legal phases and are not eligible. (b) Owner-occupancy requirements
      for New Condominium Projects At least 50% of the total units in the project
      (or at least 50% of the sum of the subject legal phase and prior legal phases)
      must have been conveyed or must be under contract to purchasers who will occupy
      the units as their Primary Residences or second homes. For the purpose of calculating
      owner-occupancy under this Section 5701.6, a single building can only have one
      legal phase, regardless of whether the Condominium Project is comprised solely
      of that single building or multiple buildings. Legal phases are defined by the
      Project Documents. Construction or marketing phases developed for the convenience
      of the developer are not necessarily legal phases and are not eligible. (c)
      Project budget requirement for New Condominium Projects The project’s budget
      for the current fiscal year must comply with the following: 1. The Homeowners
      Association’s (HOA’s) assessments must begin once the developer has ceased to
      pay operating expenses attributable to the Condominium Project, whether or not
      all units have been sold. When any unit owner other than the developer pays
      assessments, the developer must pay the assessments attributable to the unsold
      units. 2. The project’s budget (or its projected budget if the project has not
      been turned over to the unit owners) must be consistent with the nature of the
      project 3. Appropriate assessments must be established to manage the project
      4. There must be appropriate allocations for line items pertinent to the type
      and status of the Condominium Project 5. If the project was recently converted,
      the developer must have initially funded a working capital fund, through contributions
      made by the developer and/or purchasers of the Condominium Units, in an amount
      consistent with the estimated remaining life of the Common Elements 6. There
      must be adequate funding for insurance deductible amounts 7. At least 10% of
      the budget must provide funding for replacement reserves for capital expenditures
      and deferred maintenance based on the project’s age, estimated remaining life
      and replacement cost of major Common Elements Calculation of replacement reserve
      percentage Formula Exclusions Freddie Mac Single-Family Seller/Servicer Guide
      Chapter 5701 As of 05/06/26 Page 5701-37 The replacement reserve percentage
      is determined by dividing: (i) the annual budgeted replacement reserve allocation
      by (ii) the HOA’s annual budgeted assessment income (including regular common
      expense fees) The calculation may exclude: i. Special assessment income ii.
      Income allocated to or in reserve accounts iii. Incidental income not relied
      upon for maintenance operations or capital improvements; and iv. Amounts collected
      from unit owners (but usually paid individually by them) for items or utilities
      such as internet access 8. If the budget does not provide a replacement reserve
      of at least 10%, a Seller may rely on either: i. A reserve study, provided the
      conditions in Section 5701.6(k) below are met; or ii. Contributions to a working
      capital fund, provided the conditions in Section 5701.6(l) below are met. These
      contributions can be in addition to or in lieu of any working capital fund contributions
      made by the developer in the case of a recently converted project. 9. An HOA
      must not receive more than 10% of its budgeted income from the rental or leasing
      of commercial parking facilities (d) Delinquent assessments for New Condominium
      Projects (i) HOA assessments No more than 15% of the total number of units in
      a project are 60 or more days delinquent in the payment of their HOA assessments.
      (ii) Special assessments No more than 15% of the total number of units in a
      project are 60 or more days delinquent in the payment of each special assessment.
