Understanding Ineligibility Risks for Condominium Projects Under Freddie Mac Guidelines

 Troy Tanzer

As lenders, developers, condominium trustees, and unit owners navigate today’s evolving lending landscape, one often-overlooked

concern is whether a condominium project will qualify for conventional financing supported by Freddie Mac or Fannie Mae. These government-sponsored enterprises (GSEs) do not make loans directly to homebuyers. GSEs purchase loans from lenders to replenish the lenders’ supply of capital so that they can make mortgage loans to other borrowers. In doing so, GSEs impose a set of stringent eligibility requirements. If a project fails to meet them, financing for buyers may be restricted or altogether unavailable, thereby diminishing marketability and property value.

 This article provides an overview of the types of condominium projects that are ineligible for sale to Freddie Mac, based on the criteria set forth in Section 5701.3 of Freddie Mac’s Single-Family Seller/Servicer Guide. While similar restrictions apply under Fannie Mae’s standards, our focus here is on Freddie Mac’s specific exclusions. It is critical for condominium boards, developers, and real estate professionals to review these criteria carefully and take proactive steps to ensure continued eligibility.

 Projects Lacking Ownership Interest in the Land

 Freddie Mac disqualifies projects where unit owners do not possess either an undivided ownership interest or a leasehold interest in the land on which the project is located. This issue often arises in projects where land ownership remains with the developer or a third-party entity post-construction.

Condominium Hotels and Transient Housing

Perhaps the most restrictive and nuanced category involves so-called "condo hotels" and transient use properties. Projects licensed or operated as hotels or motels, or that include hotel-like services such as mandatory rental pooling, room service, daily cleaning, or centralized reservation desks, are typically deemed ineligible. Freddie Mac also scrutinizes projects that include blackout periods or occupancy restrictions on personal use, shared revenue agreements, or HOAs that actively manage short-term rentals and collect taxes on behalf of owners.

Even if a project is not explicitly labeled a hotel, it may still be disqualified if it bears the hallmarks of transient housing. These include vacation rental licensing, short-term rental platforms managed by the HOA, or common spaces allocated to rental operators.

 

Other Disqualifying Project Structures

A range of structural and legal arrangements also render a project ineligible, including:

 

• Multi-unit ownership on a single deed
• Excessive commercial space

*A project in which more than 35% of the total above and below grade square footage of the project (or more than 35% of the total above and below grade square footage of the building in which the project is located) is used as commercial or non-residential space.

 

• Tenancy-in-common arrangements without exclusive ownership of individual units
• Timeshare models and segmented ownership periods
• Houseboat developments or floating dwellings
• Continuing Care Retirement Communities (CCRCs)

Each of these configurations departs from the traditional condominium ownership structure in ways that Freddie Mac deems too risky or administratively unmanageable.

 

Common Element Ownership and Shared Facilities

Unit owners must collectively possess sole ownership of all common elements, including amenities and shared infrastructure. Projects in which developers retain ownership interests in the common areas, or where those areas are subject to lease arrangements, are generally disqualified. However, certain shared use arrangements between multiple residential condominium projects may be permitted if they are limited to residential use and formalized through a clear agreement governing use, maintenance, and dispute resolution.

Pending Litigation and Structural Deficiencies

If a condominium is the subject of pending litigation or alternative dispute resolution proceedings that involve safety, habitability, or structural integrity concerns, the project is not eligible. Even disputes involving the project’s developer can trigger disqualification. Minor litigation may be allowed if it is covered by insurance and poses no material financial threat to the HOA, but this exception requires thorough documentation, including attorney letters and insurance verification.

Similarly, projects in need of “Critical Repairs” are ineligible unless and until all necessary repairs have been completed and confirmed through engineering reports or equivalent documentation. The presence of an evacuation order or unsafe building conditions also renders a project immediately ineligible.

 

Excessive Investor Ownership

Freddie Mac limits the number of units that a single entity or investor may own. For projects with 21 or more units, no more than 25% may be held by a single party. Exceptions may apply to transactions that actively reduce investor concentration, subject to other financial health criteria.

