Written by Craig D. Robins, Esq.
If you have a Fannie Mae mortgage, are delinquent with your mortgage payments, and are headed towards losing your house in foreclosure, you may be able to get a temporary break. A new program entitled, “Deed for Lease” permits homeowners to transfer the deed to their house to Fannie Mae and sign a one-year lease. The program was just announced two days ago.
Why would Fannie Mae do this? The foreclosure process is usually lengthy and time-consuming. This program will permit families to stay in their homes (albeit for a limited period of time) and avoid the uncertainty of foreclosure.
However, the program is not for everyone. There is a detailed application process and you must be approved. Also, the program only applies to Fannie Mae mortgages.
Is the “Deed for Lease” program better than filing bankruptcy or engaging in foreclosure defense? Only an experienced bankruptcy attorney can really help answer that question. There are pros and cons with all options. The “Deed for Lease” program means losing your home — for good. On the other hand, filing a Chapter 13 bankruptcy enables the homeowner to cure the mortgage arrears over time and keep the home.
The program also guarantees a minimum one-year rental period, which also calls for a monthly rental payment. However, defending a foreclosure proceeding (assuming that there is a reasonable foreclosure defense) can often provide the homeowner with an even longer period to stay in the home, during which time the homeowner does not make any rent, mortgage or real estate tax payments. In the program, you would have to pay “market rate” for rent, which could be fairly pricey. For a typical Long Island home, that could easily be $2,000 per month or more.
Finally, even if the program sounds good for you, there is no guarantee that you will be accepted into it, and the approval process can take some time — and all the while the mortgagee can continue a foreclosure proceeding.
Of course, if the bank takes back a deed in exchange for a lease, the homeowner is off the hook for any mortgage deficiency. However, keep in mind that a Chapter 7 bankruptcy filing in New York would discharge such a deficiency.
If you’ve already filed for bankruptcy, you are not eligible for the program.
What are the details of the “Deed for Lease” program?
The mortgage servicer has to decide that the homeowner qualifies for a “deed in lieu of foreclosure.” Basically, borrowers who are in default on their loan voluntarily give the deed back to the lender, negating the need for a drawn-out foreclosure process. Traditionally this has been considered less damaging to the borrower than foreclosure, although both actions have severe effects on a borrower’s credit standing–and both result in loss of their home.
Borrowers-turned-tenants must be able to afford market rent on the home. That rent can’t exceed 31 percent of their monthly gross income, which must be documented.
Borrowers cannot have 12 or more past-due payments on their mortgage. And they must have made at least three payments since the loan was first taken out–or since the last time it was modified. Borrowers can’t be in the process of declaring bankruptcy.
Rentals are for 12 months, with the possibility of an extension.
The home remains available for sale, subject to the terms of their lease. Renters remain responsible for maintaining the property.
Only primary residences qualify. Landlords may qualify if their tenant has been using the home as a primary residence.
Mortgages backed by the FHA, VA or other government agencies don’t qualify.
Borrowers who think they might qualify for the new rent-back program should talk with their mortgage servicers, who, in conjunction with Fannie Mae, will figure out if they qualify for a rent-back offer.