      (e) Compliance with laws The Condominium Project has been created and exists
      in full compliance with the applicable State law, the requirements of the jurisdiction
      in which the Condominium Project is located, and with all other applicable laws
      and regulations governing creation of the Condominium Project. Freddie Mac Single-Family
      Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-38 (f) Limitations
      on ability to sell/right of first refusal Any right of first refusal in the
      Project Documents will not adversely impact the rights of a mortgagee or its
      assignee to: ■ Foreclose or take title to a Condominium Unit pursuant to the
      remedies in the Mortgage ■ Accept a deed or assignment in lieu of foreclosure
      in the event of default by a mortgagor; or ■ Sell or lease a unit acquired by
      the mortgagee or its assignee (g) Conversions For a Condominium Project that
      was created by conversion of a building(s) with a prior use, the following requirements
      must be met for the Seller’s review and determination of project eligibility:
      1. For a conversion involving a Non-Gut Rehabilitation of a prior use of the
      building that was legally created within the past three years, the engineer’s
      report (or functionally equivalent documentation for jurisdictions that do not
      require an engineer’s report) must state: ■ That the project is structurally
      sound ■ The condition and remaining useful life of the major project components
      are sufficient to meet the residential needs of the project; and ■ That there
      is no evidence that any of these conditions have not been met Note: Major components
      include the roof, elevators and mechanical systems such as HVAC, plumbing and
      electricity. 2. All rehabilitation work involved in the conversion (Non-Gut
      Rehabilitation and Gut Rehabilitation) must be completed in a professional manner
      3. A review of the engineer’s report (or functionally equivalent documentation)
      is not required for conversions involving: ■ A Gut Rehabilitation, and ■ A Non-Gut
      Rehabilitation if more than three years have elapsed since the legal creation
      of the project Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701
      As of 05/06/26 Page 5701-39 (h) Mortgagee consent 1. The Project Documents or
      applicable State law must provide that amendments of a material adverse nature
      to First Lien mortgagees be agreed to by mortgagees that represent at least
      51% of the unit votes (based on one vote for each first Mortgage owned) subject
      to First Lien Mortgages 2. The Project Documents or applicable State law must
      provide that any action to terminate the legal status of the project or to use
      insurance proceeds for any purpose other than to rebuild must be agreed to by
      First Lien mortgagees that represent at least 51% of the unit votes (based on
      one vote for each first Mortgage owned) that are subject to First Lien Mortgages
      3. The Project Documents may allow implied approval to be assumed when the then
      current mortgagee of record fails to submit a response to any written proposal
      for an amendment within 60 days after the then current mortgagee of record actually
      receives proper notice of the proposal, provided the notice was delivered by
      certified or registered mail, with a “return receipt” requested (i) Rights of
      Condominium mortgagees and guarantors The Project Documents, applicable State
      law, or any applicable insurance policy must give the mortgagee and guarantor
      of the Mortgage on any unit in a Condominium Project the right to timely written
      notice of: 1. Any condemnation or casualty loss that affects either a material
      portion of the Condominium Project or the unit securing its Mortgage 2. Any
      60-day Delinquency in the payment of assessments or charges owed by the owner
      of any unit for which it holds the Mortgage 3. A lapse, cancelation, or material
      reduction of any insurance policy maintained by the HOA 4. Any proposed action
      that requires the consent of a specified percentage of mortgagees (j) First
      mortgagee’s rights confirmed The Project Documents must not give a Condominium
      Unit owner or any other party priority over any rights of the first mortgagee
      of the Condominium Unit pursuant to its Mortgage in the case of payment to the
      unit owner of proceeds from termination, or insurance proceeds or condemnation
      awards for losses to or a taking of Condominium Units and/or Common Elements.
      Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26
      Page 5701-40 (k) Requirements when a Seller relies on a project reserve study
      for New Condominium Projects The reserve study must comply with the following
      requirements: 1. The reserve study generally must include: ■ An inventory of
      major components of the project ■ Financial analysis and evaluation of current
      reserve fund adequacy; and ■ Proposed annual reserve funding plan 2. A reserve
      study’s financial analysis must validate that the project has appropriately
      allocated the recommended reserve funds to provide the Condominium Project with
      sufficient financial protection comparable to Freddie Mac’s standard budget
      requirements for replacement reserves 3. The reserve study’s annual reserve
      funding plan, which details total costs identified for replacement components,
      must meet or exceed the study’s recommendation and conclusion 4. The most current
      reserve study (or update) must be dated within 36 months of the Seller’s determination
      that a Condominium Project is eligible (see Section 5701.2(a)(2)) 5. The reserve
      study must be prepared by an independent expert skilled in performing such studies
      (such as a reserve study professional, a construction engineer, a certified
      public accountant who specializes in reserve studies, or any professional with
      demonstrated experience and knowledge in completing reserve studies) 6. The
