- January 17, 2013
- All Issuing Offices
- FHFA Short Sale Deed Restrictions
The Federal Housing Finance Agency (FHFA) is the regulator and conservator of Fannie Mae and Freddie Mac and the regulator of the 12 Federal Home Loan Banks. On November 1, 2012, short sale guidelines from the FHFA became effective. These guidelines call for a restriction to be inserted in the deed conveying the property. The restriction is as follows:
Grantee herein is prohibited from conveying captioned property for any sales price for a period of 30 days from the date of this deed. After this 30-day period, Grantee is further prohibited from conveying the property for a sales price greater than $__________ (120% of short sale price) until 90 days from the date of this deed. These restrictions shall run with the land and are not personal to the Grantee.
When insuring the short sale deed that contains this restriction, you must show this restriction as an exception on the owner’s policy and on any policy insuring the mortgage(s) or deed(s) of trust.
When preparing a commitment or preliminary report, this restriction must be shown.
If 90 days have passed since the date of the short sale deed, you do not need to show this restriction on any commitment, preliminary report, or in a policy. Care must be taken if there is a deed within 90 days. You will have to determine if the sales price is greater than 120% of the short sale price. If so, you are looking at a violation. Do not proceed without STG Underwriting approval. Also, beware of the multiple sale scenario, where the first deed is within the 120% but the second deed is over the 120%, and both are within the 90-day time period. Again, do not proceed without STG Underwriting approval.
You should have a deed restriction exception in your write-up manual, but if not, you may use the following as an exception:
A restriction running with the land, disclosed by a deed recorded (date, book, page, and serial number), as follows:
"Grantee herein is prohibited from conveying captioned property for any sales price for a period of 30 days from the date of this deed. After this 30-day period, Grantee is further prohibited from conveying the property for a sales price greater than 120% of short sale price until 90 days from the date of this deed. These restrictions shall run with the land and are not personal to the Grantee."
While this bulletin is captioned FHFA Short Sale Deed Restrictions, many lenders are picking-up on this idea also and requiring similar deed restrictions. Even though the number of days and maybe the percentages may differ, the cautions and requirements set forth above apply equally to any such deed restriction.
Since short sale deeds are not readily recognizable as a short sale deed, you will also need to review any deed recorded within 180 days of the date of your preliminary report or commitment to determine if there is such a restriction and for how long. (180 days because other lenders may require a longer time period beyond 90 days).
To avoid confusion regarding the beginning date from which the restriction begins to run, these guidelines refer to the date of the deed. However, careful reading is required as other lenders may impose a different date, such as the date of closing or date of recording.
If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.
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