source:
  type: guide
  id: fnma-sel-b2-3-03
  authority: 'Fannie Mae Selling Guide B2-3-03 — Special Property Eligibility and
    Underwriting Considerations: Leasehold Estates'
  description: 'Fannie Mae Selling Guide B2-3-03 — Special Property Eligibility and
    Underwriting Considerations: Leasehold Estates.'
  coverage_tier: operative
obligations:
- id: fnma-sel-b2-3-03-full
  canonical_id: fnma-sel-b2-3-03-full
  section: 'Fannie Mae Selling Guide B2-3-03 — Special Property Eligibility and Underwriting
    Considerations: Leasehold Estates'
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: 'Fannie Mae Selling Guide B2-3-03 — Special Property Eligibility and
      Underwriting Considerations: Leasehold Estates'
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B2-3-03, Special Property Eligibility and Underwriting Considerations:
      Leasehold Estates (06/04/2025) Introduction This topic contains information
      on leasehold estates, including: Leasehold Estates Deﬁnitions General Requirements
      for Leasehold Mortgages Lease Requirements Borrower''s Option to Purchase Fee
      Interest Exceptions to Leasehold Requirements Uniform Appraisal Dataset (UAD)
      3.6 Policy Leasehold Estates Fannie Mae purchases or securitizes loans that
      are secured by properties subject to leasehold estates in areas in which this
      type of property ownership has received market acceptance. Eligible property
      types are: one- to four-unit properties, condo units, co-op units, PUD units,
      manufactured homes located in a condo or PUD project approved by Fannie Mae''s
      Project Review Eligibility Service (PERS). See B4-2.2-06, Project Eligibility
      Review Service (PERS). A loan secured by a unit in a project that is subject
      to a ground lease is considered a loan secured by a leasehold estate for purposes
      of this topic. For these loans, lenders must also comply with all legal and
      eligibility Published May 6, 2026 251 requirements for condos, co-ops, and PUDs.
      See Chapter B4-2, Project Standards, for additional information. Deﬁnitions
      The following deﬁnitions apply to this topic: A loan secured by a leasehold
      estate is also known as a "leasehold mortgage." The term "lease" includes any
      form of lease or ground lease (for example, a master lease, business lease,
      sublease, or unit lease), together with any addendum, amendment, or rider, or
      a memorandum thereof. The terms "lessor" and "lessee" includes sublessor and
      sublessee. For loans secured by units in projects subject to a ground lease:
      The borrower may also be called the "unit lessee," "unit mortgagor," or "unit
      owner." The "ground lease" may also be called a "land lease" or "underlying
      lease." For co-ops, this topic does not apply to a borrower''s "proprietary
      lease" or "occupancy agreement." For a loan secured by a unit in a project,
      the term "lender" does not refer to the project''s blanket lender or blanket
      mortgagee, if applicable. General Requirements for Leasehold Mortgages The lender
      must comply with all requirements for leasehold mortgages. In addition, the
      lender agrees that in accordance with A2-2-07, Life-of-Loan Representations
      and Warranties, any failure to comply at any time with requirements in this
      topic is a breach of the life-of-loan representations and warranties if it impacts
      ﬁrst-lien enforceability. The following table provides general requirements
      for leasehold mortgages. ✓ Requirements for Leasehold Mortgages The loan must
      be secured by a ﬁrst lien in the property improvements and the borrower''s rights
      in the leasehold interest in the land. For co-op share loans, see B4-2.3-03,
      Legal Requirements for Co-op Projects and B4-2.3-04, Loan Eligibility for Co-op
      Share Loans. Note: For loans sold to Fannie Mae with new leases entered into
      on or after Sept. 01, 2025: The fee estate must not be subject to any prior
      secured loans or other liens, unless the secured party or lienholder has agreed
      to recognize and not disturb the lease if it becomes the owner of the fee estate,
      as evidenced by an agreement recorded in the appropriate land records. The lease
      estate and the improvements must constitute real property and be subject to
      the mortgage lien. For co-op share loans, see B4-2.3-03, Legal Requirements
      for Co-op Projects. Published May 6, 2026 252 ✓ Requirements for Leasehold Mortgages
      The appraisal must meet the requirements in B4-1.4-05, Leasehold Interests Appraisal
      Requirements. The loan must meet the applicable title insurance requirements
      in B7-2-04, Special Title Insurance Coverage Considerations. All rents, other
      payments, or assessments under the lease that have become due must be paid.
      The lease must not be in default under any provision of the lease and the lessor
      must not have claimed any such default. The lease must be recorded in the appropriate
      land records. The lease must be in full force and eﬀect, and enforceable in
      all respects. Lease Requirements The lender must ensure all leases associated
      with the subject property, regardless of the form of the lease (including a
      master lease, sublease, or unit lease) comply with the requirements below. The
      lessee (or sublessee, when applicable) must be the borrower, condo or PUD homeowners''
      association (HOA) or the co-op corporation. For manufactured homes located in
      a condo or PUD project approved by PERS, the HOA must be the lessee without
      any further sublessees. Compliance with these lease requirements may be satisﬁed
      by: separate agreement(s) incorporated into the lease (e.g., addendum, amendment,
      or rider), or the project''s constituent documents (project documents) (e.g.,
      for co-ops, the Recognition Agreement or other agreement). Note: For units in
      projects subject to a ground lease in which the HOA or co-op corporation is
      the lessee, the lender must ensure the lease complies with these lease requirements
      unless the project has been approved by Fannie Mae in Condo Project Manager
      (CPM). Regardless of the lessee, the lender must ensure the terms of the lease
      address all of the following: The lease must have an unexpired term that exceeds
      the maturity date of the loan by ﬁve (5) years or more. The lease must not preclude
      the borrower''s membership or voting rights in the HOA or co-op corporation,
      as applicable. If the loan is secured by a sublease, a default under the master
      lease will not automatically result in the termination of the sublease. Published
      May 6, 2026 253 The following table provides additional lease requirements depending
      on whether the borrower or the HOA or co-op corporation is the lessee. Lease
      Requirements if the Borrower is the Lessee Lease Requirements if the HOA or
      Co-op Corporation is the Lessee The lease must allow the lease for it (including
      the lessee''s option to purchase) to be assigned, transferred, mortgaged, and
      subleased an unlimited number of times either without restriction or on payment
      of a reasonable fee and delivery of reasonable documentation to the lessor.