      reserve study must meet or exceed requirements set forth in any applicable state
      statutes 7. The reserve study must comment favorably on the project’s age, estimated
      remaining life, structural integrity and the replacement of major components
      If the Seller relies on a reserve study that meets the requirements of this
      section, the project’s budget must contain appropriate allocations to support
      the costs identified in the study. The Seller must obtain and retain in the
      Mortgage file a copy of the reserve study. The Seller must also perform an analysis
      of the study and retain this analysis in the Mortgage file. (l) Requirements
      when a Seller relies on contributions to a working capital fund for New Condominium
      Projects Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of
      05/06/26 Page 5701-41 When a Seller relies on contributions to a working capital
      fund, the following requirements must be met: 1. The Project Documents must
      require the purchaser of a Condominium Unit to pay a non- refundable and non-transferable
      assessment to a working capital fund which must be established for the periodic
      maintenance, repair and replacement of the Common Elements 2. The assessment
      must be equal to a minimum of at least two months of the HOA fees attributable
      to the Condominium Unit and be due and payable at closing 3. The developer is
      in control of the HOA (m)New Condominium Project sold with excessive Seller
      contributions If a builder, developer or property seller offers financing or
      sale arrangements (such as rent- backs, payments of principal, interest, taxes
      and insurance) for Condominium Unit Mortgages in a New Condominium Project these
      contributions must comply with the interested party contribution requirements
      of Section 5501.6. Note: If the requirements for New Condominium Projects in
      this Section 5701.6 are met, then the Seller is not required to comply with
      the requirements for any of the other project review types in Sections 5701.4
      (Streamlined review), 5701.5 (Established Condominium Project reviews), 5701.7
      (Exempt from review) and 5701.9 (Reciprocal project reviews). 5701.6: New Condominium
      Projects (Future effective date 08/03/26) Effective for Mortgages with Application
      Received Dates on or after August 3, 2026. This section contains: ■ Project
      completion requirements ■ Owner-occupancy requirements for New Condominium Projects
      ■ Project budget requirement for New Condominium Projects ■ Delinquent assessments
      for New Condominium Projects ■ Compliance with laws ■ Limitations on ability
      to sell/right of first refusal Freddie Mac Single-Family Seller/Servicer Guide
      Chapter 5701 As of 05/06/26 Page 5701-42 ■ Conversions ■ Mortgagee consent ■
      Rights of Condominium mortgagees and guarantors ■ First mortgagee’s rights confirmed
      ■ Requirements when a Seller relies on a project reserve study for New Condominium
      Projects ■ Requirements when a Seller relies on contributions to a working capital
      fund for New Condominium Projects ■ New Condominium Project sold with excessive
      Seller contributions To be eligible for the New Condominium Projects review
      type, the Condominium Project must meet the definition of a New Condominium
      Project. In addition to the project review and eligibility requirements in Section
      5701.2, Mortgages secured by Condominium Units in New Condominium Projects must
      comply with all of the following requirements: (a) Project completion requirements
      The subject legal phase (or the subject building) and any prior legal phases
      in which units have been offered for sale must be substantially complete. “Substantially
      complete” indicates that the Common Elements are complete and the units are
      complete subject to the selection of buyer preference items. For the purpose
      of determining project completion under this Section 5701.6, a single building
      can only have one legal phase, regardless of whether the Condominium Project
      is comprised solely of that single building or multiple buildings. Legal phases
      are defined by the Project Documents. Construction or marketing phases developed
      for the convenience of the developer are not necessarily legal phases and are
      not eligible. (b) Owner-occupancy requirements for New Condominium Projects
      At least 50% of the total units in the project (or at least 50% of the sum of
      the subject legal phase and prior legal phases) must have been conveyed or must
      be under contract to purchasers who will occupy the units as their Primary Residences
      or second homes. For the purpose of calculating owner-occupancy under this Section
      5701.6, a single building can only have one legal phase, regardless of whether
      the Condominium Project is comprised solely of that single building or multiple
      buildings. Legal phases are defined by the Project Documents. Construction or
      marketing phases developed for the convenience of the developer are not necessarily
      legal phases and are not eligible. Freddie Mac Single-Family Seller/Servicer
      Guide Chapter 5701 As of 05/06/26 Page 5701-43 (c) Project budget requirement
      for New Condominium Projects The project’s budget for the current fiscal year
      must comply with the following: 1. The Homeowners Association’s (HOA’s) assessments
      must begin once the developer has ceased to pay operating expenses attributable
      to the Condominium Project, whether or not all units have been sold. When any
      unit owner other than the developer pays assessments, the developer must pay
      the assessments attributable to the unsold units. 2. The project’s budget (or
      its projected budget if the project has not been turned over to the unit owners)
      must be consistent with the nature of the project 3. Appropriate assessments
      must be established to manage the project 4. There must be appropriate allocations
      for line items pertinent to the type and status of the Condominium Project 5.
