Selling Guide

Published June 3, 2020

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B7-2-04, Special Title Insurance Coverage Considerations (02/06/2019)

Introduction

This topic provides specific requirements for title insurance coverage related to certain types of mortgage products or types of security properties, including:


Condo and PUD Unit Mortgages

The title insurance policy for a condo or PUD unit mortgage must describe all components of the unit estate.

For condo unit mortgages, an ALTA 4-06 or 4.1-06 endorsement or its equivalent is required. For PUD unit mortgages, an ALTA 5-06 or 5.1-06 endorsement or its equivalent is required. These endorsements must be attached to each policy or incorporated in the text of the policy.

If the unit owners own the common areas of the project as tenants in common, the policy for each unit mortgage must reflect that ownership.

If the homeowners' association owns the common elements, areas, or facilities of the project separately (or holds them in a leasehold estate), the title insurance on those areas must insure that ownership.

This title policy must show that title to the common elements, areas, or facilities is free and clear of any objectionable liens and encumbrances, including any statutory or mechanics' liens for labor or materials related to improvements on the common areas that began before the title policy was issued.

The title policy must protect Fannie Mae by insuring the following:

  • that the mortgage is superior to any lien for unpaid common expense assessments. (In jurisdictions that give these assessments a limited priority over a first mortgage lien, the policy must provide assurance that those assessments have been paid through the effective date of the policy.)

  • against any impairment or loss of title of Fannie Mae's first lien caused by any past, present, or future violations of any covenants, conditions, or restrictions of the master deed for the project. (It must specifically insure against any loss that results from a violation that existed as of the date of the policy.)

  • that the unit does not encroach on another unit or on any of the common elements, areas, or facilities. (The policy also must insure that there is no encroachment on the unit by another unit or by any of the common elements, areas, or facilities.)

  • that the mortgage loan is secured by a unit in a condo project that has been created in compliance with the applicable enabling statutes;

  • that real estate taxes are assessable and lienable only against the individual condo unit and its undivided interest in the common elements, rather than against the project as a whole; and

  • that the owner of a PUD unit is a member of the homeowners' association and that the membership is transferable if the unit is sold.


Co-op Share Loans

When co-op shares are recognized as real property, a title policy is required. Title evidence for a co-op share loan must ensure that:

  • the title is generally acceptable,

  • the borrower has good and marketable title to the shares, and

  • the co-op corporation has good and marketable title to the project.

When co-op shares are considered personal property and therefore cannot be insured under standard title policies, the title must be generally acceptable, the borrower must have title to the shares, and the co-op corporation must have good and marketable title to the project.


Mortgages Subject to Leasehold Estates

A mortgage that is subject to a leasehold estate must have an ALTA Endorsement 13.1-06. When a mortgage loan is secured by a property held by a community land trust, the lender's title insurance policy (or an endorsement to the policy) must expressly confirm the following:

  • the recording of the complete community land trust ground lease or ground lease memorandum;

  • the recording of the Community Land Trust Ground Lease Rider (Form 2100);

  • that the community land trust mortgage is a first lien on the leasehold estate and the improvements;

  • that there are no existing mortgage loans or other liens on the fee estate, except as may be permitted under Form 2100;

  • that the ground lessor's reversionary interest is subordinate to the community land trust mortgage; and

  • that there are no related community land trust ground lease occupancy and resale restrictions, covenants, or agreements that "run with the land," and have been recorded apart from the ground lease, except as may be permitted under Form 2100.


Other Mortgages

The table below provides the title insurance coverage requirements or endorsements for other types of loans.

Transaction Type Title Insurance Requirements
Conventional HomeStyle mortgage or FHA Section 203(k) home improvement mortgage The policy must cover the full amount of the recorded mortgage, must be dated concurrently with the recordation of the mortgage, and must be updated to the date on which renovation work is completed.
Adjustable-rate mortgage The policy must include ALTA Endorsement 6-06.
Manufactured home mortgage The policy must include ALTA Endorsement 7, 7.1, or 7.2.
Redelivered balloon mortgage after conditional right to refinance The policy must ensure that any refinance balloon mortgage that is originated at the end of the balloon term constitutes a lien of the first priority on the property.

Fannie Mae recommends, but does not require, an endorsement to the title policy that is available in most jurisdictions.

This endorsement reflects the refinancing and extension of the maturity date, and adds the modification to Schedule A as part of the insured mortgage. This endorsement is issued at the time the new note is executed and the original mortgage document is modified to reflect the refinancing, and is not necessary when the refinance mortgage is documented by both a new note and a new mortgage.

Native American Housing Initiative mortgage

For a HUD-guaranteed Section 184 mortgage, when title to the security property is held as a fee simple estate, Fannie Mae requires a title insurance policy that satisfies its general requirements.

For all other HUD-guaranteed Section 184 mortgages, Fannie Mae relies on the title status report issued by the Land Titles and Records Office of the Bureau of Indian Affairs.

Texas Section 50(a)(6) loan Fannie Mae requires a Mortgagee Policy of Title Insurance (Form T-2), supplemented by an Equity Loan Mortgage Endorsement (Form T-42) including the optional coverage provided by Paragraph 2(f) and a Supplemental Coverage Equity Loan Mortgage Endorsement (Form T-42.1). Refer to B5-4.1-03, Texas Section 50(a)(6) Loan Underwriting, Collateral, and Closing Considerations for more information.
Conventional construction-to-permanent mortgage

When closed as a single transaction for both the construction loan and the permanent financing, the policy must be dated concurrently with the date of the mortgage and must include (1) a "pending disbursements" clause and (2) a final endorsement to the title policy that extends the effective date of the coverage to the later of the final construction advance date or the endorsement date.

When closed as two separate transactions (one for the construction phase and one for the permanent financing), the policy must satisfy Fannie Mae's standard title insurance requirements for permanent mortgages.

Mortgages with remotely notarized loan documents If the notarized document is a security instrument or an amendment to a security instrument, the remote notarization must be disclosed to the title company providing title insurance coverage and either:
  • an affirmative endorsement to the title insurance policy is obtained regarding Exclusion 3(b) in the standard ALTA terms and conditions; or

  • the title insurer has not taken an exception for the remote notarization in the title insurance policy and all related communications with the title insurer are kept in the mortgage loan file.

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