Fannie Mae Guidelines: Loans With Resale Restrictions

What Are Resale Restrictions?

Resale restrictions are legal limitations placed on a property that control who can buy it or live in it. These restrictions appear in deeds, mortgages, ground leases, or other legal documents and can last for a specific number of years or in perpetuity.

Think of a senior community that restricts sales to buyers over age 55, or an affordable housing development that limits sales to families earning less than 80% of area median income. These are resale restrictions.

The restrictions don't just control the initial sale. They stay with the property and apply to all future sales, which is why they're called "resale" restrictions.

Types of Restrictions Fannie Mae Accepts

Fannie Mae will purchase loans secured by properties with these specific types of resale restrictions:

• Income limits that cap buyer earnings at a certain level
• Age-related requirements like senior housing communities
• Employment-related requirements that restrict sales to certain professions or employers
• Occupancy requirements that mandate owner-occupancy
• First-time homebuyer requirements that limit sales to buyers who haven't owned a home before
• Restrictions on group homes or homes serving residents with disabilities

Multiple restrictions can apply to the same property. For example, a property might have both income limits and first-time homebuyer requirements.

Say you're buying a home in an affordable housing development. The deed restriction might require that future buyers earn no more than 100% of area median income and be first-time homebuyers. Fannie Mae will purchase your loan despite these restrictions.

What Fannie Mae Won't Accept

This guideline specifically excludes shared equity transactions. These are different because they combine resale restrictions with limits on how much profit you can make when you sell.

In a shared equity deal, you might be required to sell to another income-qualified buyer and split any appreciation with the original developer or housing authority. These transactions fall under different Fannie Mae guidelines in [[B5-5.3]].

How Restrictions Affect Foreclosure Rights

Fannie Mae requires that resale restrictions either terminate automatically when foreclosure happens or, if they survive foreclosure, that they don't prevent the lender from foreclosing.

Most resale restrictions terminate at foreclosure. The property becomes unrestricted once the foreclosure is complete or when the lender accepts a deed in lieu of foreclosure.

Some restrictions survive foreclosure, meaning they stay with the property even after Fannie Mae takes ownership. This is acceptable as long as the restrictions don't interfere with the foreclosure process itself.

Your lender represents and warrants that any surviving restrictions won't impair their ability to foreclose if you default on the loan.

Documentation Requirements

The source and terms of the resale restrictions must be recorded in the public land records. This means they need to show up when a title company does a routine title search.

The restrictions can't be buried in private agreements or documents that aren't publicly recorded. They must be clearly identifiable in the chain of title.

Your title insurance policy should identify and describe any resale restrictions affecting the property. The title company will review the public records to ensure all restrictions are properly documented.

Insurance and Condemnation Proceeds

Fannie Mae must have first claim to any insurance settlements if the property is damaged or destroyed. The same applies to condemnation proceeds if the government takes the property through eminent domain.

This requirement protects Fannie Mae's investment in the property. If your home burns down or gets condemned, the insurance money or condemnation award goes first to pay off the mortgage balance.

Any remaining proceeds after paying off the loan would go to you as the property owner, subject to the resale restrictions.

Duration of Restrictions

There are no limits on how long resale restrictions can remain in place. They can last for a specific number of years, decades, or in perpetuity.

Some affordable housing programs create restrictions that last 30 years. Others, particularly community land trusts, may have restrictions that last forever.

The duration doesn't affect Fannie Mae's willingness to purchase the loan. Whether the restrictions last 10 years or 100 years, the loan remains eligible for purchase.

Common Scenarios and Complications

Resale restrictions most commonly appear in affordable housing developments, senior communities, and employer-assisted housing programs. They're also found in community land trust properties and some rural housing developments.

The restrictions can create complications when you want to sell. You may need to find a buyer who meets the income, age, or other requirements. This can limit your pool of potential buyers and affect how quickly you can sell.

Some restrictions include "right of first refusal" provisions, giving the original developer or housing authority the first opportunity to buy the property when you decide to sell.

Price restrictions are less common in Fannie Mae-eligible properties but can exist. These might cap your sale price at a certain percentage above your purchase price or limit appreciation to a specific formula.

Working With Restricted Properties

If you're buying a property with resale restrictions, make sure you understand exactly what limitations apply. Read the deed restrictions carefully and ask your real estate agent or attorney to explain any terms you don't understand.

Consider how the restrictions might affect your future plans. If you think you might want to sell in a few years, understand what requirements your future buyer will need to meet.

Some buyers find that resale restrictions actually provide benefits, like ensuring their neighborhood remains affordable or maintaining the character of a senior community.

References

For the official guidelines, see B5-5.2-01: Loans With Resale Restrictions: General Information in the Fannie Mae Selling Guide.