Selling Guide

Published June 5, 2018

B8-5-02: Inter Vivos Revocable Trust Mortgage Documentation and Signature Requirements (10/31/2017)

This topic contains information on the mortgage documentation and signature requirements for inter vivos revocable trusts, including:

  • Execution and Signature Requirements

  • Signature Requirements When the Borrower is Individual and Inter Vivos Trust is Mortgagor

  • Trustee Exclusion from Personal Liability

  • Defining the Responsible Borrower in an Inter Vivos Revocable Trust

  • Requirements for Revocable Trust Riders

  • Requirements for Amended Security Instrument

  • Requirements for Standard Security Instrument and No Rider

  • Indemnification

Execution and Signature Requirements

The note must be executed in accordance with E-2-06, Signature Requirements for Mortgages to Inter Vivos Revocable Trusts. The trustee(s) of the inter vivos revocable trust also must execute the security instrument and any applicable rider.

Each individual establishing the trust whose credit is used to qualify for the mortgage must acknowledge all of the terms and covenants in the security instrument and any necessary rider, and must agree to be bound thereby, by placing his or her signature after a statement of acknowledgment on such documents.

Any other party that Fannie Mae requires to sign either the mortgage note or the security instrument also must execute the applicable document(s).

E-2-06, Signature Requirements for Mortgages to Inter Vivos Revocable Trusts, includes the form of signature for the trustee(s) and the statement of acknowledgment for each individual establishing the trust whose credit is used to qualify for the mortgage.

Signature Requirements When the Borrower is Individual and Inter Vivos Revocable Trust is Mortgagor

When one or more inter vivos revocable trusts eligible under B2-2-05, Inter Vivos Revocable Trusts hold title to the mortgaged property (alone or with another eligible inter vivos revocable trust), only an individual who is both grantor and primary beneficiary of one of the trusts may be a borrower and must sign the note in his or her individual capacity. In addition, each inter vivos revocable trust, acting through its trustee(s), is required to sign the note in connection with its grant of the mortgage. The inter vivos revocable trust may sign the note without recourse so that its liability for repayment of the note is limited to its interest in the mortgaged property. Such non-recourse status does not affect or otherwise limit the personal liability of the individual establishing the inter vivos revocable trust under the note, and is in addition to the limitations on personal liability for certain trustees of inter vivos revocable trusts in the Selling Guide.

When an individual borrower has a direct ownership interest in the property, no other person (including a trust) is required to sign the note (except other borrowers).

Trustee Exclusion from Personal Liability

Certain trustees may request exclusion from personal liability under the mortgage instruments. Lenders may agree to such requests, subject to the following conditions:

  • Institutional trustees and individual trustees (other than individuals serving as trustees who both established the trust and whose credit is used to qualify for the mortgage) may be excluded from personal liability under the security instrument.

  • Institutional trustees and individual trustees (other than individuals serving as trustees whose credit is used to qualify for the mortgage, including individuals who established the trust) may be excluded from personal liability under the mortgage note.

Lenders that agree to modify the mortgage instruments to include an exclusion from personal liability are responsible for ensuring that the modifying language:

  • pertains only to the relevant trustee,

  • does not impair the note holder’s power to foreclose, and

  • does not in any way release from liability any individual trustee who is not identified above as being permitted to be released from liability.

Defining the Responsible Borrower in an Inter Vivos Revocable Trust

Exhibit E-2-05, Revocable Trust Rider (Sample Language), includes sample language for a revocable trust rider. This rider (or a similar one appropriately modified to reflect the requirements of specific states) avoids ambiguities for mortgages made to inter vivos revocable trusts by clarifying who is considered to be “the borrower” with respect to any given covenant in the security instrument.

Instead of using a revocable trust rider, the lender may either:

  • amend the security instrument to include appropriate definitions and language similar in substance to Fannie Mae’s sample rider, or

  • use the standard security instrument without such an amendment or the rider.

Requirements for Revocable Trust Riders

If the lender chooses to require a revocable trust rider as additional mortgage documentation, the rider must be:

  • executed by the trustee(s) of the inter vivos revocable trust and by any other party that Fannie Mae requires to sign the security instrument, and

  • acknowledged by each individual establishing the trust whose credit is used to qualify for the mortgage.

If the mortgage is secured by a California property, the lender should use Fannie Mae’s sample rider. If the mortgage is secured by property located in another state, the lender should use a rider that has been appropriately modified to reflect the requirements of that state (unless the lender determines that use of Fannie Mae’s sample Revocable Trust Rider is appropriate for the specific state).

Should foreclosure proceedings have to be initiated for a mortgage secured by a property located in a state other than California, the lender must indemnify and hold Fannie Mae harmless against any losses incurred by Fannie Mae that relate either

  • to the modifications the lender made to the Fannie Mae sample rider (or to the inappropriate use of the Fannie Mae sample rider), or

  • to any ambiguity in the application of the covenants in the security instrument.

Alternatively, Fannie Mae may require the lender to repurchase the mortgage or the acquired property.

Requirements for Amended Security Instrument

If the lender chooses to amend the security instrument instead of using a revocable trust rider, it should follow Fannie Mae’s instructions regarding parties who must sign the security instrument, including having only the individuals establishing the trust whose credit is used to qualify for the mortgage sign a statement of acknowledgment of the security instrument.

The lender must indemnify and hold Fannie Mae harmless against any losses incurred by Fannie Mae that relate either to the lender’s amendment or to any ambiguity in the application of the covenants in the security instrument should foreclosure proceedings later have to be initiated to acquire the property. Alternatively, Fannie Mae may require the lender to repurchase the mortgage or the acquired property.

Requirements for Standard Security Instrument and No Rider

If the lender chooses not to amend the security instrument and not to use the revocable trust rider, it must agree to indemnify and hold Fannie Mae harmless against any losses incurred by Fannie Mae that relate to any ambiguity in the application of the covenants in the security instrument should foreclosure proceedings later have to be initiated to acquire the property. Alternatively, Fannie Mae may require the lender to repurchase the mortgage or the acquired property.

Indemnification

The lender’s obligation to indemnify Fannie Mae as noted above is further described in A2-1-03, Indemnification for Losses.

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2017-09 October 31, 2017
Announcement SEL-2016–02 February 23, 2016
Announcement SEL-2013–03 April 9, 2013
Announcement SEL-2013–01 January 17, 2013