 

Manufactured Housing and Mandatory Membership Fees

Projects that include manufactured homes are typically ineligible unless they comply with specialized approval processes. Additionally, projects that impose mandatory dues or membership fees for access to recreational amenities—such as clubhouses or fitness centers—must meet strict criteria. Specifically, the amenities must be owned solely by the HOA and exclusively available to its members.

 

Key Takeaways for Developers and Condominium Associations

Freddie Mac’s exclusion criteria are extensive, but they are not insurmountable. In many cases, projects can be structured—or restructured—through amendment of governing documents or operational adjustments to maintain eligibility. Boards should conduct a periodic eligibility audit, especially before major renovations, leasing policy changes, or litigation.

An associate in the real estate and litigation departments of the Quincy and Boston-based firm of Moriarty Bielan & Malloy LLC, Troy handles a variety of real estate related matters, with an emphasis on zoning and land use.  Troy’s email address is ttanzer@mbmllc.com.

Recent Developments in Chapter 40B: Housing Appeals Committee & Case Law Update and Summary of Regulatory and Policy ...

 

Appeals Court Rules Condominium Trust an Indispensable Derivative Action Party

David M. Rogers 

A derivative suit is one that is typically brought when a condominium board has failed or refused to redress a wrong

committed against the association.  These lawsuits allow for a unit owner to step into the shoes of a condominium board and take legal action when the board is otherwise unwilling to advance a claim.  In the past, it may not have been common practice to name the condominium board as a defendant in a derivative claim lawsuit.  This was likely based on the thinking that it was counterintuitive to bring an action “on behalf of the board” and against the board as a defendant.  However, a recent appellate decision has caused condominium law attorneys to take note that the association is a necessary party.

In an unpublished decision, the Appeals Court determined that a condominium trust is an indispensable party to a derivative action. In Hyman v. Conway, 105 Mass. App. Ct. 1118 (2025), the Court’s ruling provides that a failure to name a condominium trust as a party to such a lawsuit provides grounds for dismissal.

The plaintiff, Marita Hyman, owned a condominium unit at the Westport Point Condominium – a residential community consisting of seven “cottage style” units.   The defendants, Christine and John Conway, built an addition onto their condominium unit at Westport Point that extended into the Condominium’s common area.  The defendants did not seek Ms. Hyman’s approval for the addition – apparently in contravention of the Condominium’s governing documents as well as G.L. c. 183A, § 5.

Ms. Hyman filed suit in Bristol Superior Court claiming that the Conways improperly built an addition onto their unit – and into the Condominium’s common area – without seeking approval from all of the unit owners.  She brought two claims for declaratory judgment, seeking an order for the removal of a porch and stairs attached to the Conways’ unit, as well as declarations that such construction encroaches on a common area and violated the plaintiff’s “lawful right to review the proposed building plans” under the condominium bylaws.  The Conways moved to dismiss the complaint – arguing that Ms. Hyman lacked standing to advance a claim concerning the common area of the Condominium.  The common area of the Condominium, the Conways contended, was within the purview of the condominium trust – not the individual unit owners.  The Conways further argued that Ms. Hyman failed to join the condominium trust as a necessary party to the lawsuit.

The trial court (Sullivan, J.) ruled in favor of the Conways.  The Court construed Ms. Hyman’s complaint as a derivative action, as she had made written correspondence to the board of trustees and attempted to discuss the subject porch at an annual meeting in an apparent attempt to meet the pleading requirements of Rule 23.1 of the Massachusetts Rules of Civil Procedure.  The court then reasoned as follows: 

In a derivative action seeking to compel the action of an association which has failed to redress a wrong committed against the trust, the trust is both an entity which would be affected by the declaration and also one of the parties which would have had to answer to a judgment in the plaintiff’s favor to effect complete relief.  Thus, the trust is an indispensable party to this action.  (Internal quotations and citations omitted).

The court allowed the Conways’ motion to dismiss – finding that Ms. Hyman failed to join the condominium trust as a necessary party.  Ms. Hyman appealed the trial court’s decision.  Before reviewing the Appeals Court’s decision, it helps to have a general understanding of a properly pled derivative action.