      If the project was recently converted, the developer must have initially funded
      a working capital fund, through contributions made by the developer and/or purchasers
      of the Condominium Units, in an amount consistent with the estimated remaining
      life of the Common Elements 6. There must be adequate funding for insurance
      deductible amounts 7. At least 10% of the budget must provide funding for replacement
      reserves for capital expenditures and deferred maintenance based on the project’s
      age, estimated remaining life and replacement cost of major Common Elements
      Calculation of replacement reserve percentage Formula Exclusions The replacement
      reserve percentage is determined by dividing: (i) the annual budgeted replacement
      reserve allocation by (ii) the HOA’s annual budgeted assessment income (including
      regular common expense fees) The calculation may exclude: i. Special assessment
      income ii. Income allocated to or in reserve accounts iii. Incidental income
      not relied upon for maintenance operations or capital improvements; and iv.
      Amounts collected from unit owners (but usually paid individually by them) for
      items or utilities such as internet access Freddie Mac Single-Family Seller/Servicer
      Guide Chapter 5701 As of 05/06/26 Page 5701-44 8. If the budget does not provide
      a replacement reserve of at least 10%, a Seller may rely on either: i. A reserve
      study, provided the conditions in Section 5701.6(k) below are met; or ii. Contributions
      to a working capital fund, provided the conditions in Section 5701.6(l) below
      are met. These contributions can be in addition to or in lieu of any working
      capital fund contributions made by the developer in the case of a recently converted
      project. 9. An HOA must not receive more than 10% of its budgeted income from
      the rental or leasing of commercial parking facilities (d) Delinquent assessments
      for New Condominium Projects (i) HOA assessments No more than 15% of the total
      number of units in a project are 60 or more days delinquent in the payment of
      their HOA assessments. (ii) Special assessments No more than 15% of the total
      number of units in a project are 60 or more days delinquent in the payment of
      each special assessment. (e) Compliance with laws The Condominium Project has
      been created and exists in full compliance with the applicable State law, the
      requirements of the jurisdiction in which the Condominium Project is located,
      and with all other applicable laws and regulations governing creation of the
      Condominium Project. (f) Limitations on ability to sell/right of first refusal
      Any right of first refusal in the Project Documents will not adversely impact
      the rights of a mortgagee or its assignee to: ■ Foreclose or take title to a
      Condominium Unit pursuant to the remedies in the Mortgage ■ Accept a deed or
      assignment in lieu of foreclosure in the event of default by a mortgagor; or
      ■ Sell or lease a unit acquired by the mortgagee or its assignee Freddie Mac
      Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-45
      (g) Conversions For a Condominium Project that was created by conversion of
      a building(s) with a prior use, the following requirements must be met for the
      Seller’s review and determination of project eligibility: 1. For a conversion
      involving a Non-Gut Rehabilitation of a prior use of the building that was legally
      created within the past three years, the engineer’s report (or functionally
      equivalent documentation for jurisdictions that do not require an engineer’s
      report) must state: ■ That the project is structurally sound ■ The condition
      and remaining useful life of the major project components are sufficient to
      meet the residential needs of the project; and ■ That there is no evidence that
      any of these conditions have not been met Note: Major components include the
      roof, elevators and mechanical systems such as HVAC, plumbing and electricity.
      2. All rehabilitation work involved in the conversion (Non-Gut Rehabilitation
      and Gut Rehabilitation) must be completed in a professional manner 3. A review
      of the engineer’s report (or functionally equivalent documentation) is not required
      for conversions involving: ■ A Gut Rehabilitation, and ■ A Non-Gut Rehabilitation
      if more than three years have elapsed since the legal creation of the project
      (h) Mortgagee consent 1. The Project Documents or applicable State law must
      provide that amendments of a material adverse nature to First Lien mortgagees
      be agreed to by mortgagees that represent at least 51% of the unit votes (based
      on one vote for each first Mortgage owned) subject to First Lien Mortgages 2.
