SBL Documentation: The complete set of financial, legal, and property records required by Freddie Mac to verify every number in your loan application. Documentation isn't bureaucracy—it's the audit trail that makes securitization possible.
Why Does Documentation Kill So Many Deals?
You passed eligibility. The underwriting math works. Now comes the part that kills 80% of deals.
Freddie Mac SBL isn't a portfolio loan where a relationship banker overlooks gaps. Your loan gets packaged into a security. Investors buying that security need to trust every number. That trust comes from one place: documentation.
What Are the Four Document Categories?
Every SBL loan requires four categories of documents. Missing any single document can stall—or kill—your deal.
| Category | Purpose | Common Failures |
|---|---|---|
| Financial | Prove income and expenses | T-12 variance, commingled funds |
| Occupancy | Prove tenants and rents | Rent roll / lease mismatches |
| Entity | Prove ownership and control | SPE issues, name mismatches |
| Property | Prove condition and insurability | Insurance gaps, deferred maintenance |
What Financial Documents Are Required?
Financial documents establish your property's actual cash flow. Every number must be verifiable, reconcilable, and consistent.
Operating Statement (T-12)
T-12 Requirements
- Trailing 12 months of income and expenses, month by month
- Year-to-date figures for current period
- Prior two years of operating history (if available)
- Income broken out: base rent, Section 8, other income
- Expenses broken out by standard categories
- Variance under 5% when reconciled to bank statements
The 5% Rule: T-12 income must reconcile to bank deposits within 5%. If your T-12 shows $200,000 but bank statements show $185,000, that $15,000 gap either gets explained with source documents—or it gets excluded from underwriting.
What Bank Statement Requirements Apply?
Bank Statement Requirements
- 12 months of complete statements for all property accounts
- All pages included (no missing pages)
- Account holder name matches borrower or entity name
- Deposits reconcile to T-12 income (±5%)
The Commingling Problem: If property income is deposited into a personal account or mixed with other properties, you need a detailed reconciliation exhibit. This adds weeks to your timeline.
What About Tax Returns?
| Required | Most recent 2 years of filed tax returns |
| For Entities | K-1s for all partners + entity returns |
| Purpose | Verify historical income matches reported income |
The Tax Return Trap: If your Schedule E shows $80,000 NOI but your T-12 shows $120,000, you'll need to explain the variance. Common causes: capitalized vs. expensed maintenance, depreciation timing, cash vs. accrual.
What Occupancy Documents Are Required?
Occupancy documents prove who's in your building, what they're paying, and whether they'll continue paying.
What Must the Rent Roll Include?
Rent Roll Requirements
- Current rent roll dated within 30 days of application
- Unit number, tenant name, unit type, square footage
- Lease start date and expiration date
- Monthly rent amount and rent type (market, Section 8, etc.)
- Security deposit amounts
- Vacant units identified with market rent potential
- Outstanding balances or delinquencies noted
What Lease Documentation Is Needed?
Lease Requirements
- Copies of all current leases
- Lease terms match rent roll exactly
- Any amendments or addenda included
- Month-to-month tenants identified
- Signatures on all leases
The Mismatch Problem: Rent roll shows Unit 102 at $1,200/month. Lease shows $1,100/month. Which is correct? If there's a rent increase, you need the amendment. Without it, underwriters use the lower number.
The Fraud Filter: Red Flags Underwriters Catch
Underwriters are trained to think like skeptics. They've seen fabricated rent rolls. These patterns trigger immediate scrutiny:
| Red Flag | What It Signals | Why It Matters |
|---|---|---|
| Round Number Rents | Every unit at $1,000, $1,200, $1,500 | Real market rents are $1,045, $1,187, $1,523. Rounded numbers suggest fabrication. |
| Missing Security Deposits | Zero deposit on file for occupied units | No deposit = no leverage over tenant = high collection risk. |
| Perfect Lease Dates | All leases start on 1st, end on 31st | Real leases have staggered dates. Uniform dates suggest backdating. |
| Identical Signatures | Same handwriting across multiple leases | Indicates leases may have been fabricated by one person. |
| No Delinquencies | 100% collection rate, zero arrears | Every property has some collection issues. Perfect is suspicious. |
Think Like an Underwriter: Before submitting, ask yourself: "If I were looking for fraud, what would I flag?" Fix those issues before the lender finds them.
What Section 8 Documentation Is Required?
Section 8 Requirements
- HAP (Housing Assistance Payment) contracts for each voucher holder
- Current payment standards showing contract rent vs. tenant portion
- Bank statements showing HAP deposits (must trace to specific tenants)
- Most recent inspection reports (if available)
The Affiliate Account Problem: HAP payments going to a management company account? If you can't prove that income flows to the subject property, it doesn't count. Provide allocation schedules and inter-company transfers.
What Entity Documents Are Required?
Entity documents prove who owns the property, who controls the borrower, and that the borrowing entity is properly structured.
