source:
  type: guide
  id: fhlmc-5704.1
  authority: Freddie Mac Single-Family Seller/Servicer Guide Section 5704.1 — Purchase
    of leasehold Mortgages
  description: Freddie Mac Single-Family Seller/Servicer Guide Section 5704.1 — Purchase
    of leasehold Mortgages.
  coverage_tier: operative
obligations:
- id: fhlmc-5704.1-full
  canonical_id: fhlmc-5704.1-full
  section: Freddie Mac Single-Family Seller/Servicer Guide Section 5704.1 — Purchase
    of leasehold Mortgages
  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 5704.1 — Purchase
      of leasehold Mortgages
    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: '5704.1: Purchase of leasehold Mortgages (06/04/25) This section
      contains information related to: ■ Terms ■ Leasehold estate eligibility requirements
      ■ Lease provisions ■ Projects on leasehold estates Freddie Mac will purchase
      a Mortgage secured by either a leasehold estate or a leasehold estate in a ground
      lease community where there is a demonstrated market acceptance of this type
      of property ownership. The Mortgage must be secured by a leasehold interest
      in the land or ground lease and the property improvements to be a leasehold
      Mortgage. The following property types are eligible to secure leasehold Mortgages:
      ■ 1- to 4-unit properties ■ Planned Unit Development (PUD) units ■ Condominium
      Units Refer to the following Guide provisions for details on: Other Guide provisions
      related to leasehold mortgages Topic Guide location Community Land Trust Mortgage
      requirements Chapter 4502 Manufactured Homes located on leasehold estates Chapter
      5706 HeritageOne® Mortgages, including the special requirements for HeritageOne
      Mortgages that are leasehold Mortgages in Section 4504.8 Chapter 4504 (a) Terms
      As used in this chapter, the following terms have the meanings ascribed to them
      below: Freddie Mac Single-Family Seller/Servicer Guide Chapter 5704 As of 01/26/26
      Page 5704-2 Purchase of leasehold Mortgage terms B Basic rent The amount paid
      for the use of the leasehold estate under the terms of the lease (or sublease,
      if applicable). Basic rent does not include: ◼ Taxes ◼ Insurance ◼ Utilities
      for the leasehold estate or common areas, or ◼ Use fees or operating expenses
      for the common areas, facilities and services G Ground lease community A planned
      residential development, including infrastructure, common areas and community
      facilities for use by the individual lessee, with the following characteristics:
      ◼ Under the terms of the lease, the individual lessee holds a real property
      leasehold estate in a parcel of land improved by a dwelling and has an undivided
      common interest in the infrastructure, common areas and community facilities
      ◼ The ground lease community is either a PUD or Condominium Project, administered
      by a homeowners association; or the community is administered by the fee simple
      land owner/lessor that owns, and is obligated under the lease to maintain, the
      infrastructure, common areas and community facilities for the common use and
      benefit of the individual lessees L Leasehold mortgagee The mortgagee that has
      a lien on the lessee’s (or sublessee’s) leasehold estate, including improvements.
      (b) Leasehold estate eligibility requirements The Seller must ensure that the
      following eligibility requirements are met: ■ The leasehold estate and property
      improvement must: ❑ Constitute real property ❑ Be covered by a title insurance
      policy that complies with the applicable requirements in Chapter 4702 Freddie
      Mac Single-Family Seller/Servicer Guide Chapter 5704 As of 01/26/26 Page 5704-3
      ■ The lease (and any sublease including all amendments) must be: ❑ Recorded
      in the appropriate land records ❑ In full force and effect, and ❑ Binding and
      enforceable against the lessor (and sublessor) ■ The leasehold estate and Mortgage
      must not be impaired by any merger of the fee interest and leasehold interest
      in the event the same person or entity acquires both interests ■ The term of
      the leasehold estate must run for at least five years beyond the maturity date
      of the Mortgage unless the fee simple title vests at an earlier date ■ All basic
      rent and amounts due (for taxes, insurance, utilities and use fees or operating
      expenses) relating to the land and improvements must be current, and the Borrower
      must not be in default under any provision of the lease, nor may the lessor
      have claimed such a default ■ The lease must not preclude the Borrower from
      retaining voting rights in the homeowners association, if applicable ■ All applicable
      Servicing requirements under the Guide and other Purchase Documents must be
      met (c) Lease provisions The Seller must ensure that the following lease requirements
      are met: ■ The lease must permit assignments, transfers, mortgaging and subletting
      of the leasehold (or subleasehold) estate, including any improvements on the
      leasehold estate ■ The lease must provide that for a notice of lessee’s default
      (monetary or non-monetary) to be valid, the lessor must send written notice
      of the lessee’s default to the leasehold mortgagee not more than 30 days after
      such default. The lease is not required to include a notice of default provision
      if the Mortgaged Premises is located in Maryland and applicable State law provides
      for all lessors to register residential leases with the State and requires the
      lessor to send written notice of default to the leasehold mortgagee no less
      than 30 days prior to the lessor filing an action of possession. Freddie Mac
      Single-Family Seller/Servicer Guide Chapter 5704 As of 01/26/26 Page 5704-4
      ■ The lease must provide for the right of the leasehold mortgagee, in its sole
      discretion, to cure a default for the lessee’s (or sublessee, if applicable)
      account within the time permitted to lessee or take over the rights under the
      lease (sublease) ■ The lease cannot contain default provisions allowing forfeiture
      or termination of the lease for non-monetary default ■ The lease must provide
      for protection of the mortgagee’s interests, including an insurable interest
      in the subject property (unless otherwise required by law) and interest in the
      lease, ground lease community and leasehold estate ■ The lease may, but is not
      required to, include an option for the Borrower to purchase the fee interest;
      however, there can be no time limit on when the option must be exercised, and
      the lease and option to purchase must be assignable (d) Projects on leasehold
      estates Freddie Mac will purchase a Mortgage secured by a unit in a Condominium
      Project (see Section 5701.2(b)(3)) or PUD (see Section 5702.1(c)) situated on
      a leasehold estate if the requirements in this section are met. 5704.2: Appraisal
      requirements for leasehold Mortgages (01/26/26) Refer to Bulletin 2025-7, which
      announced the policy requirements for Uniform Appraisal Dataset (UAD) 3.6. Sellers
      may submit to the Uniform Collateral Data Portal® appraisal reports that use
      UAD 3.6 before the mandatory effective November 2, 2026 version of this section.
