Section 401

Lease Audit

401.01

Generally

Requirements

Before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. , you must:

  • complete a thorough lease audit to reconcile the rent roll with the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). signed leases; and
  • comply with the following table.
Lease Audit Review
For Properties with... You must review at least...
5 - 9 units all available leases.
10 - 100 units

the greater of

 

  • 5 units or
  • 10% of all leases.
101 - 300 units 10% of all leases.
301 - 900 units 40 leases.
901+ units 50 leases.

When auditing the leases, you must:

  • analyze the entire tenant file, including, whenever available
    • identification records,
    • verification of employment and income, and
    • credit verifications;
  • audit leases for all inspected units;
  • include new and recently renewed leases to verify rent trends;
  • increase the number of leases reviewed if you find
    • material discrepancies, or
    • lack of adequate documentation in the files;
  • document your results in a lease audit form; and
  • summarize the results in your Transaction Approval Memo, including any documents that were unavailable for review, and why.

If the management company engages a third party to review and approve the tenant qualification documents, you must:

  • review the documents; and
  • explain your rationale in the Transaction Approval Memo if any documents are unavailable for review (e.g., a national tenant qualification firm completed and documented the review, etc.).
401.02

Lease Audit Notification

Requirements

Before the inspection, you must email the BorrowerBorrowerPerson who is the obligor per the Note. and management company:

  • specifying the minimum lease audit requirements; and
  • requesting full records access to ensure your ability to perform additional due diligence for any identified critical issues.
401.03

Validating Rent Collections, Bad Debt, and Secondary Income

Requirements

When validating rent collections, you must:

  • review 1 of the following:
    • a cash ledger;
    • receipts journal;
    • at least 3 months of bank statements confirming the rent deposits; or
    • similar documents;
  • meet with the site manager to obtain and discuss:
    • an accounts receivable report; or
    • past rent due report;
  • compile a lease audit form or record to validate the lease terms against the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). rent roll;
  • include your lease audit form with your underwriting documents delivered to DocWayDocWayBusiness-to-business electronic documentation delivery application, or any successor system. ; and
  • document your findings in the Transaction Approval Memo.

You must use the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. , other comparable PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). information, or third-party data sources to validate secondary income related to:

  • ratio utility billing system (RUBS);
  • cable;
  • laundry;
  • parking; or
  • any other tenant income.

Guidance

You should confirm the management company uses:

  • acceptable practices for day-to-day operations; and
  • industry-standard software systems to generate detailed reports.

You may obtain sample management company reports, such as

  • rent rolls,
  • operating statements,
  • operating budgets,
  • capital improvement plans, and
  • marketing.