Fannie Mae Deed for Lease Program
Allows Foreclosing Borrowers to Rent Their Home With the D4L Program
Homeowners facing foreclosure with a Fannie Mae mortgage who do not meet the requirements for a loan modification can stay in their homes with Fannie Mae's Deed for Lease program. Borrowers have to pay market rate rent, but those payments are usually cheaper than the old mortgage payment.
In exchange for giving up ownership of their home, the Deed for Lease program allows borrowers to stay in their home for an additional period of time. There are D4L tenant provisions that allow renters to participate as well.
Deed for Lease Requirements
There are a few requirements that need to be met to qualify for the Deed for Lease program. The borrower requirements are:
- Borrower cannot afford to make the mortgage payment but can afford the rent payment.
- Mortgage company must show why the debtor did not qualify for a loan modification.
- Borrower must voluntarily give up ownership of the home to the lender by completing a deed in lieu (DIL) of foreclosure.
- Rent must not be greater than 31% of gross income.
- Borrower must not be filing bankruptcy.
- At least three payments have been made since origination or last loan modification.
- Borrower must not be more than 12 payments past due at time of application to D4L.
- Borrower must have income.
- If pets are present, renter's insurance may be required.
- All occupants 18 years of age or older must undergo a credit check as well as a background check.
There are additional property requirements as well:
- The property must be habitable, with a reasonable amount of repairs relative to the property's value.
- Rent must be at market rate.
- All subordinate liens must be released.
- No evidence of illegal activities on the property.
- Rental and number of occupants must not not be in violation of federal, state, and local laws as well as homeowner's association (HOA) rules.
- Property must be used as a primary residence.
- No sublets / subleases allowed.
Getting a Fannie Mae Rental Lease
To begin D4L, contact the mortgage servicer requesting participation in Deed for Lease. The bank will begin the process for a deed in lieu (DIL) of foreclosure and forward the borrower's information to a property management company for purposes of qualifying the applicant for a lease.
Someone from the property management company will call within three business days to get information needed to qualify for a rental lease. A $75 non-refundable lease application fee payable to the property management company is required. If the lease is approved, the management company will notify the applicant of the terms of the lease, including the rent. If the terms of the lease are acceptable to the applicant, he can sign the lease but it will not be effective until the DIL has been accepted by the mortgage servicer.
If the property is sold during the initial or subsequent lease, the lease will be assigned to the new owner, so tenants do not have to worry about having to vacate unexpectedly.
The Deed for Lease program helps both the borrower deal with the foreclosure process while allowing the community to maintain property values by not putting too much housing inventory on the market at a bad time. Those who are in homes with Freddie Mac can take advantage of a similar program that provides for month-to-month leases.
Readers interested in this article may also be interested in reading about the effects of late mortgage payments as well as the process of applying for bankruptcy.
References:
Timiraos, Nick. "Fannie to Rent Foreclosed Homes." Wall Street Journal (November 5, 2009).
Fannie Mae. "Fannie Mae Announces Deed for Lease™ Program" (November 5, 2009).
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