Under Fannie Mae Selling Guide B4-2.3-01, why is a zoning label alone insufficient to classify a project as a PUD?
Correct Answer
A) It also depends on the legal, association and common-area structure
For Fannie classification, PUD status depends on the legal project structure, required nonseverable association membership/assessments and common-property criteria. A zoning designation alone is insufficient; units legally created as condos or co-ops do not become PUDs merely from the zoning label. Consult the applicable program/project documents.
Why This Is the Correct Answer
Option A is correct because PUD status depends on the project's legal, association and common-area structure. Fannie Mae states that zoning is not a basis for classifying a project or subdivision as a PUD.
Why the Other Options Are Wrong
Option B: Zoning establishes a project’s PUD status without review of its legal form
Option B says zoning establishes a project's PUD status without review of its legal form. That contradicts the guidance that zoning is not a basis for PUD classification; the legal structure must be reviewed.
Option C: Condo and PUD are interchangeable labels for the same legal form
Option C claims condo and PUD are interchangeable labels for the same legal form. They are different legal structures, and a unit legally created as a condo does not become a PUD because of a label.
Option D: A PUD cannot require membership in a homeowners association
Option D says a PUD cannot require membership in a homeowners association. PUD classification typically involves required, nonseverable association membership and assessments, so this is incorrect.
Legal docs, not zoning maps
To classify a PUD, read the project's legal documents and association rules, not the zoning map.
How to use: Use this when a question asks how a project's type is determined.
Exam Tip
When classifying projects, favor answers based on legal structure and association requirements over zoning labels.
Common Mistakes to Avoid
- -Classifying a project as a PUD because of its zoning district
- -Treating condominiums and PUDs as the same legal form
- -Assuming PUDs do not require association membership
Concept Deep Dive
Analysis
This question tests Fannie Mae's project classification rule for PUDs. A PUD is defined by its legal structure, association membership and common property, so a zoning designation alone does not determine classification.
Background Knowledge
Project type affects lending eligibility and appraisal reporting. A PUD generally involves individually owned lots with common property maintained by an association that owners must belong to, while condominiums involve undivided interests in common elements under a condominium declaration.
Real-World Application
An appraiser finds a townhouse development in a district zoned PUD. Reviewing the recorded documents, the appraiser learns the units were created as condominiums and reports the project as a condominium rather than a PUD.
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