What Are Shared Equity Transactions
A shared equity transaction involves a third party — typically a nonprofit organization, government agency, or community land trust — that helps make homeownership more affordable. In exchange for this assistance, the third party retains some interest in the property's future value or places restrictions on who can buy it later.
Say you're buying a home through a community land trust program. You purchase the house but lease the land underneath it from the trust. This arrangement reduces your purchase price because you're not buying the land. When you sell, the trust gets a portion of any appreciation, and the next buyer must meet income requirements.
Fannie Mae accepts two main types of shared equity arrangements: community land trusts and properties with income and resale price restrictions. Both types aim to keep housing affordable for future generations while still allowing homeowners to build some equity.
Community Land Trust Requirements
Community land trusts represent the most common shared equity structure. The trust owns the land and leases it to you through a ground lease, while you own the home itself. This split ownership model keeps housing affordable over time.
Your lender must verify that the ground lease follows one of two approved models: the 2011 CLT Network Model Ground Lease or the Institute for Community Economics Model Ground Lease. Both are available through Grounded Solutions Network. If your community land trust uses a different ground lease format, it must be listed on Fannie Mae's certified program list.
The ground lease must include specific resale restrictions. Future buyers must meet income requirements set by the trust, and there must be limits on how much you can sell the property for. These restrictions ensure the home remains affordable for the next buyer.
Here's a critical timing requirement: the ground lease term must extend at least five years beyond your mortgage maturity date. If you have a 30-year mortgage, the ground lease must run for at least 35 years from your loan closing.
Income and Resale Price Restriction Programs
The second type involves deed restrictions or other recorded legal agreements that limit future sales. Unlike community land trusts, you own both the house and the land, but the property comes with affordability covenants.
These restrictions work similarly to community land trust requirements. Future buyers must meet specific income limits, and there are caps on the resale price. The restrictions are typically recorded as deed covenants, affordability agreements, or similar legal documents.
Your lender must review these restriction documents to confirm they meet Fannie Mae's requirements. The restrictions must be properly recorded and enforceable against future owners.
What Happens During Foreclosure
Fannie Mae requires specific language about what happens if you default on your mortgage. The resale restrictions must terminate automatically upon foreclosure or if you give the lender a deed in lieu of foreclosure. This protects the lender's ability to recover its investment.
Once restrictions terminate due to foreclosure, they cannot be automatically reinstated for whoever buys the property next. This prevents the shared equity provider from reasserting control over a property that went through foreclosure.
If the restrictions survive foreclosure (which is allowed but not required), the shared equity provider cannot claim any proceeds from the initial sale after foreclosure. They also cannot demand payments from the foreclosing lender.
Private Transfer Fee Requirements
Some shared equity properties include private transfer fees — payments due to the shared equity provider each time the property sells. For loans with note dates after July 1, 2023, these fees must qualify as "excepted transfer fee covenants" under federal regulations.
The approved model forms from Grounded Solutions Network include language that satisfies this requirement. If your property uses these model forms, the private transfer fee provisions should comply automatically.
Your lender must verify that any private transfer fee covenant meets the federal exception requirements. They'll also need to confirm the ground lease or deed restriction will remain in effect for at least 30 years after recording.
Required Documentation and Special Codes
For community land trust properties, your lender must obtain several specific documents. These include the ground lease itself, proof that it's based on an approved model, and a completed Community Land Trust Ground Lease Rider. Both you and the land trust must sign this rider, and it gets recorded along with your mortgage.
Properties with income and resale restrictions require the recorded legal agreements that establish those restrictions. This might be a deed of trust, affordability covenant, or similar document that's part of the public record.
Your lender will assign special feature codes when delivering your loan to Fannie Mae. Community land trust loans get specific codes, and properties with excepted transfer fee covenants get additional codes. These codes help Fannie Mae track and service these unique loan types.
Insurance and Condemnation Proceeds
Fannie Mae must have first claim to any insurance settlements or condemnation proceeds. This means if your property is damaged or taken by eminent domain, the mortgage gets paid first before any shared equity provider receives money.
This requirement protects Fannie Mae's investment while still allowing shared equity arrangements to work. The shared equity provider can receive proceeds, but only after the mortgage is satisfied.
Servicer Notification Requirements
Your loan servicer may need to notify the shared equity provider if you default or if foreclosure begins. The ground lease or restriction agreement will specify these notification requirements.
However, these notifications cannot delay the foreclosure process. Your servicer must still meet Fannie Mae's standard foreclosure timelines, even while providing required notices to third parties.
Common Complications
The biggest challenge is ensuring all documentation is properly prepared and recorded. Ground leases must match approved models exactly, and any modifications require Fannie Mae's written approval. Missing or incorrect documentation can delay your loan closing.
Timing issues also create problems. If the ground lease term is too short relative to your mortgage term, the loan won't be eligible. Your lender needs to verify these dates carefully during underwriting.
Private transfer fee requirements add another layer of complexity. Not all transfer fees qualify for the federal exception, and your lender must verify compliance with specific regulatory requirements.
Some shared equity providers use non-standard agreements that don't match Fannie Mae's requirements. If your program isn't on the certified list and doesn't use approved model forms, you may need to work with the provider to modify the agreements or find a different financing option.
References
For the official guidelines, see B5-5.3-02: Shared Equity Transactions: General Requirements in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B5-5.3-02, Shared Equity Transactions: General Requirements (02/05/2025)
General Requirements
Rights to Insurance Settlements and Condemnation Proceeds
General Requirements
The following table describes general requirements for shared equity transactions.
Required legal documentation
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
If the program is listed on the
If the ground lease is not based on either of these models and is not included on the list, the lender may recommend the community land trust program apply for certification through the
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:
Resale restriction requirements
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 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.
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.
Additional requirements for properties subject to private transfer fees
A shared equity loan with a note date on or after July 1, 2023, secured by a property subject to a private transfer fee covenant is eligible for sale to Fannie Mae provided that the private transfer fee covenant qualifies as an "excepted transfer fee covenant" under 12 C.F.R. § 1228.1(2).
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 requirement.
Special Feature Codes
Lenders must report SFC 181 when delivering shared equity loans with an excepted 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
Lenders may choose to use the
Programs on the Shared Eq - Model Forms tab also meet eligible shared equity provider requirements in
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.
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.
Required riders and amendments
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 a Community Land Trust Ground Lease Rider. The rider must be executed by the borrower and the ground lessor and recorded along with the ground lease. The form
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 the rider is modified or is not executed.
No additional Fannie Mae forms are required.
Rights to Insurance Settlements and Condemnation Proceeds
Fannie Mae must have first claim to insurance settlements and condemnation proceeds.
Notification to Third Parties
The terms of the shared equity legal agreement (as modified by a Community Land Trust Ground Rider, if applicable) may require the servicer to notify an interested third party, such as the shared equity provider or its designee, when the borrower defaults on the loan or in the event of foreclosure. In this case, the servicer must ensure proper notification is provided, as required by the terms of the legal agreement.
Regardless of any third-party notification requirements, the servicer is still responsible for adhering to Fannie Mae's established timeframes for completing routine foreclosure. Any third-party notifications required in addition to the required statutory notifications must not impair the servicer's ability to foreclose.
