Selling Guide

Published April 07, 2021

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How are mortgage loans subject to unexpired redemption periods handled?

Title Impediment – Mortgage Loans Secured by Properties with Unexpired Redemption Periods

Certain state laws provide a “redemption period” after a foreclosure or tax sale has occurred, during which time the property may be reclaimed by the prior mortgagor or other party upon payment of all amounts owed. The length of the redemption period varies by state and does not expire automatically upon sale of the property to a new owner. Although an unexpired redemption period will generally be deemed to be an unacceptable title impediment, Fannie Mae will consider it to be acceptable provided the following requirements are met:

Requirements for Mortgage Loans Subject to Unexpired Redemption Periods
 

The property must be located in a state where it is common and customary to sell single-family residential property during the redemption period.

Note: Loans representing the purchase of Fannie Mae-owned properties which have been sold during the redemption period may be subject to separate negotiations. 

 

The mortgagee policy of title insurance must take specific exception to the unexpired right of redemption but also affirmatively insure the mortgagee against all loss arising out of the exercise of any outstanding right of redemption, without qualification.

 

If any party exercises a right to redeem the mortgaged property, the mortgage must be paid off directly out of the redemption proceeds with no requirement for any further action or claim for repayment.

 

The lender must indemnify Fannie Mae (as described in A2-1-03, Indemnification for Losses) for any losses incurred by Fannie Mae that can be directly attributed to the exercise by any party of a right to redeem the mortgaged property, including without limitation, a loss related to borrower default due to a dispute with the redeeming party over the terms of the redemption.

Note: Fannie Mae strongly encourages lenders to provide written disclosure to borrowers of properties that are subject to unexpired redemption periods if not otherwise required by law (or disclosed by the title company).

See B7-2-05, Title Exceptions and Impediments for additional information.

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