      In addition to the other Guide requirements related to appraisals, an appraisal
      for each leasehold Mortgage must meet the requirements in this section. Note:
      For special appraisal requirements for HeritageOne® Mortgages that are leasehold
      Mortgages, see Section 4504.9. For leasehold Mortgages, the appraiser must develop
      a detailed description of the terms, conditions and restrictions of the ground
      lease. The appraiser must consider and report any effect the terms of the lease
      have on the value and marketability of the Mortgaged Premises. When there are
      similar leasehold sales available that have the same lease terms, the appraiser
      should use these sales as comparable sales. If sales of properties with the
      same lease terms are not available, the appraiser should use other similar leasehold
      sales having different lease terms as comparable sales. The appraiser must describe
      the differences in the terms of the leases and report any effect the differences
      have on the value and marketability of the Mortgaged Premises. Freddie Mac Single-Family
      Seller/Servicer Guide Chapter 5704 As of 01/26/26 Page 5704-5 If there are no
      sales of leasehold properties, the appraiser should use sales of similar properties
      owned in fee simple as comparable sales. The appraiser must explain why the
      use of sales with different property rights is appropriate and make appropriate
      adjustments to reflect the market’s reaction to these differences. For Condominium
      Projects and Planned Unit Developments (PUDs) on leasehold estates, the appraiser
      must also: ■ Provide a description of the Common Elements, including Amenities
      ■ Comment on the ground rent for the subject property and the competing properties
      5704.2: Appraisal requirements for leasehold Mortgages (Future effective date
      11/02/26) In addition to the other Guide requirements related to appraisals,
      an appraisal report for each leasehold Mortgage must meet the requirements in
      this section. Note: For special appraisal requirements for HeritageOne® Mortgages
      that are leasehold Mortgages, see Section 4504.9. For leasehold Mortgages, the
      appraisal report must include the ground rent and the conditions and restrictions
      of the ground lease. The appraisal report must report the effect the terms of
      the lease have on the value and marketability of the Mortgaged Premises. When
      there are similar leasehold sales available that have the same lease terms,
      these sales should be used as comparable sales. If sales of properties with
      the same lease terms are not available, other similar leasehold sales having
      different lease terms should be used as comparable sales. The appraisal report
      must include a description of the differences in the terms of the leases and
      report the effect the differences have on the value and marketability of the
      Mortgaged Premises. If there are no sales of leasehold properties, the appraisal
      report should include sales of similar properties owned in fee simple as comparable
      sales. The appraisal report must include an explanation why the use of sales
      with different property rights is appropriate and appropriate adjustments must
      be made to reflect the market’s reaction to these differences. For Condominium
      Projects and Planned Unit Developments (PUDs) on leasehold estates, the appraisal
      report must also include: ■ A description of the Common Elements, including
      Amenities ■ Commentary on the ground rent for the subject property and the competing
      properties Freddie Mac Single-Family Seller/Servicer Guide Chapter 5704 As of
      01/26/26 Page 5704-6 5704.3: Ground lease requirements for leasehold Mortgages
      (06/04/25) A copy of the lease, with recordation information, must be maintained
      in each leasehold Mortgage file. The documents must be provided to Freddie Mac
      upon request. 5704.4: Security Instruments for leasehold Mortgages (06/04/25)
      The Uniform Security Instrument must describe the Mortgaged Premises as a leasehold
      interest created by a recorded lease in the property described in the legal
      description. In addition, the Seller must comply with Exhibit 5A, Authorized
      Changes to Notes, Riders, Security Instruments and the Uniform Residential Loan
      Application, Section IV, for leasehold estates. Freddie Mac Single-Family Seller/Servicer
      Guide Chapter 5705 As of 01/26/26 Page 5705-1 Chapter 5705: Cooperative Projects
      and Cooperative Share Loans'
  judgment: false
