A2-2-03, Document Warranties (10/06/2021)

Document warranties relate to legal documents used for a mortgage, such as security instruments, notes, and assignments.

When a lender sells Fannie Mae mortgage loans that are closed on legal documents other than the current Fannie Mae/Freddie Mac uniform instruments, or current Fannie Mae instruments that are applicable to the transaction, the lender warrants that the mortgage loans otherwise comply with the Lender Contract. The use of nonstandard instruments will not preclude it or any subsequent servicer from performing all servicing and accounting functions required by Fannie Mae’s Guides. By delivering loans not closed on current Fannie Mae instruments, the lender represents and warrants as follows:

• Applicable laws and regulations, enforceability, negotiability — No term of the instruments violates applicable laws and regulations, each and every term of the instruments is fully enforceable under applicable laws and regulations, and the mortgage note constitutes a negotiable instrument under the Uniform Commercial Code (UCC) of the applicable jurisdiction(s).

• Definition of security property — The definition of security property conforms to the definition used in the Fannie Mae/Freddie Mac uniform instruments, and must include all improvements erected on the property (at the time the document is executed and in the future), easements, appurtenances, fixtures that are part of the property (at the time the document is executed and in the future), and replacements and additions to such improvements, appurtenances, and fixtures.

• Personal property/principal residence — A one-unit property that is the borrower’s principal residence may not include personal property or other items (such as appliances, furniture, or equipment) that might be considered as additional security.

• Mortgage loans secured by a two- to four-unit principal residence or an investment property — If personal property is pledged, it may be to the same extent as it is pledged by the 1-4 Family Rider (Form 3170).

• Due on Sale — The instruments for fixed-rate conventional mortgage loans include a fully enforceable due-on-sale or due-on-transfer clause, except as limited by federal law.

• “Default” rate of interest — The instruments do not include a “default” rate of interest provision.

• Rights similar to those in Fannie Mae/Freddie Mac Uniform Instrument — The instruments do not grant more favorable rights to the borrower on default and foreclosure, or less favorable rights to the note holder with respect to property insurance (including both required insurance and insurance the borrower elects to obtain), leasehold interests, other liens on the property, condemnation proceedings, or other proceedings that result in a full or partial taking of the property, or any other compensation, settlement, or award of damages that is the result of damage to, or destruction of, the property than those granted in the Fannie Mae/Freddie Mac uniform instruments for the applicable jurisdiction(s).

• Waivers of Rights of Redemption — The instruments include a specific waiver by the borrower, and, if applicable, the borrower’s spouse, of:

  • any legally waivable statutory right of redemption after foreclosure,

    Note: Statutory rights of redemption that are not waivable under applicable law are acceptable only to the extent the instruments do not grant more favorable rights to the borrower on default and foreclosure than those granted in the Fannie Mae/Freddie Mac uniform instruments for the applicable jurisdiction.

  • any right of homestead, dower, or similar marital right, and

  • rights of presentment and notice of dishonor, if a waiver of rights is necessary to protect the note holder’s interest.

• Right to advance — The instruments expressly allow the note holder to advance at any time sums for unpaid insurance premiums, property taxes, or any other payments necessary to protect the value of the property or the note holder’s rights in the property and permit the note holder to collect such amounts from the borrower on a deferred basis.

• Note holder actions to protect the property — The instruments permit the note holder to undertake certain actions to protect the property, including securing and repairing the property if it has been abandoned, and to add the costs of these actions to the amount of the debt.

• Actions note holder is not obligated to take — The instruments do not obligate the note holder to

  • advance additional principal sums,

  • forgive or suspend fully or partially scheduled installments or any portion of them for the borrower’s benefit, or

  • apply any prior principal prepayment to reduce or cure the borrower’s delinquency.

• Fixed interest rate and level principal and interest payments — The instruments provide for fixed interest rates and level principal and interest payments, unless the mortgage loan is an adjustable-rate mortgage.

• Replacement Index and Replacement Margin — The instruments for ARM loans include the Alternative Reference Rates Committee (ARRC) recommended fallback contract language for new closed-end, residential ARMs. (See, for example, the Multistate Adjustable-Rate Note 30-Day Average SOFR (Form 3441), paragraph 4.G. Replacement Index and Replacement Margin.)

• Maturity date — The instruments specify a maturity date. If the instruments do not specify a maturity date, the lender warrants that:

  • the mortgage loan will be fully amortized during a specified original term with no subsequent adjustments to the amount payable;

  • the entire indebtedness, including any amount previously added to the mortgage loan balance and the principal and interest payments, will be secured by the mortgage loan and take priority over intervening liens;

  • the lien of the mortgage loan is a valid first lien; and

  • the priority of the mortgage lien at the time of delivery will not be diminished over the term of the mortgage loan and, during that time, all sums, including any sums previously added to the mortgage loan balance, will be repaid in monthly installments.

• Notice of grievance — The instruments require the lender and the borrower to give the other party a notice of any grievance arising under the security instrument and to allow the notified party a reasonable period after receipt of the notification to cure the grievance before the party providing the notice commences, joins, or is joined to a judicial action, as either an individual litigant or as a member of a litigant class that seeks redress or recovery in connection with the grievance.

• Maintenance of property — The instruments obligate the borrower to maintain the property in a way that prevents deterioration and to repair promptly any damage to the property, whether or not such damage is covered by insurance.

• Mortgage Insurance — The instruments provide that the lender, any purchaser of the mortgage note, a mortgage insurer other than the insurer of the mortgage, any reinsurer, or any other entity (including an affiliate of any of the foregoing) may receive (directly or indirectly) amounts that derive from (or might be characterized as) a portion of the borrower’s payments for the mortgage insurance in exchange for sharing or modifying the mortgage insurer’s risk or otherwise reducing losses.

• Borrower’s failure to take a future action — The instrument (or any other agreement that the borrower signed) does not provide that the borrower’s failure to take a future action requested by the lender (such as providing and paying for additional documentation for the transaction after the date of loan closing) constitutes a default. Alternatively, if the instrument does include such a provision, the lender will not enforce it.