What is a T-12 in real estate?

A T-12 (Trailing Twelve Months) is an operating statement showing the last 12 months of income and expenses for a property. Lenders use it to calculate Net Operating Income (NOI) and determine loan amounts. Bhumi provides forensic T-12 audits that reconcile every line item to bank statements.

How long does a T-12 audit take?

Bhumi delivers a complete, lender-ready T-12 package within 48 hours of receiving your documents. Full forensic reconstruction typically takes 1-2 weeks. Deal closing support runs approximately 30 days.

What size multifamily portfolios does Bhumi work with?

Bhumi specializes in $500K to $5M multifamily portfolios with 5-50 units. This is the sweet spot where institutional lenders require documentation but owners often lack institutional-grade bookkeeping - too complex for most accountants, too small for institutional advisors.

What documents do I need to start a T-12 audit?

To start, Bhumi needs three things: 12 months of bank statements for all accounts touching the property, a current rent roll showing units, tenants, and rent amounts, and your most recent tax return or Schedule E for the property.

How much does a T-12 audit cost?

Bhumi charges a flat fee based on portfolio complexity - number of units, bank accounts, and document condition. No hourly billing surprises. Contact for a specific quote based on your situation.

What lenders does Bhumi work with?

Bhumi is lender-agnostic and has prepared packages for Freddie Mac Small Balance Loans, Fannie Mae Small Loans, regional banks, credit unions, and private lenders. The documentation standards are tailored to each lender's requirements.

What is NOI variance and why does it matter?

NOI variance is the gap between what your T-12 operating statement shows and what your bank deposits prove. Lenders require zero variance for loan approval. Bhumi's forensic reconciliation traces every dollar of revenue to a specific bank deposit, eliminating phantom income and protecting your loan amount.

Can Bhumi help with inherited real estate portfolios?

Yes. Bhumi specializes in inherited portfolios where the previous generation ran operations manually. We've handled portfolios with Venmo payments, cash deposits with no paper trail, commingled personal and business expenses, and decades of accumulated documentation gaps.

Can I have a second mortgage with a Freddie Mac SBL loan?

Generally no. Freddie Mac prohibits most subordinate debt on SBL properties. Guide Section 4.6 explicitly restricts junior liens, mezzanine financing, and preferred equity that functions like debt. The exceptions are narrow: seller-held seconds with specific terms, and true preferred equity that meets strict requirements. Violating these restrictions—even after closing—can trigger a default.

What is mezzanine financing in multifamily?

Mezzanine financing is debt secured by ownership interests in the property-owning entity rather than the property itself. It sits 'between' senior debt and equity in the capital stack. While common in larger commercial deals, mezzanine debt is prohibited for Freddie Mac SBL loans. Lenders view it as additional leverage that increases default risk on the senior loan.

Does Freddie Mac allow preferred equity?

It depends on the structure. True preferred equity—with no mandatory redemption, no guaranteed returns, and subordination to senior debt—may be permitted. But preferred equity structured with debt-like features (fixed returns, mandatory payouts, redemption rights) is treated as prohibited subordinate financing. The substance matters more than the label.

How is Combined LTV calculated with subordinate debt?

Combined LTV (CLTV) includes all debt secured by the property or ownership interests: senior loan plus any subordinate mortgages, mezzanine debt, or debt-like preferred equity. For example: $4M senior loan + $500K mezzanine on a $5M property = 90% CLTV. Freddie Mac typically caps CLTV at 80%, which is why subordinate financing often kills SBL eligibility.

What happens if I add subordinate debt after closing a Freddie Mac loan?

Adding subordinate financing post-closing without lender consent is a loan default. The loan documents require consent for any additional liens or encumbrances. Even if you don't get caught immediately, the servicer will discover it during refinancing, sale, or annual compliance reviews. Penalties include acceleration of the loan (full balance due immediately).

Subordinate Financing: The Mezzanine Minefield

Definition

Subordinate Financing: Any debt junior to the first mortgage, including second mortgages, mezzanine loans, and preferred equity with debt-like characteristics. Freddie Mac prohibits most subordinate financing on SBL loans.

You found an apartment building you want to buy. The Freddie Mac loan covers 75% of the purchase price. You've got 15% in cash. Where does the other 10% come from? If you're thinking "second mortgage" or "mezz loan," stop. That structure will kill your Freddie Mac deal before it starts.

Why Does Freddie Mac Prohibit Subordinate Debt?

Subordinate financing increases leverage, which increases default risk. When a borrower has both senior and junior debt, they're incentivized to pay the senior lender first—but the total debt burden makes default more likely overall.

From Freddie Mac's perspective:

Higher leverage = higher default risk: A property with 90% CLTV is riskier than one with 75% LTV
Split incentives: Subordinate lenders may push for aggressive strategies that harm the senior loan
Foreclosure complications: Junior lienholders complicate workouts and foreclosure
Servicing headaches: Intercreditor disputes create delays and costs

Key Point

Guide Section 4.6 is explicit: "No subordinate financing is permitted except as specifically provided herein." The default rule is prohibition—exceptions are narrow and specific.

What Counts as "Subordinate Financing"?

