Fannie Mae Deed for Lease Program is It for You?

Fannie Mae has a program out that is designed to help homeowners in danger of foreclosure. The program is new and the bugs have not been worked out yet but it may save homeowners who are looking for a way to save their American Dream.

The program basically allows the homeowner to forfeit the Deed to the home to the lender then rent the home back from the lender. The program is simply in concept but has many pitfalls that the average homeowner should be aware of.

The program is designed for homeowners who owe more in principal on the property than what the current market value is and the current lender is threatening to foreclose.

The Deed for Lease Program is not available to homeowners who currently have second mortgages on the home or currently have a Federal Housing Administration loan. The home must be your principal place of residency and cannot be a vacation home.  However, investment property owners can take advantage of this program.

The program mirrors a practice known as equity stripping or equity skimming and homeowners should be aware of what this practice is in order to stay clear of would be predators in the mortgage business.

The practice known as equity stripping and equity skimming follow this basic scam. You the homeowner are in trouble with your mortgage. You call or someone calls you to say that they will help you save your home from foreclosure. The people involved here usually call themselves “Foreclosure Consultants or Foreclosure Rescue Operators”. You meet with the so call Foreclosure Consultant who explains that you should sell your home to them and they will pay off the mortgage. The Foreclosure Consultant further tells you that you can rent your home back from him at a predetermined price and at the year of a predetermined price he will sell the home back to you for what he paid for it. Sounds good but in reality after you sign over the deed if you are not working with a creditable Foreclosure Consultant you could still lose your home. The scam starts at this point.

The Foreclosure Consultant conspirers with a mortgage broker and they agree to obtain a mortgage on your home for a price that is higher than what the Foreclosure Consultant actually pays you for your home. The Foreclosure consultant then lets the mortgage he obtains on the home to fall into foreclosure but pockets the equity from the new mortgage. You are left without a home.

The Deed for Lease Program must be approved by the lender and or servicers of your mortgage loan. If the lender does not agree then foreclosure proceedings will continue or you will need to seek another form of modification with the lender involved with your mortgage.

You must indicate to your servicer or lender your desire to process a Deed in lieu of Foreclosure. The lender or servicer will send that information on to a property manager selected by Fannie Mae. The Fannie Mae property manager will contact you and you must cooperate fully and respond immediately or you may lose your opportunity to take advantage of the program. The Fannie Mae manager is required to contact you within three days from the time he receives information in regard to your desire to process a Deed in lieu of Foreclosure. Should you not receive a call from the manager you should contact 1-800-732-6643.

The program has criteria for both the property and the occupants of the property. One of the criteria is that the no zoning or community association restrictions can prohibit a lease. The income of the occupants or the tenant must be sufficient to cover the monthly cost of the lease, that means according to Fannie Mae that not more than thirty one present of your income can be used for rent purposes. If you own a pet you will be required to obtain renter’s insurance to be involved in the program.

If you qualify for the Deed for Lease Program you will be required to deed your property over to the servicer or lender and sign a one year lease agreement. Fannie Mae however has implied that month to month lease may be obtained based on a case by case basis.

Homeowners who are declined for the Deed for Lease Program from Fannie Mae will be notified by a written notice however they still can proceed with a Deed in lieu of Foreclosure with the servicer or lender. The pitfall here is that the lender may not wish to proceed with a lease agreement and you will need to vacate the property immediately after the title is transferred.

Fannie Mae is showing its commitment to the process by hiring a property management company. The property management company will handle all deed for lease programs.

More information about the program can be found on Fannie Mae’s website by looking up Deed for Lease Program.