B2-1.5-03, Legal Requirements (06/03/2020)

First Mortgage Lien Position

If the mortgage being delivered to Fannie Mae is a first mortgage, the lien of the security instrument must be a first and paramount lien on the borrower’s estate in the real property.

Personal Property

Personal property may not be included as additional security for any mortgage on a one-unit property unless otherwise specified by Fannie Mae. For example, certain personal property is pledged when the Multistate Rider and Addenda (Form 3170) is used.

Rental Property Leases

Leases that predate the mortgage could have a superior claim to the mortgage. Furthermore, state laws may differ on the relationship between an unrecorded lease and a subsequent mortgage. The lender is responsible for ensuring clear title and first lien enforceability in accordance with A2-2-07, Life-of-Loan Representations and Warranties

Mortgages with a Capitalization Option

Some mortgage instruments permit the note holder to capitalize delinquent interest or sums advanced to pay insurance premiums, property taxes, or other expenses required to protect the value of the security property by adding them to the outstanding principal balance of the mortgage.

Fannie Mae will not purchase or securitize mortgages where any such funds have been capitalized or advanced by the note holder prior to delivery to Fannie Mae.

Mortgages Permitting Open-end Advances

Fannie Mae purchases or securitizes a mortgage that includes an open-end advance provision only if the provision gives Fannie Mae the option not to make any advances. If funds were advanced prior to delivery, the transaction is considered a modified mortgage that is not eligible for delivery. See B2-1.5-02, Loan Eligibility.