A Derivative Action

A proper derivative action is a lawsuit brought by one or more unit owners to enforce a right of the association.  The derivative claim is an effective device in two primary circumstances: (1) to advance breach of fiduciary duty claims against sitting board members, and (2) to advance claims against a declarant or declarant-controlled entities while the declarant controls the board or when the declarant, as unit owner, still controls enough of the percentage interest in the condominium to elect its own slate of board members.

Procedural Requirements

The proper maintenance of a derivative claim requires strict compliance with certain conditions precedent as follows:

• Demand on the Board

Demand must be made on the board, requesting that it take action (i.e., institute suit against individual board members and/or the declarant) unless futile.

• Demand on the Unit Owners

Demand must be made on the unit owners to take action to compel the board to act or to otherwise secure the desired course of action (e.g., removal of the board) unless such request would prove futile (e.g., declarant owns or controls 90 percent of the beneficial interest) or too burdensome. 

In most circumstances, it is advisable to make the demand to avoid any claim that demand was not futile.  Counsel may have to take a calculated risk when there is a concern that such demand may telegraph an intention to file suit and cause the declarant to secret or convey assets.

Pleading Requirements

A complaint for a derivative action shall:

• be verified by oath,
• allege unit ownership at the relevant time or purchase from an owner who owned at the relevant time,
• allege efforts made to obtain action from the board,
• allege efforts made to obtain action from the unit owners, and
• allege reasons no such efforts were made.

In addition, in order for a derivative action to be maintained, it must appear that the plaintiff fairly and adequately represents the interests of the unit owners similarly situated.  Finally, the action cannot be dismissed or settled without (1) court approval, and (2) notice to the unit owners of same as directed by the court.

Common Pleading Deficiencies in Derivative Suits

The derivative suit is often misused or misapplied by unit owners.  There are several rules of thumb that can be employed in analyzing the appropriateness of derivative claims.  A derivate claim is deficient and subject to a motion to dismiss in the following circumstances:

1. The Claim Is Brought by Someone Other than a Unit OwnerThis criterion needs         no further elaboration.

2. The Wrong Complained of Was Committed Against Individual Unit Owners,         Not the Association

A wrong committed against a unit owner or unit owners may be brought by those individuals in their own name.  Owners who have suffered an injury have standing to bring claims in their own name (e.g., damage to unit interior, improper assessments, etc.).  Such claims are not properly brought as derivative claims.

3. The Recovery Is Sought for the Unit Owner(s) Alone

A unit owner’s request for recovery in a proper derivative action is made on behalf of the board.  When the recovery and/or relief requested is for, or on behalf of, the unit owners in their individual capacities, the claim cannot be properly brought as a derivative action.

4. The Claim Is for a Breach of Fiduciary Duty Owed to a Unit Owner

This claim is flawed for two reasons.  First, the board does not owe a unit owner any fiduciary duty.  Second, such claim clearly purports to advance (albeit otherwise flawed) a claim possessed by an individual owner, not the association.

5. The Lawsuit Is Advanced Without Naming the Association

We can now add another pleading deficiency to the list – failing to name the condominium trust as an indispensable party to the derivative action.  The Appeals Court affirmed the trial court's dismissal of Ms. Hyman’s lawsuit, reasoning that “[i]n such an action, the association must be joined as a party because the claim is alleged to be one that the association should be pursuing on its own behalf – here, a claim of unlawful expansion onto common elements.”  While unpublished (meaning that, although the case can be cited for its persuasive value, it does not constitute binding precedent), the Hyman decision provides a clear indication of how a court is likely to rule on this issue going forward.  A failure to name a condominium board as a party to a derivative lawsuit going forward would be a mistake.

Derivative claims present difficulties for even the most seasoned condominium law practitioners.  Although the trial court in this Hyman case was rather liberal in construing her lawsuit as a derivative claim, the procedural requirements of Rule 23.1, described above, actually prescribe fairly cumbersome prerequisites for filing a derivative action.  Care must be taken in order to avoid having such a lawsuit dismissed on a technicality, such as failing to name the condominium trust as a necessary party. 