      The lease must not require a credit review or impose other qualifying criteria
      on any assignee, transferee, mortgagee, or sublessee. The lease may include
      the following restrictions, if applicable: • requirements related to Bureau
      of Indian Aﬀairs (BIA) for leasehold mortgages on tribal lands, including approval
      of BIA and lessor. • limitations in accordance and compliance with .B5-5.2-01,
      Loans With Resale Restrictions: General Information No lease requirements relating
      to assignments, transfers, subleases or mortgages. The lease must provide protection
      of the lender''s ﬁnancial interests in the event of a condemnation or similar
      taking proceeding. Note: If the lease provisions are silent or insuﬃcient, the
      lender may rely on applicable state law or other written agreement that provides
      substantially the same protections. See B4-2.2-03, Full Review: Additional Eligibility
      Requirements for Units in New and Newly Converted Condo Projects and B4-2.3-03,
      Legal Requirements for Co-op Projects. The lease must not include any default
      provisions that could result in forfeiture or termination of the lease, unless
      the lease provides the lender with: • the right to receive notice of any lessee
      default under the lease, and • at least 30 days, at the lender''s option, to
      either cure the default, take over the lessee''s rights under the lease, or
      commence foreclosure. Note: If the property is located in Maryland, it is exempt
      from this requirement if applicable state law provides for the registration
      of residential leases with the state and requires the lessor to send written
      notice of default under the lease to the lender at least 30 days prior to the
      lessor ﬁling an action for possession. The lease or project documents must provide
      that the lender receives notice of any lessee default under the lease not more
      than 30 days after such default, and at least 30 days'' prior notice of termination
      of the ground lease. Published May 6, 2026 254 Lease Requirements if the Borrower
      is the Lessee Lease Requirements if the HOA or Co-op Corporation is the Lessee
      The lease must not include any provisions that allow the leasehold estate to
      be extinguished or otherwise impaired by any merger of title between the lessor
      and lessee without the lender''s prior consent. No lease requirements relating
      to extinguishment or impairment of the lessee''s leasehold estate. Borrower''s
      Option to Purchase Fee Interest The lease may, but is not required to, include
      an option for the borrower to purchase the fee interest in the land. If the
      option is included, the purchase must be at the borrower’s sole option, and
      there can be no time limit within which the option must be exercised. If the
      option to purchase the fee title is exercised, the mortgage must become a lien
      on the fee title with the same degree of priority that it had on the leasehold.
      Both the lease and the option to purchase must be assignable, together, subject
      to permissible restrictions noted above. The following table provides requirements
      for establishing the purchase price of the land. Status of Property Improvements
      Purchase Price of Land Already constructed at the time the lease is executed.
      The initial purchase price should be established as the appraised value of the
      land on the date the lease is executed. Already constructed at the time the
      lease is executed, and the lease is tied to an external index, such as the Consumer
      Price Index (CPI). The initial land rent should be established as a percentage
      of the appraised value of the land on the date that the lease is executed. The
      purchase price may be adjusted annually during the term of the lease to reﬂect
      the percentage increase or decrease in the index from the preceding year. Leases
      may be oﬀered with or without a limitation on increases or decreases in the
      rent payments. Published May 6, 2026 255 Status of Property Improvements Purchase
      Price of Land Will be constructed after the lease is executed. The purchase
      price of the land should be the lower of the following: • the current appraised
      value of the land, or • the amount that results when the percentage of the total
      original appraised value that represented the land alone is applied to the current
      appraised value of the land and improvements. For example, assume that the total
      original appraised value for a property was $160,000, and the land alone was
      valued at $40,000 (thus representing 25% of the total appraised value). If the
      current appraised value is $225,000, $50,000 for land and $175,000 for improvements,
      the purchase price would be $50,000 (the current appraised value of the land,
      because it is less than 25% of $225,000). Note: If the lease is tied to an external
      index, the initial land value may not exceed 40% of the combined appraised value
      of the land and improvements. Exceptions to Leasehold Requirements Leasehold
      estates granted by community land trusts and high LTV reﬁnance loans secured
      by leasehold estates are not subject to the requirements in this topic. See
      B5-5.3-02, Shared Equity Transactions: General Requirements , B5-5.3-03, Shared
      Equity Transactions: Eligibility, Underwriting and Collateral Requirements and
      B5-7-01, High LTV Reﬁnance Loan and Borrower Eligibility for additional information.
      Uniform Appraisal Dataset (UAD) 3.6 Policy Lenders using UAD 3.6 must follow
      the requirements in the UAD 3.6 Policy Supplement. Recent Related Announcements
      The table below provides references to recently issued Announcements that are
      related to this topic. Announcements Issue Date Announcement SEL-2025-04 June
      04, 2025 Published May 6, 2026 256 Announcements Issue Date Announcement SEL-2024-07
      November 06, 2024 Announcement SEL-2019-07 August 07, 2019 Announcement SEL-2019-02
      March 06, 2019'
  judgment: false
