B5-5.3-02, Shared Equity Transactions: General Requirements (12/13/2023)

The lender must review the community land trust's ground lease to confirm that it is based upon either the Grounded Solutions Network 2011 CLT Network Model Ground Lease or the Institute for Community Economics (ICE) Model Ground Lease, both of which are available on the Grounded Solutions Network website. If the ground lease is not based on either of these model leases, the lender must obtain Fannie Mae's approval of the ground lease by contacting their Fannie Mae Account Team.

The term of the estate created by the ground lease must extend for at least five years beyond the maturity date of the loan that is delivered to Fannie Mae. Any additional terms added to these model ground leases, other than those required by applicable law, may not override the rights of the consumer provided under the model ground leases.

The lender must review the resale restrictions to confirm compliance with this topic. The terms of the resale restrictions can be found in an existing recorded legal agreement or in the legal documentation to be recorded in connection with the borrower's purchase of the property. Examples of such legal agreements:

• The Grounded Solutions Network 2021 Model Declaration of Affordability Covenants with Refinance and Resale Restriction and Purchase Option, which is available on the Grounded Solutions Network website. Loans using this agreement must be delivered with SFC 177.
• A declaration of covenants, often referred to as a deed restriction or deed-restricted covenant.
• Any other covenant or provision of an agreement or deed that is recorded against the land.
• The terms and conditions of a subordinate mortgage that comply with Section B5-5.1, Community Seconds.

Note: Certain requirements will not apply to shared equity transactions, such as those in 

B5-5.1-03, Community Seconds Shared Appreciation Transactions.B5-5.1-03, Community Seconds Shared Appreciation Transactions

If the requirements for the Community Seconds loan, the first mortgage, and the shared equity program are different, the most restrictive requirements will apply.

The community land trust ground lease must include restrictions to limit future property buyers to those with specified income levels and limit the maximum sales price of the property.

The resale restrictions in the ground lease must terminate automatically upon foreclosure (or the expiration of any applicable redemption period) of the leasehold mortgage, or acceptance of a deed-in-lieu for foreclosure. After any resale restrictions have been terminated, they may not be automatically reinstated for subsequent buyers of the property.

The resale restriction terms must limit future property buyers to those with specified income levels and limit the maximum sales price of the property.

If the resale restrictions terminate automatically upon foreclosure (or the expiration of any applicable redemption period), or acceptance of a deed-in-lieu of foreclosure, the provider is not entitled to obtain any proceeds from future sale(s) or transfer(s) of the property after foreclosure or acceptance of a deed-in-lieu. After any resale restrictions have been terminated, they may not be automatically reinstated for subsequent buyers of the property.

If the resale restrictions survive foreclosure or a deed-in-lieu of foreclosure, the provider is not entitled to obtain any proceeds from the initial sale or transfer of the property after foreclosure, or from the foreclosing mortgage holder who obtained the property at foreclosure or from a deed-in-lieu of foreclosure.

For shared equity loans secured by properties subject to private transfer fee covenants and with note dates on or after July 1, 2023, the recorded instrument containing the private transfer fee covenant must

• include restrictions on the terms of transfer of the subject property limiting both the maximum income of the transferee(s) and the maximum permissible sales price that will apply for at least 30 years after recordation; and
• provide that the entity entitled to enforce the private transfer fee covenant has
  • a preemptive option to purchase the property from the homeowner at resale; and
  • the power to review and approve all refinance loans and home equity lines of credit to be secured by the property.

Grounded Solutions Network publishes the 2011 National Community Land Trust Network (NCLTN) Model Ground Lease, the Institute for Community Economics (ICE) Model Ground Lease, and the 2021 Model Declaration of Affordability Covenants with Refinance and Resale Restriction and Purchase Option ("Model Forms"). These Model Forms contain provisions that, if included in the recorded instrument for the property, will satisfy the above requirements.

Special Feature Codes

Lenders must report SFC 181 when delivering shared equity loans with a private transfer fee covenant.

Shared equity loans secured by properties without private transfer fee covenants are not subject to the above requirements. For more information on private transfer fee covenants, see Private Transfer Fee Covenants in  B2-1.5-02, Loan EligibilityB2-1.5-02, Loan Eligibility.

Lenders may choose to use the Certified Shared Equity Program List as an alternative to conducting their own review of the above requirements. This flexibility only applies to loans involving programs on the list that use one of the Model Forms (Shared Eq - Model Forms tab). These programs comply with the criteria for required legal documentation, resale restriction requirements, and additional requirements for properties subject to private transfer fees described above.

Programs on the Shared Eq - Model Forms tab also meet eligible shared equity provider requirements in  B5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting and Collateral RequirementsB5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting and Collateral Requirements.

When utilizing this flexibility, lenders must review the ground lease or deed restricted legal agreement for the subject property to confirm that it is associated with a program included on the Shared Eq - Model Forms tab, and the Model Form specified on the list is being used at the time of the transaction.

Additionally, if the property is subject to a private transfer fee, the lender must verify that the term of the ground lease or deed restricted legal agreement will apply for at least 30 years after recordation.

Note: Lenders are responsible for reviewing all other applicable Fannie Mae requirements and obtaining the pertinent information needed to complete their review. Lenders remain obligated for other representations and warranties including life of loan representations and warranties, such as clear title and first lien enforceability.

Special Feature Codes

Lenders must report SFC 792 when delivering a loan in connection with a program on the list and report all other applicable SFCs required for shared equity transactions.

Lenders must ensure that any loan secured by a community land trust property and delivered to Fannie Mae is supported by the appropriate leasehold interest documents, including the community land trust ground lease and the Community Land Trust Ground Lease Rider ( Form 2100). Form 2100 must be executed by the borrower and the ground lessor and recorded along with the ground lease. This form was developed for use with either the Grounded Solutions Network 2011 CLT Network Model Ground Lease or the ICE Model Ground Lease. The form

• ensures that the ground lease is in conformity with Fannie Mae requirements for community land trust loans, and
• removes the resale restrictions as well as any other restrictions that may be included in the ground lease that could affect the value of the property.

The land records for the subject property must include adoption of the terms and conditions that are incorporated in this ground lease rider. Fannie Mae's written approval is required if  Form 2100 is modified or is not executed.

Lenders must ensure that any loan secured by a property with income and resale price restrictions that is purchased by Fannie Mae is accompanied by the Shared Equity Amendment ( Form 2200). The Amendment must be executed by the shared equity provider (and any other parties to the instrument that created the resale restrictions), the borrower, and the lender, and must be recorded. Form 2200 assures consistent standards for all loans secured by properties with income and resale price restrictions that are delivered to Fannie Mae. 

Fannie Mae's written approval is required if  Form 2200 is modified or is not executed.