In a market flooded with foreclosures, Fannie Mae has found another way to help ease the stress families face with the threat of losing their homes. With the introduction of their new Deed-for-Lease (D4L) Program, qualified borrowers are given the opportunity to remain in their homes as tenants in exchange for completing a Deed-In-Lieu property transfer with their lender. Not only does the D4L program provide another successful alternative to foreclosure, it allows distressed homeowners to lease their home for up to 12 months (with the possibility of term or month-to-month renewal); creating a smooth transition and eliminating the anxiety of being displaced. The borrower-turned-tenants are required to provide proof of income verifying the current rental rate is no more than 31% of their gross income. Also extending to current tenants of the distressed borrowers, the D4L program permits them to remain as renters providing they follow the same qualifying criteria.
Deed For Lease Program Requirements
Servicers will follow the standard procedures for the DIL process and determine whether borrowers are eligible for Deed for Lease program. Information on qualified borrowers is then sent to a contracted property management company who will then continue to verify property and prospective tenant information and complete the lease process. The following is important information and instruction for borrowers interested in the program:
- It is MANDATORY that the property manager receives a response from you WITHIN 5 BUSINESS DAYS of receiving your referral. If no action is made within that time, they will assume you are no longer interested and you will no longer be considered for a lease. If you have not been contacted within three business days, please call 1.800.732.6643.
- A $75 NON-REFUNDABLE lease application fee per occupied unit is required by the property manager to process file.
- If a tenant is interested in the program, the borrower is required to provide a copy of their current lease and contact information on their tenant.
- Lease only becomes effective upon acceptace of the Deed-in-Lieu by the lender and upon acceptance, occupant will then need to provide the prorated rent for the time the DIL was accepted through the end of the month PLUS the following full month’s rent.
- If the Deed-for-Lease application is denied, borrowers are still able to proceed with the DIL however must vacate the property following normal procedure.
The program will be available immediately to all Fannie Mae approved lenders however has not been approved for properties with HECM (reverse), USDA (rural), FHA, VA and second lien loans. To qualify, the property and occupants must follow these guidelines:
- Property must be free of any zoning or HOA limitations prohibiting a lease.
- Property is in compliance with local laws or can be brought into compliance within 30 days and any required repairs are all within reasonable range based on property value.
- Current market rental income is sufficient to cover ongoing maintenance and management costs.
- Property is not within a target area for any government, corporate, or community neighborhood stabilization plan which may need the property as part of the plan.
- Property is to be used as primary residence and the number of prospective occupants is in compliance with local laws and HOA regulations. Renter’s insurance my also be required if pets are to be considered in the lease.
- Inspection proves the occupants have been keeping it in good condition and no sign of illegal activities have been taking place at the property.
- All occupants signing the lease will have credit reviewed and market rental rate determined may not be more than 31 percent of total gross income.
- Any prospective occupant over 18 must have cleared background check, including clearance from the Office of Foreign Assets Control (OFAC).
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