What Does the Borrower Entity Need?
Entity Requirements
- Operating Agreement or Bylaws (current, fully executed)
- Certificate of Formation / Articles of Organization
- Good Standing Certificate (dated within 30 days)
- EIN Letter from IRS
- Organizational chart showing ownership to natural persons
What Freddie Mac Forms Must Be Signed?
Beyond your own documents, you'll execute several Freddie Mac-specific forms at closing:
| Form | Purpose | Who Signs |
|---|---|---|
| Form 1112 | Borrower Certification—certifies all representations are true and complete | Borrower entity + Key Principal |
| Form 6025 | Guaranty—the "bad boy carve-outs" creating personal liability for fraud, misrepresentation, environmental issues | Key Borrower Principal (personal guarantee) |
| Form 1116 | Environmental Indemnity—personal liability for environmental contamination | Key Borrower Principal |
The Form 6025 Trap: The Guaranty is not negotiable. If you lie on your application—even unintentionally—you've triggered personal recourse. The "non-recourse" loan becomes full recourse on fraud, waste, environmental contamination, and bankruptcy interference.
Why Does the SPE Requirement Matter?
| SPE Purpose | Bankruptcy remote structure protecting the collateral |
| Preferred | Newly formed entity with no prior history |
| Recycled SPE | Existing LLC stripped of all other assets and liabilities |
The Recycled SPE Trap: Using an existing LLC? You'll need to prove all prior assets and liabilities have been removed. This includes prior financial statements, lien searches, and representations from counsel. Expect weeks of additional paperwork.
What Property Documents Are Required?
Property documents prove the physical asset is insurable, maintainable, and free of major defects.
What Insurance Coverage Is Required?
Insurance Requirements
- Property insurance with replacement cost coverage
- Liability coverage minimum $1M per occurrence
- Flood insurance (if property is in flood zone)
- Lender named as mortgagee / loss payee
- All buildings on the policy with correct addresses
- Policy current (not expired)
The Building Count Trap: Insurance shows 4 buildings. Property actually has 6 buildings. Two buildings aren't covered. This kills deals at the last minute.
What Third-Party Reports Are Ordered?
| Report | Purpose | Typical Cost |
|---|---|---|
| Appraisal | Establish property value for LTV | $2,500 - $5,000 |
| Phase I ESA | Environmental risk assessment | $2,000 - $3,500 |
| PCA | Property Condition Assessment | $2,500 - $4,000 |
| Survey | Legal description and encroachments | $2,000 - $4,000 |
| Seismic | Required in seismic zones (CA, etc.) | $1,500 - $3,000 |
Report Ordering: Third-party reports are ordered through Freddie Mac's approved vendors after your loan application is submitted. Expect $8,000-$15,000 in total report costs, paid upfront and non-refundable.
Why Does Chain of Custody Matter?
Why can't you just email Excel files to your lender? Because Guide Section 55SBL.1(a)(1) requires a clean Chain of Custody. Securitization demands that every document be traceable, unaltered, and stored in an auditable system.
| Portal Upload | Timestamped, version-controlled, audit trail preserved |
| Email Attachments | No version control, no audit trail, breaks chain of custody |
The Email Trap: You email a T-12. Lender asks for corrections. You email a revised T-12. Now there are two versions floating in inboxes with no clear audit trail. When the loan gets packaged for securitization, which version is in the file? This is why lenders require portal uploads—and reject email submissions.
What Are Stipulations and How Do I Handle Them?
After initial submission, the lender will issue "stips"—stipulations for additional documentation or clarification.
| Stip Type | Example | How to Prepare |
|---|---|---|
| Income Variance | "Explain $8,000 variance in June deposits" | Keep all source documents organized by month |
| Missing Lease | "Provide executed lease for Unit 205" | Audit lease folder before submission |
| Entity Clarification | "Provide amended operating agreement" | Have attorney review entity docs first |
| Insurance Update | "Add building at 123 Main St to policy" | Verify building count matches policy |
| Section 8 Verification | "Provide HAP contracts for Units 101, 103" | Request current HAPs before application |
Stip Response Time: You typically have 5-7 business days to respond. Slow responses = rate lock expiration. Have your documents organized and a team ready.
What Should I Verify Before Submission?
Pre-Submission Checklist
- T-12 Reconciliation: Does T-12 income reconcile to bank deposits within 5%?
- Rent Roll Audit: Does every lease match the rent roll (rent, dates, names)?
- Bank Statement Review: Are all 12 months complete with no missing pages?
- Section 8 Package: Do you have HAP contracts and traceable deposits for every voucher holder?
- Entity Documents: Is the borrower a clean SPE with current good standing?
- Insurance Verification: Does the policy cover all buildings at correct addresses?
- Name Consistency: Do entity names match across all documents?
The Bottom Line: Every document tells a story. Every story must match. One inconsistency creates a stip. Multiple inconsistencies create doubt. Doubt kills deals.