A principal in the Quincy and Boston based firm of Moriarty, Bielan & Malloy LLP, Dave has been specializing in complex civil litigation at both the trial and appellate levels. He has extensive experience in the area of construction litigation. Dave’s practice is focused on construction, real estate, and condominium matters. His clients include condominium associations, real estate developers, general contractors, subcontractors, and individuals.  Dave can be contacted at brogers@mbmllc.com.

FinCEN Sued over Mandated Real Estate Reporting

 Lisa L Delaney

 Last April, a Texas-based settlement service provider, Flowers Title Company, LLC (“Flowers”) sued the U.S. Treasury’s Financial Crimes Reporting Network, known as

“FinCEN,”  in the U. S. District Court of Eastern District of Texas, Civil Action No. 6:25‑CV‑0027.  A month later, Fidelity National Financial, Inc. and Fidelity National Title Insurance Company (“FNF”) filed a similar suit in United States District Court, Middle District of Florida in Civil Action No. 3:25-cv-00554.

 These two cases challenge FinCEN’s rules, scheduled to take effect on December 1^st, with the goal of thwarting money-laundering by mandatory reporting on all residential purchases any amount by non‑individual entities, such as Corporations, LLC’s, trusts, etc., without an institutional mortgage.   The proposed rules also include no low or nominal consideration, or those transactions financed with a private mortgage.  These reports are mandated with no other evidence or indicia of illegal or suspicious financial or money‑laundering activity, other than the fact that an entity is taking title to residential property without an institutional mortgage.

 FinCEN exempts a few transfers, including those following death or divorce, and transfers to a trust for the grantor’s benefit and/or their spouse, but there are no specific exemptions for transfers from a trust back to the grantor nor to a trust for the benefit of the grantor’s children and other descendants.

 The mandated reports, consisting of 111 questions, are detailed and require the submission personal information of both the buyer and seller, including their bank account information, with 38 questions repeated for each principal buyer and 34 questions repeated for each seller, which can quickly add up to 200 or more mandated reported data.  FinCEN requires the seller’s information based solely on the buying entity without any suspicion the seller is interrelated to the buyer or connected to the buyer’s choice of taking title in an entity and not using an institutional mortgage.

 To date, FinCEN has only provided the111 questions, but has not provided the actual reports, thereby denying mandated reporters the opportunity to create training materials in the proper use of the government’s computer program and software.

 The two complaints include the following advocacy positions:

• There is nothing inherently suspicious about buyers using their own money. 
• Transferring property to a trust or legal entity without financing is legal and not inherently suspicious. 
• The proposed Rule will “ride roughshod” over private interests of routine real estate transactions. 
• Private companies are being conscripted into performing government surveillance. 
• FinCEN lacks authority to regulate or mandate reports on intrastate commerce without a connection to interstate or foreign commerce. 
• Mandating reports of all covered transactions with no suspicion of illegal activity exceeds any permissible warrantless search.
• The proposed rule exceeds Congress’ power to regulate interstate commerce and was promulgated “contrary to constitutional rights, power, privilege, or immunity” in violation of 5 U.S.C. § 706(2)(B).

These cases are similar to FinCEN’s now-withdrawn requirements under the Corporate Transparency Act (CTA) that attempted to require all businesses that file at its state secretary of state’s office, to also file mandated annual FinCEN reports on its business and principal.  This proposal was curtailed and canceled last much when FinCEN issued an interim final rule limiting CTA only to “foreign reporting companies.”   

The various CTA cases found that FinCEN’s attempted rule exceeded the Treasury Department’s constitutional powers. The Texas Court in Top Cop Shop, Inc. v. Garland, which includes a nation-wide injunction, found the CTA is likely unconstitutional and FinCEN does not have the right to regulate interstate commerce nor is the mere existence of a business entity, by itself, an act of commence, and adds “… the Commerce Clause does not justify regulating all companies based on nothing more than fear that a reporting company might shelter a financial criminal.”