The prohibition covers more than just second mortgages:

Type	How It Works	Freddie Mac Treatment
Second Mortgage	Junior lien recorded against property	Prohibited (with narrow exceptions)
Mezzanine Loan	Debt secured by ownership interests in entity	Prohibited
Preferred Equity (debt-like)	Equity with mandatory payments or redemption	Prohibited—treated as debt
Preferred Equity (true)	Equity with no mandatory payments, subordinate to debt	May be permitted
Seller Second	Seller-held note for portion of purchase price	Permitted with restrictions

The Exception: Seller-Held Seconds

Guide Section 4.6 allows seller-held second mortgages under specific conditions:

Seller Second Requirements

Seller-held only: Must be held by the property seller, not a third-party lender
CLTV cap: Combined LTV cannot exceed program maximum (typically 80%)
DSCR compliance: Combined debt service must still meet DSCR minimums
No payments for 12 months: Second must be fully subordinate with no payments in year one
Subordination agreement: Formal intercreditor agreement required (Form 1067)
30-year amortization minimum: No balloon payments or short terms

Example that works: You're buying a $5M property. Freddie Mac loan at 75% LTV = $3.75M. Seller holds a 5% second mortgage ($250K) with no payments for 12 months, 30-year amortization, subordinated via Form 1067. Combined LTV = 80%. This can work.

Example that fails: Same deal, but the seller wants 7% interest-only payments starting at closing. This violates the "no payments for 12 months" requirement. Deal dies.

Combined LTV and DSCR Calculations

When subordinate financing is present (seller seconds), Freddie Mac underwrites to combined metrics:

Metric	Senior Loan Only	With Seller Second
Property Value	$5,000,000	$5,000,000
Senior Loan	$3,750,000	$3,750,000
Seller Second	—	$250,000
Total Debt	$3,750,000	$4,000,000
LTV / CLTV	75%	80%

Combined DSCR Example

Item	Senior Only	With Seller Second
NOI	$375,000	$375,000
Senior Debt Service	$280,000	$280,000
Junior Debt Service (after year 1)	—	$18,000
Total Debt Service	$280,000	$298,000
DSCR	1.34x	1.26x

Warning

Even though the seller second has no payments in year one, Freddie Mac underwrites to the fully amortizing combined payment. The debt service holiday doesn't help your DSCR.

The Preferred Equity Workaround

Borrowers often ask: "Can I use preferred equity instead of mezz?" The answer is complicated.

True Preferred Equity (May Be Permitted)

Preferred equity that functions like actual equity—not debt—may be acceptable:

No mandatory redemption: Investor can't force buyout
No guaranteed returns: Returns depend on property performance
Fully subordinate: No claims ahead of or equal to senior debt
No voting control: Can't control operations or force sale
No remedies: Can't foreclose, accelerate, or take control

Debt-Like Preferred Equity (Prohibited)

Preferred equity with these features is treated as subordinate debt:

Fixed return requirements: "8% preferred return" that must be paid
Mandatory redemption: Must be bought out at specific date
Default remedies: Can take control if returns aren't paid
Priority payments: Gets paid before other distributions

Key Point

Freddie Mac looks at substance over form. Calling something "preferred equity" doesn't make it equity. If it walks like debt and quacks like debt, it's prohibited subordinate financing.

The Intercreditor Agreement (Form 1067)

When a seller second is permitted, Form 1067 (Subordination, Non-Disturbance and Attornment Agreement) governs the relationship:

Provision	What It Means
Subordination	Junior lien is fully subordinate to senior lien—Freddie Mac gets paid first in any scenario
Standstill	Junior lender cannot take any enforcement action without senior lender consent
Notice requirements	Junior lender must notify senior lender of any defaults
Payment restrictions	No payments on junior debt during senior loan default

What Happens If You Violate the Prohibition?

Discovered Before Closing

If Freddie Mac discovers prohibited subordinate financing during underwriting:

Deal is rejected
Must restructure capital stack
Time and costs lost

Discovered After Closing

If you add subordinate financing post-closing without consent:

Loan default: Immediate breach of loan documents
Acceleration: Lender can call full balance due
No refinancing: Can't refinance until subordinate debt removed
Sale complications: Title issues prevent clean sale

Warning

Don't assume the lender won't find out. Annual financial reporting, inspections, and any attempt to refinance or sell will surface undisclosed liens. The consequences are severe.

Alternative Capital Stack Structures

If you need more leverage than Freddie Mac alone provides, consider these compliant alternatives:

Structure	How It Works	Considerations
GP Equity	Bring in equity partners as co-GPs	Shared control, but no debt added
LP Equity	Raise LP capital for equity portion	Dilutes ownership but maintains control
True Preferred Equity	Non-debt-like preferred equity (see above)	Must meet strict requirements
Compliant Seller Second	Seller-held note meeting all Guide requirements	Only works with cooperative seller
Bridge Loan First	Use bridge with mezz, then refinance to agency	Higher initial cost, but allows leverage

Insider Terminology

Combined LTV (CLTV)

Total debt (senior + subordinate) divided by property value. Freddie Mac caps CLTV at 80% even when subordinate financing is permitted.

Guide Section 4.6

The Freddie Mac Multifamily Seller/Servicer Guide section governing subordinate financing. The default rule is prohibition; exceptions are narrow.

Intercreditor Agreement

Contract between senior and junior lenders establishing priority, payment waterfalls, and enforcement rights. Form 1067 is Freddie Mac's standard.

Mezzanine Debt

Debt secured by ownership interests in the property-owning entity (not the property itself). Prohibited for Freddie Mac SBL loans.

Preferred Equity

Equity with preferential return rights. True preferred equity (no mandatory payments) may be permitted; debt-like preferred equity is prohibited.

Key Takeaways

Bottom Line

Default rule is prohibition: Most subordinate financing kills Freddie Mac eligibility
Seller seconds are the exception: But only with strict compliance to Guide Section 4.6
Substance over form: Calling it "preferred equity" doesn't make it equity
CLTV and combined DSCR matter: Even permitted subordinate debt affects your metrics
Post-closing violations are defaults: Don't add liens without lender consent