Renters of a home with a Fannie Mae mortgage are also eligible for the new Deed for Lease (D4L) program. In order for the tenant to be eligible for the program, the owner of the property has to do a deed in lieu (DIL) of foreclosure to Fannie. This means the borrower needs to give up the property voluntarily in exchange for allowing the tenants to lease from Fannie. The lease may be as long as one year, with possible extensions after that.
Deed for Lease Tenant Eligibility Requirements
Fannie Mae has established some requirements for those who wish to participate in Deed for Lease. Those requirements include:
- Rent to tenant must be market rate.
- Rent must not exceed 31% of tenant's income. Tenants with no income are not eligible.
- Lease must be for the occupants' primary residence.
- Pets may require renter's insurance.
- All occupants age 18 or older must pass a credit check as well as a background check.
The original borrower has to meet certain D4L requirements as well as being ineligible for a loan modification. If the borrower's Deed for Lease requirements have not met, the tenant is not eligible for Deed for Lease even if the tenant qualifies.
The property itself also has some D4L requirements which include:
- Property must be habitable or have reasonable repair costs.
- Rent must be sufficient to cover ongoing maintenance and property management costs.
- Rental must not exceed maximum occupancy laws and homeowner's association rules.
Fannie Mae Tenant Leasing Application
Once the original borrower notifies his mortgage servicer that he wishes to participate in Deed for Lease, a representative from a property management company will attempt to contact the current tenant. The tenant must pay a fee of $75 to the property management to apply for a lease. The fee is not refundable for any reason, even if the reasons are not the tenant's fault. So it's important to make sure that the original landlord is eligible for Deed for Lease.
After the property management company approves the tenant, a representative will contact the applicant with information about the lease, including the rent. If the tenant agrees to the terms of the lease, he can sign it but it will not be effective until the original borrower has completed the deed in lieu of foreclosure to the mortgage servicer.
Although foreclosure is difficult for property owners, Fannie recognizes the difficulties it causes to renters as well. By allowing tenants to participate in Deed for Lease, Fannie is helping renters stay in their homes while stabilizing house values in the surrounding neighborhood. This is a win-win situation for everyone.
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).