      The Project Documents or applicable State law must provide that any action to
      terminate the legal status of the project or to use insurance proceeds for any
      purpose other than to rebuild must be agreed to by First Lien mortgagees that
      represent at least 51% of the unit votes (based on one vote for each first Mortgage
      owned) that are subject to First Lien Mortgages Freddie Mac Single-Family Seller/Servicer
      Guide Chapter 5701 As of 05/06/26 Page 5701-46 3. The Project Documents may
      allow implied approval to be assumed when the then current mortgagee of record
      fails to submit a response to any written proposal for an amendment within 60
      days after the then current mortgagee of record actually receives proper notice
      of the proposal, provided the notice was delivered by certified or registered
      mail, with a “return receipt” requested (i) Rights of Condominium mortgagees
      and guarantors The Project Documents, applicable State law, or any applicable
      insurance policy must give the mortgagee and guarantor of the Mortgage on any
      unit in a Condominium Project the right to timely written notice of: 1. Any
      condemnation or casualty loss that affects either a material portion of the
      Condominium Project or the unit securing its Mortgage 2. Any 60-day Delinquency
      in the payment of assessments or charges owed by the owner of any unit for which
      it holds the Mortgage 3. A lapse, cancelation, or material reduction of any
      insurance policy maintained by the HOA 4. Any proposed action that requires
      the consent of a specified percentage of mortgagees (j) First mortgagee’s rights
      confirmed The Project Documents must not give a Condominium Unit owner or any
      other party priority over any rights of the first mortgagee of the Condominium
      Unit pursuant to its Mortgage in the case of payment to the unit owner of proceeds
      from termination, or insurance proceeds or condemnation awards for losses to
      or a taking of Condominium Units and/or Common Elements. (k) Requirements when
      a Seller relies on a project reserve study for New Condominium Projects The
      reserve study must comply with the following requirements: 1. The reserve study
      generally must include: ■ An inventory of major components of the project ■
      Financial analysis and evaluation of current reserve fund adequacy; and ■ Proposed
      annual reserve funding plan 2. A reserve study’s financial analysis must validate
      that the project has appropriately allocated the recommended reserve funds to
      provide the Condominium Project with Freddie Mac Single-Family Seller/Servicer
      Guide Chapter 5701 As of 05/06/26 Page 5701-47 sufficient financial protection
      comparable to Freddie Mac’s standard budget requirements for replacement reserves
      3. The reserve study’s annual reserve funding plan, which details total costs
      identified for replacement components, must meet or exceed the study’s recommendation
      and conclusion 4. The most current reserve study (or update) must be dated within
      36 months of the Seller’s determination that a Condominium Project is eligible
      (see Section 5701.2(a)(2)) 5. The reserve study must be prepared by an independent
      expert skilled in performing such studies (such as a reserve study professional,
      a construction engineer, a certified public accountant who specializes in reserve
      studies, or any professional with demonstrated experience and knowledge in completing
      reserve studies) 6. The reserve study must meet or exceed requirements set forth
      in any applicable state statutes 7. The reserve study must comment favorably
      on the project’s age, estimated remaining life, structural integrity and the
      replacement of major components If the Seller relies on a reserve study that
      meets the requirements of this section, the project’s budget must contain the
      highest recommended reserve allocation amount in the study to support the costs
      identified in the study. Reserve studies that establish a reserve funding goal
      that allows the reserve cash balance to approach but never fall below zero during
      the cash flow projection, referred to as baseline funding method, must not be
      used to waive the 10% reserve requirement. The Seller must obtain and retain
      in the Mortgage file a copy of the reserve study. The Seller must also perform
      an analysis of the study and retain this analysis in the Mortgage file. (l)
      Requirements when a Seller relies on contributions to a working capital fund
      for New Condominium Projects When a Seller relies on contributions to a working
      capital fund, the following requirements must be met: 1. The Project Documents
      must require the purchaser of a Condominium Unit to pay a non- refundable and
      non-transferable assessment to a working capital fund which must be established
      for the periodic maintenance, repair and replacement of the Common Elements
      2. The assessment must be equal to a minimum of at least two months of the HOA
      fees attributable to the Condominium Unit and be due and payable at closing
      3. The developer is in control of the HOA Freddie Mac Single-Family Seller/Servicer
      Guide Chapter 5701 As of 05/06/26 Page 5701-48 (m)New Condominium Project sold
      with excessive Seller contributions If a builder, developer or property seller
