Mortgage and Foreclosure Law Blog

So last time we went over the major guidelines to qualifying for the Deed-In-Lieu program from Fanny Mae that allows homeowners to rent their home after "giving it back." I'd like to go over how this process works a little more in case anybody out there is looking for this kind of help.

The first step in the process is for the lender/servicer to determine if a Deed for Lease is a good option for the borrower and whether the borrower is even interested. The servicer will have to prescreen the borrower based on the qualifications outlined in the last post. If the property is tenant occupied, then the servicer should determine whether or not the tenant would like to continue to lease the property. The borrower will have to facilitate contact between the tenant and property manager, including providing the tenant’s contact information and a copy of the lease (if written). There will be a property manager assigned and they will contact the borrower directly to provide additional program details and set up an appointment.

The borrower must communicate with the property manager within five business days of obtaining the referral to set up the appointment; otherwise, the deed for lease opportunity will be cancelled. Generally the borrower or tenant should have about 11 business days for the lease to be signed and approved.

Next, the property manager will collect a non-refundable $75 lease application fee to process the deed for lease application, which includes running the background and credit check on the borrower or tenant. If a lease is approved, Fannie Mae will send an “Approval” e-mail to the servicer indicating lease acceptance and request the estimated deed for lease completion date. Fannie Mae will maintain the copy of the lease.

If a lease was approved, the borrowers execute in favor of Fannie Mae, the servicer, and their agents a general release of all claims arising prior to the acceptance of the DIL which relate in any way to the loan or the property. The servicer will not require that the property be vacant upon acceptance of the deed in lieu.

This is designed to be a much easier process than getting a loan modification. However there are still many hoops to jump through in the qualification process. If you have questions, contact us!

What options are there for people who can't afford their mortgage, can't qualify for a mortgage modification, and can't or won't file Bankruptcy to stay in their home? Are there other options to stay in your home? The answer is yes. In another post I will go over Short Sale options where you can rent from the person who purchases your home. In this series, however, I would like to go over Fannie Mae's Deed-for-Lease Program.

This is a program designed to work in tandem with a Deed-In-Lieu. This is where you would voluntarily transfer the deed to your lender or Fanny Mae and if you qualify, they will rent the home back to you in 12 months lease(s). There are pre-screening qualifications as well as instructions for servicers/lenders and borrowers. Let's first go over the main qualification requirements.

The Program eligibility is as follows:
- The loan has to be a first mortgage in a one to four unit dwelling.
- The loan can't be an FHA, HUD, VA, or Rural Development loan.
- The property must be a primary dwelling for the borrower or their tenant, no vacation homes.
- The loan has to have had at least three payments made on it. You can't get a loan in January and then stop making payments in February and eventually qualify for this program.
- You also can't be more than 12 months late on the loan payments.
- You can't be involved in a Bankruptcy or litigation on the property.
- There can't be any title issues that could result in litigation.
- You must have income, in other words they want to make sure you can pay rent.

No those are the main program requirements. There are of course other sensible requirements such as: Making sure there are no zoning restrictions on renting, making sure the home is habitable, that the rental income will cover ongoing maintenance and management costs.

Finally, there are specific occupant eligibility requirements. For instance the magic 31% of gross income. In other words, rental payments are set based on certain criteria and those payments can't be more than 31% of the occupant's gross income or the lease won't be offered. The occupant would also have to agree to maintain the property, get pet insurance if appropriate, get a credit check, and generally be a good tenant.

Next time I want to go over how the entire process works a little better. Stay Tuned and thanks for reading!