The Federal Housing Administration (FHA) requires lenders, who are insuring loans through FHA’s various programs, to use the FHA Model Mortgage Form and adapt it per instructions (see FHA Single Family Handbook 4155.2 ch. 6.2 & 12.A).
The instructions for Covenant 17 in the FHA Model Mortgage (which can be found in the Model Mortgage), which deals with the assignment of rents, stipulates the following:
“Use the following language unless prohibited by state law . . .
Note: If changes are necessary to create an assignment of rents enforceable under state law, the lender should make necessary changes but the revised paragraph should grant the lender the maximum interest in rents permitted by law.”
After thorough legal research, we have determined that Mich. Comp. Laws Ann. § 554.231(1) may prohibit an assignment of rents in connection with family residences. This statute protects a mortgagee’s right to assign rents, but it does not extend such protections to mortgages secured by a family residence (neither does it prohibit them). No other provision of Michigan law allows for an assignment of rents for such properties, save Ibid. § 554.211, but this section only applies to trust mortgages and deeds of trust, which the FHA Mortgage is not.
We will therefore be modifying the text of Covenant 17, pursuant to FHA’s instructions. Due to the ambiguity of Michigan’s law, we will not be deleting Covenant 17, but rather change the first clause so that it is as follows:
“To the extent permitted by applicable law . . .”
Such caveat allows the language of Covenant 17 to continue being used, yet also allows both the covenant to comply with (rather than be contradictory to) Michigan’s laws and the mortgagee to secure a maximum interest in rents (if any).
This change will take effect on June 15, 2013. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584.
June 11, 2013