      offers financing or sale arrangements (such as rent- backs, payments of principal,
      interest, taxes and insurance) for Condominium Unit Mortgages in a New Condominium
      Project these contributions must comply with the interested party contribution
      requirements of Section 5501.6. Note: If the requirements for New Condominium
      Projects in this Section 5701.6 are met, then the Seller is not required to
      comply with the requirements for any of the other project review types in Sections
      5701.5 (Established Condominium Project reviews), 5701.7 (Exempt from review)
      and 5701.9 (Reciprocal project reviews). 5701.6: New Condominium Projects (Future
      effective date 01/04/27) Effective for Mortgages with Application Received Dates
      on or after January 4, 2027. This section contains: ■ Project completion requirements
      ■ Owner-occupancy requirements for New Condominium Projects ■ Project budget
      requirement for New Condominium Projects ■ Delinquent assessments for New Condominium
      Projects ■ Compliance with laws ■ Limitations on ability to sell/right of first
      refusal ■ Conversions ■ Mortgagee consent ■ Rights of Condominium mortgagees
      and guarantors ■ First mortgagee’s rights confirmed ■ Requirements when a Seller
      relies on a project reserve study for New Condominium Projects ■ Requirements
      when a Seller relies on contributions to a working capital fund for New Condominium
      Projects Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of
      05/06/26 Page 5701-49 ■ New Condominium Project sold with excessive Seller contributions
      To be eligible for the New Condominium Projects review type, the Condominium
      Project must meet the definition of a New Condominium Project. In addition to
      the project review and eligibility requirements in Section 5701.2, Mortgages
      secured by Condominium Units in New Condominium Projects must comply with all
      of the following requirements: (a) Project completion requirements The subject
      legal phase (or the subject building) and any prior legal phases in which units
      have been offered for sale must be substantially complete. “Substantially complete”
      indicates that the Common Elements are complete and the units are complete subject
      to the selection of buyer preference items. For the purpose of determining project
      completion under this Section 5701.6, a single building can only have one legal
      phase, regardless of whether the Condominium Project is comprised solely of
      that single building or multiple buildings. Legal phases are defined by the
      Project Documents. Construction or marketing phases developed for the convenience
      of the developer are not necessarily legal phases and are not eligible. (b)
      Owner-occupancy requirements for New Condominium Projects At least 50% of the
      total units in the project (or at least 50% of the sum of the subject legal
      phase and prior legal phases) must have been conveyed or must be under contract
      to purchasers who will occupy the units as their Primary Residences or second
      homes. For the purpose of calculating owner-occupancy under this Section 5701.6,
      a single building can only have one legal phase, regardless of whether the Condominium
      Project is comprised solely of that single building or multiple buildings. Legal
      phases are defined by the Project Documents. Construction or marketing phases
      developed for the convenience of the developer are not necessarily legal phases
      and are not eligible. (c) Project budget requirement for New Condominium Projects
      The project’s budget for the current fiscal year must comply with the following:
      1. The Homeowners Association’s (HOA’s) assessments must begin once the developer
      has ceased to pay operating expenses attributable to the Condominium Project,
      whether or not all units have been sold. When any unit owner other than the
      developer pays assessments, the developer must pay the assessments attributable
      to the unsold units. 2. The project’s budget (or its projected budget if the
      project has not been turned over to the unit owners) must be consistent with
      the nature of the project Freddie Mac Single-Family Seller/Servicer Guide Chapter
      5701 As of 05/06/26 Page 5701-50 3. Appropriate assessments must be established
      to manage the project 4. There must be appropriate allocations for line items
      pertinent to the type and status of the Condominium Project 5. If the project
      was recently converted, the developer must have initially funded a working capital
      fund, through contributions made by the developer and/or purchasers of the Condominium
      Units, in an amount consistent with the estimated remaining life of the Common
      Elements 6. There must be adequate funding for insurance deductible amounts
      7. At least 15% of the budget must provide funding for replacement reserves
      for capital expenditures and deferred maintenance based on the project’s age,
      estimated remaining life and replacement cost of major Common Elements Calculation
      of replacement reserve percentage Formula Exclusions The replacement reserve
      percentage is determined by dividing: (i) the annual budgeted replacement reserve
      allocation by (ii) the HOA’s annual budgeted assessment income (including regular
