Project A: each owner holds title to an individual unit plus an undivided interest in the common elements. Project B: each owner holds fee title to a lot and its dwelling, and a mandatory owners' association owns and maintains the common areas, funded by assessments. How does Fannie Mae classify the two projects?
Correct Answer
D) A is a condominium; B is a PUD
A condominium owner holds a unit plus an undivided interest in common elements. In a PUD, owners hold title to their lots and dwellings, while a mandatory association owns and maintains common property for their use. Having an association or common areas does not by itself decide the classification; the legal form of ownership does.
Why This Is the Correct Answer
Option D is correct because Project A gives owners a unit plus an undivided interest in the common elements, which is a condominium. Project B gives owners fee title to their lots and dwellings, with a mandatory association that owns and maintains the common areas, which is a PUD. The ownership structure, not the presence of an association, drives the classification.
Why the Other Options Are Wrong
Option A: A is a PUD; B is a condominium
Option A reverses the classifications by calling A a PUD and B a condominium. Undivided interest in common elements is the condominium feature, and fee title to a lot with association-owned common areas is the PUD feature.
Option B: Both are PUDs because each has common areas
Option B calls both PUDs because each has common areas. Common areas exist in both forms, so they do not decide the type; Project A's undivided interest in common elements makes it a condominium.
Option C: Both are condominiums because each has an association
Option C calls both condominiums because each has an association. Associations exist in both forms; Project B's owners hold fee title to their lots while the association owns the common areas, which makes it a PUD.
Share It Condo, Own Lot PUD
Condo owners share an undivided interest in common elements; PUD owners own their lot while the association owns the commons.
How to use: Use this contrast to classify projects by who owns the common areas.
Exam Tip
Ignore distractors that point to associations or common areas; focus on how title to the unit, lot and common areas is held.
Common Mistakes to Avoid
- -Classifying by building style instead of ownership
- -Assuming any association means a condominium
- -Assuming all townhouses are condominiums
Concept Deep Dive
Analysis
This question tests the distinction between a condominium and a planned unit development. The legal form of ownership decides the classification: a condo owner holds a unit plus an undivided interest in common elements, while a PUD owner holds fee title to a lot and dwelling with an association owning the common areas. Having an association or common areas does not by itself determine the type.
Background Knowledge
Condominium ownership combines individual ownership of a unit with shared, undivided ownership of common elements. In a PUD, owners hold their own lots and homes, and an association owns common property for the members' use, funded by assessments. The distinction affects appraisal forms, project review and lender requirements.
Real-World Application
An appraiser receives an order for a townhouse and must decide between project types. Reviewing the recorded documents, the appraiser finds the owner holds fee title to the lot and the association owns the common grounds, so the property is reported as a PUD.
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