Do Freddie Mac Reserves Transfer After an Assumption?

[Chris Eaker]

When a new buyer assumes a Freddie Mac loan on an apartment complex, do the current reserves transfer with the loan to the new buyer/borrower? If so, is it automatic, or does the buyer need to negotiate that into the purchase contract?

[Brian Murray]

Hey Chris!  Freddie Mac has different programs, some of which require reserves and some that don't.  I have two multi-family loans with Freddie Mac right now that have some pretty onerous reserve requirements.  Unfortunately, the funds in all the reserve accounts are typically disbursed to the seller at closing when the mortgage is assumed.  The lender (in this case Freddie Mac) will typically require that the Buyer to replace all those funds at closing as one of the contingencies in their approval of the assumption.  This can be a pretty significant problem at times because reserve accounts can grow rather large over the years.

My recommendation is that you include a clause in your purchase agreement that will give you a credit at closing equal to the total amount of funds that the seller has in their reserve account(s) at closing.  For the replacement reserve (if it exists) maybe something like this can be inserted (but consult your attorney)

You can adjust the language to be broader if you want- maybe something along these lines (again, I'm not an attorney so consult an attorney):

The seller may balk at this, but it's worth a try.  It has worked for me on several different projects.  Most sellers are more focused on getting top dollar than the closing adjustments.

Good luck!

PS Thank you @Scott S. for the shout-out on the book!