Both the Flowers and FNF cases include prayers for declaratory and injunctive relief.  Neither complaint cites nor refers to the various CTA cases, although it is probable the same or similar arguments will be raised that FinCEN, through the Treasury Department and Congress, exceeded its constitutional powers, and citizens should have the ability to purchase a residence without an institutional purchase money mortgage and place title in an entity rather than their own names, which is not, by itself, “suspicious activity.”  

It is hoped the Courts will similarly find FinCEN’s real estate reports are likely unconstitutional and issue a permanent injunction against mandated real estate reporting on routine real estate transactions.

Co-chair of REBA’s Title Insurance and National Affairs Section, Lisa Delaney, owns the Braintree firm Carvin & Delaney, LLC, concentrating her practice on large commercial transactions, where she handles complex title research, providing detailed analysis of clear and concise facts. She negotiates and drafts commercial contracts with a focus on leasing and purchase agreements. Lisa can be contacted at ldelaney@carvindelaney.com.

Editor’s Note: REBA’s Title Insurance and National Affairs Section is scheduled to host two webinars on FinCEN’s mandated real estate reporting.  Former Association president Ruth Dillingham of Dillingham Consulting LLC will present the rule’s details and requirements on Wednesday, September 25th at noon and on Thursday, October 16^th at noon a speaker will provide a tutoring session on inputting data into FinCEN’s computerized reports, providing access to the government’s software is then publicly available.

These webinars could be postponed or canceled based on the Flowers, FNF or other lawsuits, or whether FinCEN, like with the CTA, revises the mandated real estate reporting to only foreign entities.

Environmental Law Update 2024-2025

 

Is An Offer to Purchase Really Binding? A Review of Deadlines, Defaults & Material Terms (Video)

 

Appeals Court Clarifies Permit Expiration Extensions

Nathaniel Stevens, Esq.

Perhaps surprisingly, only after the fourth time Massachusetts enacted legislation extending the life of most land use and

environmental permits, there is now an appellate-level court decision ruling that such extensions are added onto, rather than run concurrently with, the time period set by the law under which the permit was granted.  

In May, the Appeals Court ruled that two building permits granted for construction of a biomass-fired power plant in Springfield, MA benefited from extensions granted by the several permit extension laws and did not forego the additional time due to lengthy litigation challenging their validity. The case is Palmer Renewable Energy, LLC v. Zoning Board of Appeals of Springfield. 

Massachusetts law has long recognized the doctrine of litigation tolling for land use permits.  Under this doctrine, courts have applied equitable tolling when a permit has been challenged to avoid the futile situation of a permit holder not being able to exercise their rights under a permit if the litigation takes longer than or eats up any portion of the term of a permit. 

Certain statutes, such as the Zoning Act, codify equitable tolling to explicitly provide for tolling of the expiration date of a permit until litigation concludes. 

Regardless of whether a permit is challenged in court, for other reasons the Legislature in recent times has granted blanket extensions to a broad range of land use and environmental permits.  In 2010, legislation known as the Permit Extension Act, was enacted and then amended in 2012, resulting in permits in effect during the “qualifying period” between August 15, 2008, and August 15, 2012, being extended four years.  The Permit Extension Act was in response to the downturn in the state’s economy during the Great Recession around 2008. 

In response to the COVID-19 health emergency, the Legislature in 2020 enacted provisions tolling many of the same land use and environmental permits until the end of the Governor’s State of Emergency due to the pandemic. That State of Emergency lasted 462 days so permits that were in effect on March 10, 2020 were extended 462 days.   

Most recently, as part of an omnibus economic development bill, known as the Mass Leads Act, the Legislature included a provision to extend by two years many of the same type of land use permits if they were in effect at all during the period of January 1, 2023, to January 1, 2025.

The Appeals Court in the Palmer case was asked to resolve the question of whether the extra four years provided by the Permit Extension Act ran from the date two building permits were issued while the permits were challenged in court, or whether the four years began the date the litigation concluded.  The decision holds that they run not concurrently but rather consecutively. 

