If the mortgage being delivered to Fannie Mae is a first mortgage, the lien of the security instrument must be a first and paramount lien on the borrower’s estate in the real property.
Personal property may not be included as additional security for any mortgage on a one-unit property unless otherwise specified by Fannie Mae. For example, certain personal property is pledged when the Multistate Rider and Addenda (Form 3170) is used.
When the property that secures a first mortgage is rented, the rental agreement or lease cannot include provisions that could affect significantly Fannie Mae’s position as mortgagee.
In some jurisdictions, leases that predate the mortgage have a superior claim to the mortgage even if they have not been recorded. Normally, a tenant’s rights under a pre-existing lease remain intact on the sale of the leased premises.
Accordingly, if the lease is not subordinate to the mortgage, the lender must review each lease to ensure that any tenant’s rights to purchase the property and any other rights that could affect adversely Fannie Mae’s mortgagee interest have been waived formally by the tenant or tenants.
Some mortgage instruments permit the note holder to capitalize delinquent interest or sums advanced to pay insurance premiums, property taxes, or other expenses required to protect the value of the security property by adding them to the outstanding principal balance of the mortgage.
Fannie Mae will not purchase or securitize mortgages where any such funds have been capitalized or advanced by the note holder prior to delivery to Fannie Mae.
Fannie Mae purchases or securitizes a mortgage that includes an open-end advance provision only if the provision gives Fannie Mae the option not to make any advances. If funds were advanced prior to delivery, the transaction is considered a modified mortgage that is not eligible for delivery. See B2-1.4-02, Mortgage Loan Eligibility.
The table below provides references to the Announcements that have been issued that are related to this topic.