In regards to riders to security instruments secured by a borrower’s interest in a leasehold estate, FNMA 2013 Selling Guide B8-4-01 requires the following:
“A rider that includes a cross-default provision. Must be used to amend security instruments for mortgages secured by leasehold estates so that default on the lease is a default on the mortgage. Fannie Mae does not publish a standard rider that includes this provision.”
To comply with this requirement, we are providing new Cx18488 which will print when:
1. “Document Package Type” equals “Closing.”
2. “Property Rights Type” equals “Leasehold.”
Because a cross default provision provides lenders a means to protect their interest in the leasehold if the borrower is violating the terms of his leasehold agreement, we are configuring this Rider to print for all loans, not just conventional loans.
The Rider contains a formality paragraph which is common in most riders, followed by an identification paragraph specifying the leasehold agreement and the landlord. Following these paragraphs is the amendment to the security instrument, which allows the lender to consider the loan in default if the borrower violates the terms of his lease and take any necessary (but legal) actions to protect his interest in the estate, as well as securing any additional amounts expended by the lender in enforcing these provisions (e.g. attorneys’ fees).
The language (but not the terms) of the Rider will differ when it prints for loans secured by property in either Maine or New York, in order for the Rider to match the language used in the plain language security instruments used in both of these states.
This document will begin appearing in packages on March 27, 2014. If you have any questions or concerns about this new document, please contact Client Support at 1.800.497.3584.
March 20, 2014