      common expense fees) The calculation may exclude: i. Special assessment income
      ii. Income allocated to or in reserve accounts iii. Incidental income not relied
      upon for maintenance operations or capital improvements; and iv. Amounts collected
      from unit owners (but usually paid individually by them) for items or utilities
      such as internet access 8. If the budget does not provide a replacement reserve
      of at least 15%, a Seller may rely on either: i. A reserve study, provided the
      conditions in Section 5701.6(k) below are met; or ii. Contributions to a working
      capital fund, provided the conditions in Section 5701.6(l) below are met. These
      contributions can be in addition to or in lieu of any working capital fund contributions
      made by the developer in the case of a recently converted project. Freddie Mac
      Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-51
      9. An HOA must not receive more than 10% of its budgeted income from the rental
      or leasing of commercial parking facilities (d) Delinquent assessments for New
      Condominium Projects (i) HOA assessments No more than 15% of the total number
      of units in a project are 60 or more days delinquent in the payment of their
      HOA assessments. (ii) Special assessments No more than 15% of the total number
      of units in a project are 60 or more days delinquent in the payment of each
      special assessment. (e) Compliance with laws The Condominium Project has been
      created and exists in full compliance with the applicable State law, the requirements
      of the jurisdiction in which the Condominium Project is located, and with all
      other applicable laws and regulations governing creation of the Condominium
      Project. (f) Limitations on ability to sell/right of first refusal Any right
      of first refusal in the Project Documents will not adversely impact the rights
      of a mortgagee or its assignee to: ■ Foreclose or take title to a Condominium
      Unit pursuant to the remedies in the Mortgage ■ Accept a deed or assignment
      in lieu of foreclosure in the event of default by a mortgagor; or ■ Sell or
      lease a unit acquired by the mortgagee or its assignee (g) Conversions For a
      Condominium Project that was created by conversion of a building(s) with a prior
      use, the following requirements must be met for the Seller’s review and determination
      of project eligibility: 1. For a conversion involving a Non-Gut Rehabilitation
      of a prior use of the building that was legally created within the past three
      years, the engineer’s report (or functionally equivalent documentation for jurisdictions
      that do not require an engineer’s report) must state: ■ That the project is
      structurally sound Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701
      As of 05/06/26 Page 5701-52 ■ The condition and remaining useful life of the
      major project components are sufficient to meet the residential needs of the
      project; and ■ That there is no evidence that any of these conditions have not
      been met Note: Major components include the roof, elevators and mechanical systems
      such as HVAC, plumbing and electricity. 2. All rehabilitation work involved
      in the conversion (Non-Gut Rehabilitation and Gut Rehabilitation) must be completed
      in a professional manner 3. A review of the engineer’s report (or functionally
      equivalent documentation) is not required for conversions involving: ■ A Gut
      Rehabilitation, and ■ A Non-Gut Rehabilitation if more than three years have
      elapsed since the legal creation of the project (h) Mortgagee consent 1. The
      Project Documents or applicable State law must provide that amendments of a
      material adverse nature to First Lien mortgagees be agreed to by mortgagees
      that represent at least 51% of the unit votes (based on one vote for each first
      Mortgage owned) subject to First Lien Mortgages 2. The Project Documents or
      applicable State law must provide that any action to terminate the legal status
      of the project or to use insurance proceeds for any purpose other than to rebuild
      must be agreed to by First Lien mortgagees that represent at least 51% of the
      unit votes (based on one vote for each first Mortgage owned) that are subject
      to First Lien Mortgages 3. The Project Documents may allow implied approval
      to be assumed when the then current mortgagee of record fails to submit a response
      to any written proposal for an amendment within 60 days after the then current
      mortgagee of record actually receives proper notice of the proposal, provided
      the notice was delivered by certified or registered mail, with a “return receipt”
      requested (i) Rights of Condominium mortgagees and guarantors The Project Documents,
      applicable State law, or any applicable insurance policy must give the mortgagee
      and guarantor of the Mortgage on any unit in a Condominium Project the right
      to timely written notice of: Freddie Mac Single-Family Seller/Servicer Guide
      Chapter 5701 As of 05/06/26 Page 5701-53 1. Any condemnation or casualty loss
      that affects either a material portion of the Condominium Project or the unit
      securing its Mortgage 2. Any 60-day Delinquency in the payment of assessments
      or charges owed by the owner of any unit for which it holds the Mortgage 3.