The Springfield building commissioner on November 15, 2011, issued two building permits to Palmer to begin construction of a biomass-fired power plant. While no expiration date was stated on the face of the permits, the parties and courts treated the permits as having a 180-day term.  Within a month of the permits being issued, the Springfield City Council appealed to the Zoning Board of Appeals (“ZBA”). The ZBA voted on January 12, 2012, to revoke the building permits and filed its decision with the City Clerk on March 8, 2012.  

Palmer appealed the ZBA’s decision by filing a complaint in the Land Court on March 26, 2012.  The Land Court on August 14, 2014, reversed the ZBA’s decision and reinstated the building permits.  The City and others appealed and, over a year later, on September 8, 2015, the Appeals Court affirmed the Land Court’s decision.  An application for further appeal was denied. 

Five years later, on October 14, 2020, twelve members of the City Council asked the building commissioner to issue a cease-and-desist order on Palmer’s construction on the grounds that the building permits had expired.  The request was denied and the City Council members appealed to the ZBA. On May 5, 2021, the ZBA voted to grant the relief and revoked the building permits and filed its decision 23 days later with the City Clerk.  Palmer appealed the ZBA’s decision in Land Court. 

In affirming the ZBA’s decision, the Land Court held that the extra time provided by the Permit Extension Act ran at the same time as that provided by the litigation tolling doctrine, concluding that the permits had expired May 13, 2016. 

In reversing the Land Court, the Appeals Court began its analysis recounting the several ways land use permits are extended by the doctrine of equitable tolling, automatic through statutory provisions, or following statutory or local procedures to request an extension.  

The Appeals Court then relied on the principle that when enacting a law, the Legislature is presumed to be aware of existing statutory and common law related to the subject it is legislating, so by starting extension provisions in the Permit Extension Act with the clause, “Notwithstanding any general or special law to the contrary”, the phrase “in addition to the lawful term of the approval” means that the four-year extension provided runs after, not concurrently with, any period provided by litigation tolling. 

The Appeals Court also was asked to decide what date is used to start the litigation tolling period.  Palmer asserted that it was when the City filed its appeal to the ZBA, 27 days after the building permits were issued.  The City maintained it was when the ZBA reached its decision and revoked them. Because of the dates involved, this was significant because depending on which date was used, the building permits could fall under the COVID-19 permit extension law and enjoy another extension.  

The Appeals Court decided that, in the context of this case where the City challenged a large and complex project by asserting it also needed a special permit, it sided with Palmer’s position. Adding the 153 days remaining on the building permits to the date when litigation finally ended on October 30, 2015, meant that the building permits expired March 31, 2016.  The Permit Extension Act extended these permits four years through March 31, 2020, thus affording the further extension under the COVID-19 permit extension law. 

While the facts and time periods in the Palmer case are complex and perhaps unique, the ruling is favorable to those holding state, regional or local land use and environmental permits. Equally, the decision should be noted by those administering or enforcing such permits as this case gives the permits longer life than may be expected.   

When using the words “notwithstanding any general or special law to the contrary” in special legislation extending such permits “in addition to the lawful term of the approval”, the additional time will be added to any other additional time afforded.  It does not run concurrently but rather consecutively with any other time periods granted under statutory provisions, litigation tolling, or granted extensions.   

Permit holders and their legal counsel should know about and keep copies of ALL four of the Massachusetts permit extension laws, the Zoning Act and other sources of statutory extensions, and the Palmer case applying the equitable tolling doctrine.

A member of REBA’s Environmental Law Section and a partner of McGregor Legere & Stevens PC, Nathaniel Stevens handles a broad range of environmental and land use matters, from administrative law to litigation. He has helped a diversity of clients with environmental issues including permitting, permit appeals, development, contamination, transactions, conservation, real estate restrictions, water supply, water pollution, subdivision control, tidelands licensing, Boston and state zoning, coastal and inland wetlands, stormwater, air pollution, and energy facility siting.  Nathaniel’s email address is NStevens@mcgregorlaw.com.