Selling Guide

Published December 4, 2019

  • Selling Guide: Main Page
    • Part B: Origination Through Closing
      • B5: Unique Eligibility and Underwriting Considerations
        • B5-5: Community Seconds, Community Land Trusts, and Loans with Resale Restrictions
          • B5-5.2: Loans with Resale Restrictions
            • B5-5.2-04: Loans with Resale Restrictions: Legal Considerations (04/01/2009)

B5-5.2-04: Loans with Resale Restrictions: Legal Considerations (04/01/2009)

This topic contains information on loans with resale restrictions: legal considerations, including:

Resale Restriction Title and Insurance Requirements

The source and terms of the resale restrictions must be included in the public land records so that they are readily identifiable in a routine title search.

Default Remedies

The presence of resale restrictions must not impair Fannie Mae’s legal rights to cure a default under the mortgage terms, to foreclose on the mortgage, or to otherwise protect Fannie Mae’s interests under the mortgage.

The subsidy provider also may have rights to remedy a borrower default.

Rights to Insurance Settlements and Condemnation Proceeds

Fannie Mae must have first claim to insurance settlements and condemnation proceeds.

Default or Refinancing of Resale Restriction Loans

The subsidy provider may retain the right of first refusal or option to purchase a resale restricted property when the borrower is in default or the property is in foreclosure.

The terms of the right of first refusal or option to purchase must be specified in the terms of the resale restrictions.

The subsidy provider must exercise its right of first refusal or option to purchase within 90 days of receiving notification of the borrower default or the property foreclosure.

The subsidy provider may permit borrowers to refinance their mortgage and take cash out of the transaction. However, the resale restrictions may limit the cash-out amount in order to protect the subsidy invested in the property. Lenders must document that the subsidy provider has approved the refinance transaction and should ensure that the cash-out amount complies with the provisions of the specific resale restrictions.