What Community Land Trust Properties Are
Community Land Trusts represent a unique homeownership model where you buy the house but lease the land underneath it. The trust retains ownership of the land to keep housing affordable for future buyers. This arrangement requires special mortgage documentation that satisfies both the trust's affordability goals and Fannie Mae's lending requirements.
The ground lease creates your legal right to use the land for residential purposes. Think of it like a very long-term rental agreement for the land, typically lasting 99 years, while you own the house sitting on top of it.
Ground Lease Requirements That Matter for Your Mortgage
Your Community Land Trust ground lease must meet specific criteria for Fannie Mae mortgage eligibility. The lease needs a minimum 30-year term, though most run much longer. This gives lenders confidence that your housing arrangement will outlast the mortgage term.
The lease must include a resale formula that limits how much you can sell the house for. This restriction stays with the property even after you sell, ensuring the next buyer also gets an affordable home. The formula typically allows you to capture some appreciation while keeping the home affordable.
Your lease must give the Community Land Trust the right of first refusal when you decide to sell. This means the trust gets the first opportunity to buy your home at the restricted price before you can sell to anyone else.
The trust must also approve any refinancing or second mortgages, including home equity lines of credit. This requirement protects the trust's interest in maintaining affordability and prevents you from taking on debt that could jeopardize the property.
Model Ground Leases Make the Process Easier
If your Community Land Trust uses a ground lease based on the National Community Land Trust Network 2011 model or the Institute for Community Economics model, your lender's job gets simpler. These model leases already meet Fannie Mae's requirements, so the lender doesn't need to review every clause.
Many Community Land Trusts appear on Fannie Mae's Certified Shared Equity Program list. If your trust is on this list, the lender can proceed with confidence that the ground lease meets all necessary requirements.
If your trust isn't on the certified list and doesn't use a model lease, your lender must review the entire ground lease document to confirm it meets all Fannie Mae requirements. This review can add time to your loan process.
Required Documentation for Your Mortgage File
Your lender must include specific documents in your mortgage file. The file needs an original executed copy or certified copy of the Community Land Trust ground lease. This document proves your legal right to occupy and use the property.
The lender must also include either Fannie Mae Form 2100 or Freddie Mac Form 490, the Community Land Trust Ground Lease Rider. This rider gets recorded with your mortgage and ground lease in the public records. It ensures that mortgage requirements align with the ground lease terms.
If your Community Land Trust appears on Fannie Mae's Certified Shared Equity Program list, your lender must include evidence that the trust was on the list as of your loan's note date. This documentation protects against changes in the trust's certification status.
What Happens When You Sell
The resale restrictions in your ground lease affect what happens when you sell your home. If you sell for more than the restricted resale price, the excess proceeds don't all go to you. The Community Land Trust may be entitled to some or all of the excess, depending on your specific ground lease terms.
Say your ground lease allows you to sell for $200,000 based on the resale formula, but you actually sell for $220,000. That extra $20,000 might go to the Community Land Trust rather than to you, depending on how your lease handles excess proceeds.
If you face foreclosure and the lender sells the property for more than what you owed, similar rules apply. The Community Land Trust may receive excess proceeds above what's needed to pay off the mortgage and foreclosure costs.
Common Complications and Gotchas
Ground lease language can create problems if it's not carefully written. Some leases include approval requirements that are too restrictive for mortgage lenders. For example, if the trust has unlimited discretion to reject refinancing requests, lenders may not approve the mortgage.
The 30-year minimum lease term can trip up some Community Land Trusts. If your lease has less than 30 years remaining, you won't qualify for a Fannie Mae mortgage. This becomes an issue with older ground leases that haven't been renewed.
Some Community Land Trusts try to restrict the types of mortgages you can get. If your ground lease prohibits certain loan programs or requires specific lender approvals beyond standard underwriting, you might face mortgage eligibility problems.
The leasehold estate must constitute real property under your state's law. In some states, certain types of ground leases create personal property rights rather than real property rights. Personal property rights can't secure a real estate mortgage.
Why These Rules Exist
Fannie Mae's Community Land Trust requirements balance affordable housing goals with mortgage investor protection. The resale restrictions preserve affordability for future buyers, which supports the public policy goals behind Community Land Trusts.
The approval requirements for refinancing protect the trust's interest in the property while ensuring you can access mortgage credit when needed. Without these protections, trusts might lose control over affordability, or homeowners might find themselves unable to refinance.
The documentation requirements ensure that all parties understand their rights and obligations. When a mortgage investor buys your loan, they need clear evidence of the property rights securing their investment.
References
For the official guidelines, see 4502.7: Requirements for Community Land Trust Ground Leases and Ground Lease Riders in the Fannie Mae Selling Guide.
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Original Freddie Mac Guideline Text
This section contains sub-sections related to:
Community Land Trust Ground Lease
Leasehold estate eligibility requirements
(a)
(i)
Ground lease requirements
The Seller must review the Community Land Trust’s ground lease and determine whether it is based on the National Community Land Trust Network (NCLTN) 2011 Community Land Trust Network Model Ground Lease or the Institute for Community Economics (ICE) Model Ground Lease (collectively, the “model ground leases”).
