Freddie Mac has very specificrequirements for environmental and engineering due diligence. Freddie Mac Phase 1 Environmental Site Assessmentsand Engineering Assessments (also called Property ConditionReports) have to be conducted according to Freddie’s Multifamily Seller/Servicer Guide, whichoften goes above and beyond standard due diligencerequirements.

In the past year, Freddie Mac hasreleased updates on requirements for environmental due diligenceand guidance for environmental and engineering bestpractices. The updates and guidance have centered onclarifying and expanding the scope of work that consultants mustperform – which makes one wonder if perhaps Freddie Mac hadreceived numerous bad reports from unqualified servicers. Servicersmust be well acquainted with Freddie’s standards including therecent changes in order to avoid delays and facilitate the duediligence process.

Freddie Mac Due Diligence BestPractices

The Freddie Mac Best Practices released in Augustof 2010 contains many helpful tips for lenders. Particularly,Freddie Mac advises lenders on:

• Selecting the best environmental and engineering consultants(not strictly on price or turnaround time)
• Communication between lender, seller and consultant (providerelevant information upfront and feedback in a timely manner)
• Evaluating consultant reports (reviewing the whole report, notjust the executive summary, for thoroughness and compliance)

The guidance also advisesconsultants on common mistakes in conducting Freddie Mac Phase 1 ESAs andFreddie Mac Property Condition Reports. Commonenvironmental and engineering consultant errors include:

• Not evaluating risks
• Not indicating when further study is required to quantify aconcern
• Inadequate justification of waiver requests
• Omitting costs to complete work in progress
• Manipulating the reserve analysis
• Not following up on pending information
• Not following the asbestos or radon gas scopes of work forsampling

• Not including recommendations and cost estimates for identifiedconcerns

Freddie Mac May 2011 EnvironmentalRevisions

The most recent environmentalrequirements of the Freddie Mac Multifamily Seller/Servicer Guidewere released on May 31^st, 2011. Click here for a full detail of the changes. The mostsignificant change is a new requirement for the environmentalconsultant to indicate whether there is a State Super Lien Law inthe state of the subject property. The State Super Lien wouldallow the state to put a first priority lien on the property as aresult of environmental contamination.

Another recent change isclarification on when and how asbestos testing should be conducted,as well as when an asbestos Operations and Maintenance (O&M)Plan is acceptable in lieu of testing. The consultant’sopinion on whether asbestos testing is required cannot be basedsolely on the construction date of the building.