How should you choose the right scope of work for your due diligence assessment if you haven’t yet decided on a lender? I often field calls from clients who have recently gone under contract on a multifamily housing asset asking me to prepare a Phase I Environmental Site Assessment (ESA) and Property Condition Report (PCR) as part of their due diligence. My first question is always: “Have you selected a lender?” A typical response is: “It’ll likely be a Fannie Mae or a Freddie Mac loan, but I’m not sure yet which way it’ll end up.”
Same Same but Different
Fannie Mae and Freddie Mac each have specific guidelines for third-party inspections and reports, most notably for Phase I ESA and Property Condition Reports (which Fannie calls a Physical Needs Assessment) in order to qualify for their loan programs.
Here are some of the major differences between Fannie Mae and Freddie Mac scopes of work. On the Phase I ESA, beyond the typical ASTM requirements, Freddie Mac requires radon assessments and asbestos containing material (ACM) testing at almost all properties, whereas Fannie Mae’s requirements for these items are much more asset specific.
On the PCR (or PNA when using Fannie terminology), Freddie Mac has much more stringent unit inspection requirements than Fannie Mae and requires the preparation of the 1105 Form, which is a “Multifamily Property Condition Form” specific only to Freddie Mac.
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