      A lapse, cancelation, or material reduction of any insurance policy maintained
      by the HOA 4. Any proposed action that requires the consent of a specified percentage
      of mortgagees (j) First mortgagee’s rights confirmed The Project Documents must
      not give a Condominium Unit owner or any other party priority over any rights
      of the first mortgagee of the Condominium Unit pursuant to its Mortgage in the
      case of payment to the unit owner of proceeds from termination, or insurance
      proceeds or condemnation awards for losses to or a taking of Condominium Units
      and/or Common Elements. (k) Requirements when a Seller relies on a project reserve
      study for New Condominium Projects The reserve study must comply with the following
      requirements: 1. The reserve study generally must include: ■ An inventory of
      major components of the project ■ Financial analysis and evaluation of current
      reserve fund adequacy; and ■ Proposed annual reserve funding plan 2. A reserve
      study’s financial analysis must validate that the project has appropriately
      allocated the recommended reserve funds to provide the Condominium Project with
      sufficient financial protection comparable to Freddie Mac’s standard budget
      requirements for replacement reserves 3. The reserve study’s annual reserve
      funding plan, which details total costs identified for replacement components,
      must meet or exceed the study’s recommendation and conclusion 4. The most current
      reserve study (or update) must be dated within 36 months of the Seller’s determination
      that a Condominium Project is eligible (see Section 5701.2(a)(2)) 5. The reserve
      study must be prepared by an independent expert skilled in performing such studies
      (such as a reserve study professional, a construction engineer, a certified
      public Freddie Mac Single-Family Seller/Servicer Guide Chapter 5701 As of 05/06/26
      Page 5701-54 accountant who specializes in reserve studies, or any professional
      with demonstrated experience and knowledge in completing reserve studies) 6.
      The reserve study must meet or exceed requirements set forth in any applicable
      state statutes 7. The reserve study must comment favorably on the project’s
      age, estimated remaining life, structural integrity and the replacement of major
      components If the Seller relies on a reserve study that meets the requirements
      of this section, the project’s budget must contain the highest recommended reserve
      allocation amount in the study to support the costs identified in the study.
      Reserve studies that establish a reserve funding goal that allows the reserve
      cash balance to approach but never fall below zero during the cash flow projection,
      referred to as baseline funding method, must not be used to waive the 15% reserve
      requirement. The Seller must obtain and retain in the Mortgage file a copy of
      the reserve study. The Seller must also perform an analysis of the study and
      retain this analysis in the Mortgage file. (l) Requirements when a Seller relies
      on contributions to a working capital fund for New Condominium Projects When
      a Seller relies on contributions to a working capital fund, the following requirements
      must be met: 1. The Project Documents must require the purchaser of a Condominium
      Unit to pay a non- refundable and non-transferable assessment to a working capital
      fund which must be established for the periodic maintenance, repair and replacement
      of the Common Elements 2. The assessment must be equal to a minimum of at least
      two months of the HOA fees attributable to the Condominium Unit and be due and
      payable at closing 3. The developer is in control of the HOA (m)New Condominium
      Project sold with excessive Seller contributions If a builder, developer or
      property seller offers financing or sale arrangements (such as rent- backs,
      payments of principal, interest, taxes and insurance) for Condominium Unit Mortgages
      in a New Condominium Project these contributions must comply with the interested
      party contribution requirements of Section 5501.6. Note: If the requirements
      for New Condominium Projects in this Section 5701.6 are met, then the Seller
      is not required to comply with the requirements for any of the other project
      review types in Sections 5701.5 (Established Condominium Project reviews), 5701.7
      (Exempt from review) and 5701.9 (Reciprocal project reviews). Freddie Mac Single-Family
      Seller/Servicer Guide Chapter 5701 As of 05/06/26 Page 5701-55'
  judgment: false
