Deed for Lease: Avoiding Foreclosure by Becoming a Tenant in Your Home

Fannie Mae’s Deed for Lease program allows qualified borrowers to transfer the deed to their property back to their lender and rent their home at market rate for 1 year (with possibility of term renewal or month-to-month extensions). The program has existed since 2009, but hasn’t gotten much publication nor has it been widely utilized because of its eligibility restrictions.

How it works:

• Step 1: Enter into a Deed-in-Lieu of Foreclosure agreement with Fannie Mae.
• This agreement means you have agreed to give title back to Fannie Mae in exchange for forgiveness for defaulting on your mortgage terms. It must be in place for you to be eligible for the Deed for Lease program. It will impact your credit score, but the impact will be less harmful than a foreclosure. 
• Step 2: Fannie Mae determines borrower eligibility and contacts a property manager to start the Deed for Lease process.
• Step 3: Property manager inspects property and imposes lease conditions.
• This includes setting the rental rate for the next 12 months.
• Step 4: Fannie Mae approves
• If you don’t qualify for the Deed for Lease program, the normal Deed-in-Lieu of Foreclosure process  will continue- you will lose the home and won’t be able to stay there as a renter.
• Step 5: Property manager becomes sole administrator of your new lease

Eligibility Requirements:

• Borrower must:
• Have a Fannie Mae mortgage in a Deed-in-Lieu of Foreclosure agreement
• Have requested and been denied a loan modification
• Show that the rental rate won’t exceed 31% their monthly income
• Not be involved in bankruptcy proceedings
• Have made at least 3 payments since the loan started or since the last modification.
• Not be more than 12 months past due on payments
• Property must:
• Be in good condition
• Be borrower’s primary residence
• Be in compliance with local rules and laws
• Be released from any subordinate liens  

Major lenders like CitiMortgage and Bank of America have also recently begun testing Deed for Lease programs, but only in certain markets.  These programs are more extensive than Fannie Mae’s program, offering longer term leases and imposing less eligibility restrictions.

Our Take: Experimenting with these programs is good for borrowers. It's not ideal - you still have to give up your title and lose any equity you have in your home. The market rent for your home may not be any more affordable than your mortgage payments. But if your household can afford it, you can avoid move-out costs and new security deposits while you’re struggling with your finances. Your kids can stay in the same school and no one even needs to know that you no longer own the property. The bank, in turn, gets to skip the hassle and cost of foreclosure, avoids having to sell the property in a dismal market and protect an unoccupied property from vandals. It's good for the community too- it provides stability and decreases the number of vacant, deteriorating properties.

For more information on your rights in distressed Real Estate, consider contacting a Seattle Real Estate Attorney. 

Our Firm: 

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

weitzlawfirm.com