November 19, 2009

Deed for Lease may Help Ease Foreclosure Impact

Posted in Forclosure tagged at 1:30 am by demetriagraves

Fannie Mae has announced a program called “Deed for Lease” or “D4L” for short. This program is designed to help home owners who are facing foreclosure but may not be eligible for a loan modification. Deed for Lease allows a homeowner to turn over the deed to property in return for a guaranteed one-year lease or rental agreement priced at local market rates. This new program is a step up from a less formal initiative that Fannie Mae started last January which allowed foreclosed homeowners to stay in the house on a month-to-month basis.

The policy is aimed at minimizing the disruption caused by foreclosure proceedings, which puts families out on the street when their property is seized by the lender. With Deed for Lease, the family loses ownership, but can stay in the house. Put another way, they can walk away from the loan without walking away from the house, as they must do in a traditional foreclosure. The big advantage of the program comes from the money households save when they swap mortgage and other housing expenses for a rental payment.

What are the limits to D4L?
Here are some of the restrictions on Deed for Lease:

  • The homeowners cannot be eligible for a mortgage modification
  • The new rent payment cannot be more than 31% of the household’s income

This policy aligns with government-sponsored loan modification programs as another measure to keep people in “their” homes and off the streets. For the surrounding community, it also attempts to keep properties occupied. Empty homes have brought blight to many neighborhoods experiencing a high percentage of foreclosures, and this new policy does address that problem.

Is one year enough time on the new lease?
Many experts suggest the one-year lease agreement is too short a timeframe. Families are only guaranteed that twelve-month period in the house, after which the lease goes month-to-month. If the property is bought out of foreclosure during that time, the rights of the new owner could allow eviction of the tenant if they have other plans for the property.

On the positive side, perhaps the foreclosed owners could buy their property back at a reduced price (once they reestablish good credit or if they can come up with the cash). That may be a sweet deal if prices remain flat long enough.

Useful Links:
Fannie Mae Deed for Lease Information
http://www.fanniemae.com/newsreleases/2009/4844.jhtml?p=Media

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2 Comments »

  1. Thank you for this article. I read this earlier online and called our lender and found out our loan is not a Fannie Mae loan. Is there any way of negotiating something like this with loans that are not Fannie Mae and how would you suggest doing that or getting this kind of deed in lease? Thank you, Bridget

    • Hi Bridget,

      Most of the population is not covered by Fannie Mae and that has a lot to do with why we are currently in this mess. However, you can request that your lender assist you with a “traditional” loan modification, or ask them directly how can they assist you. Banks have completed loan modification PRIOR to President Obama’s Home Affordability Program, so there are other programs to assist you.

      Demetria


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