Fannie Mae recently announced updates to its Multifamily Loan Documents with Lender Letter (25-04). Since that time, Fannie Mae released a revised Lender Letter (25-04R) that changed the mandatory date for use of the loan documents from July 28, 2025 to August 4, 2025. The updates may be used immediately and must be used for: (i) all Mortgage Loans (other than forward conversions), with a confirmed Commitment Date on or after August 4, 2025, and (ii) forward conversions occurring on or after August 4, 2025, provided that such use is consistent with the Forward Commitment Letter.
The Krooth & Altman Team at Miles & Stockbridge has highlighted key points from the letter to help you get up to speed on the changes. We begin with the items most likely to be friction points for borrowers—a topic of particular interest to our lender clients—followed by a summary of other changes that warrant special attention.
Areas of Potential Borrower Friction
- The definition of Acquisition is broad enough to include recapitalizations where there is no change in control. If a recapitalization is characterized as an acquisition, then additional requirements apply. Fannie Mae is looking into this question.
- Section 3.02(a)(10) includes an additional loss suffered non-recourse carveout for fraud by a Principal in connection with underwriting of the loan and transfers and assumptions.
- Section 3.02(b)(4), the full non-recourse carveout was modified to cover fraud by indirect owners in connection with the loan application and transfers and assumptions. An indirect non-principal owner should not cause fraud in connection with the loan application and transfers and assumptions since they would not be completing underwriting forms or providing information to the Lender, but sponsors may struggle with this concept.
- In Section 11.02(b), lender consent is now required for a transfer of a non-controlling interest that results in an entity or person that wasn’t a Principal at origination of the mortgage loan becoming a Principal after such transfer, even if the transfer is otherwise below the 50% threshold that previously did not require lender consent. The requirements for lender consent are 30-day prior notice and the lender confirming that the Principal is not a Prohibited Person or a Blocked Person. The Blocked Person definition covers the standard no anti-money laundering, economic sanctions, OFAC, etc. requirements and the Prohibited Person check is where the Lender would run an ACHECK. This provision will mean that post-closing transfers where a party did not have to submit to Principal level underwriting if they were admitted post-closing, will now require Principal level underwriting when their equity is contributed to the Borrower.
- The Supplemental Loan Rider to the LSA (Form 6211) was revised to include a disclosure requirement to Lender of any change in the ownership of the Borrower and how the supplemental loan proceeds will be used. Even permitted transfers that result in a change in ownership between the senior loan origination date and the supplemental loan will require disclosure.
Other Notable Changes
- Section 2.04 of the Loan and Security Agreement has a new “Loan Purpose” section under which loans are classified as Acquisition and Refinance loans. The requirements are consistent with the anti-fraud concepts in the recent additional diligence requirements.
- Section 3.02(a)(9) includes a new non-recourse carveout for loss suffered associated with payment of transfer, recordation or other taxes that may be due in connection with an acquisition of controlling interest. In some jurisdictions, there is a benefit to the borrower to acquire a property through an acquisition of ownership interest instead of through an acquisition of title to the property. The benefit to the borrower may be through transfer and recordation tax savings but more often the primary benefit is that the property does not get re-assessed for real estate taxes. These transactions are often called “drop and swap” transactions.
- The organizational chart requirements in Section 4.01(a) have been updated to specifically include inclusion of non-member managers, 10% foreign owners and immediate family members that aggregated together own 25% in the borrower. The latter requirement syncs up with the underwriting change on aggregating immediate family members that would have a 25% ownership interest in the borrower. The ongoing annual reporting requirements in Article 8 have been modified accordingly.
- In 4.01(i) and 4.01(j) of the LSA, the no bankruptcy and litigation representations now cover Principals. The representations as to Principals are qualified to the Borrower’s knowledge.
- 6.02(a)(7) of the LSA prohibits the Borrower from obtaining a tax exemption post-closing without the consent of the Lender. This closes a loophole in the LSA where there was no express Lender consent requirement for post-closing tax abatements, even though Fannie Mae required consent in asset management.
- The concept of force majeure extending the completion period for a repair in Section 6.02(b) (4)(D) of the LSA has been removed, so the completion date is a hard completion date.
- Section 9.02(b)(7) includes an affirmative covenant to report any cancellation of a specific insurance coverage or any modifications to the insurance policy that reduce coverage.
- In 11.02(b)(2)(E), raising equity post-closing through crowd funding without lender consent is expressly prohibited.
- The definition of Mezzanine Debt was revised to expressly include pledges of net cash flow.
- The Cross Default/Cross Collateralization Rider to the LSA includes specific instructions to confirm that the organizational documents of the borrowers permit the cross default and cross collateralization.
- There is a new Recycled Borrower Rider to the LSA to address the fact pattern where the Borrower owned another property other than the mortgaged property. Note that if the loan is over $100MM or if the Borrowers are co-tenants, the Lender will need to check with Fannie Mae as to whether a recycled entity is acceptable.
- The 6460 for Borrower and Key Principal/Principal has been modified to remove the representation that an affiliate of the Borrower that is under common control with the Borrower has not had a bankruptcy event or foreclosure history.
- There is now a tailored reverse exchange consent to transfer agreement.
- For negotiated transfers of non-controlling interest, in the Form 6240.T3, there is a theme of identifying a percentage ownership by the Key Principal that should be retained in connection with the transfer.
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