For Community Land Trust programs included in Fannie Mae’s Certified Shared Equity Program list, which is available at
https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/shared-equity-programs
(opens in new window)
, the Seller may sell such Community Land Trust Mortgages to Freddie Mac, provided that,
If the Community Land Trust’s ground lease is based on one of the two model ground leases, the Seller is not required to comply with the additional ground lease requirements in
; or
If the Community Land Trust’s ground lease is not based on either of the two model ground leases, the Seller must confirm that the ground lease complies with the additional ground lease requirements in
Section 4502.7(a)(ii)
The resale restrictions in the Community Land Trust Ground Lease can be imposed by State or local governments, municipalities, instrumentalities or nonprofit entities to create and preserve affordable housing (including entities administering governmental-sponsored subsidy programs).
For each Community Land Trust Mortgage sold to Freddie Mac, the Seller represents and warrants that the Community Land Trust Ground Lease is valid, enforceable and in full force and effect.
(ii)
Additional ground lease requirements
The Seller must confirm that the Community Land Trust Ground Lease:
Has a term of at least 30 years
Includes a resale formula that limits the homeowner’s proceeds at resale. The restrictions must be binding on current and subsequent property owners and remain in effect (i.e., survive) until they are formally removed, are modified or terminate automatically in accordance with their terms, such as at a foreclosure sale or upon recordation of a deed-in-lieu of foreclosure.
Provides the Community Land Trust or its assignee the right to a preemptive option to purchase the home from the homeowner at resale (“the right of first refusal”)
Requires the Community Land Trust to review and approve any refinances and secondary financing, including Home Equity Lines of Credit (HELOCs)
Requires that the homeowner use the leased land and the improvements primarily for residential uses
(iii)
Freddie Mac prior written approval
If the Community Land Trust’s ground lease is not based on either of the two model ground leases or is not included in Fannie Mae’s Certified Shared Equity Program list, Freddie Mac’s prior written approval is required.
With prior written approval from Freddie Mac, Community Land Trusts certified under a Freddie Mac-approved certification program may be exempt from Seller review of the Community Land Trust’s ground lease, and Sellers will be relieved from enforcement of representations and warranties that the Community Land Trust Ground Lease is valid, enforceable and in full force and effect. The Seller must obtain Freddie Mac’s written approval before selling Mortgages without review of the Community Land Trust’s ground lease by contacting its Freddie Mac representative or Customer Service at 800-FREDDIE.
(iv)
Excess proceeds for Community Land Trust Mortgages
The Community Land Trust may be entitled to any applicable excess proceeds when there is a transfer of title on a Community Land Trust property that occurs as a result of such property being sold by:
The Borrower for an amount exceeding the resale restricted price, or
Freddie Mac after acquiring title through a completed foreclosure sale or deed-in-lieu of foreclosure
Excess proceeds on Community Land Trust properties are those proceeds that are above the amount required to satisfy the total indebtedness, including any additional liens, claims or encumbrances, in addition to any amount(s) incurred during an REO holding period if title was acquired by Freddie Mac via a completed foreclosure sale or deed-in-lieu of foreclosure.
Upon satisfaction of the total indebtedness as outlined above, any excess proceeds should be distributed as outlined below:
For properties that are sold by the Borrower for an amount exceeding the resale restricted price agreed upon in the Community Land Trust Ground Lease:
First to the Borrower and Community Land Trust for equity due as agreed upon in the Community Land Trust Ground Lease, and
All remaining excess proceeds to the Community Land Trust when the Community Land Trust Ground Lease includes terms for excess proceeds to be distributed to the Community Land Trust
For properties that are sold by Freddie Mac after acquiring title through a completed foreclosure sale or deed-in-lieu of foreclosure:
First to Freddie Mac for any amount(s) incurred during an REO holding period, as applicable, and
All remaining excess proceeds to the Community Land Trust when the Community Land Trust Ground Lease includes terms for excess proceeds to be distributed to the Community Land Trust
Note: Servicers will not be responsible for these REO activities. For more information on Servicer responsibilities on REO properties, see
Chapter 9601
.
(b)
Leasehold estate eligibility requirements
The leasehold estate created by the Community Land Trust Ground Lease must constitute real property under applicable law.
(c)
Freddie Mac has developed
Form 490, Community Land Trust Ground Lease Rider
, that must be completed, executed and recorded in the land records, together with the Community Land Trust Ground Lease.
Fannie Mae’s Form 2100, Community Land Trust Ground Lease Rider, may be used in lieu of
. Requirements pertaining to
Form 490
in the Guide apply to Fannie Mae’s Form 2100, when applicable.
(d)
Mortgage file requirements
The Mortgage file must contain an original executed or certified copy of the Community Land Trust Ground Lease and the
Form 490
containing the recordation information.
If the Community Land Trust program is included in Fannie Mae’s Certified Shared Equity Program list, the Seller must include in the Mortgage file evidence that the Community Land Trust program is included in Fannie Mae’s list as of the Note Date.
