What Title Exceptions and Impediments Mean for Your Loan
When you buy a home, the title company researches the property's ownership history and identifies any issues that could affect your clear ownership. These issues fall into two categories: minor impediments that Fannie Mae allows, and major problems that can kill your loan.
Think of title as your legal right to own the property. An impediment is anything that clouds or limits that right. Some impediments are deal-breakers. Others are routine and acceptable as long as they meet specific criteria.
The most serious impediments include unpaid property taxes and major survey problems. If the seller owes back taxes, Fannie Mae won't touch the loan until those taxes are paid at closing. Survey exceptions can also be problematic, though the rules vary significantly by location.
Minor Title Issues That Won't Stop Your Loan
Fannie Mae accepts several types of minor title impediments as long as they don't hurt the property's marketability. Your lender must agree to cover any losses these issues might cause.
Utility easements are common and usually acceptable. Underground utility lines that were in place when your loan originated are fine, as long as they don't run under buildings. Above-ground utility easements along property lines are acceptable if they stay within 12 feet of the boundary and don't interfere with structures or normal property use.
Shared driveways and party walls between your property and a neighbor's property are acceptable. The key requirement is that all future owners must have unlimited access to use these shared features.
Small encroachments often get approved. If your eaves or driveway extend one foot or less onto a neighbor's property, that's acceptable as long as there's at least 10 feet between your house and the affected property line. Removable items like hedges or fences that cross property lines are also fine.
Property line variations between the appraisal and official records are acceptable within limits. Front property lines can vary by up to 2%, while other boundaries can vary by up to 5%.
Survey Requirements and Geographic Variations
Survey requirements depend entirely on local customs in your area. In some markets, surveys are standard and required. In others, they're rarely used.
If surveys aren't commonly required in your jurisdiction, your lender must obtain an ALTA 9 Endorsement to your title insurance policy. This endorsement provides specific coverage for survey-related issues.
In areas where neither surveys nor ALTA 9 Endorsements are customary, your title policy simply cannot include any survey exceptions. The title company must provide clean coverage without survey-related exclusions.
Your loan officer will know the local requirements. Don't assume you need a survey just because you've heard others mention them — the rules vary dramatically from one county to the next.
Properties with Redemption Rights
Some properties carry redemption rights from previous foreclosures or tax sales. These rights allow former owners to reclaim the property by paying off debts, even after it's been sold to someone else.
Normally, unexpired redemption periods make properties ineligible for Fannie Mae financing. However, there are exceptions in states where selling during redemption periods is common practice.
Your title insurance must specifically address the redemption risk. The policy will note the unexpired redemption right but must also provide affirmative coverage against losses if someone exercises that right. This means the title company agrees to pay if you lose the property to a redemption claim.
If redemption occurs, your loan must be paid off directly from the redemption proceeds. You won't need to pursue separate legal action or file claims for repayment.
Required Documentation and Evidence
Your title company will provide a preliminary title report early in your transaction. This report identifies all title exceptions and impediments affecting your property. Review this document carefully with your loan officer.
The final title insurance policy is your key protection. This policy must meet Fannie Mae's specific requirements for coverage amounts and endorsements. Your lender will review the policy before closing to ensure compliance.
For properties with survey issues, you'll need either a current survey, an ALTA 9 Endorsement, or a title policy with no survey exceptions, depending on local customs.
If your property has minor impediments, your lender will document their analysis of how these issues affect marketability. They'll also provide written indemnification to Fannie Mae for any related losses.
Why These Rules Exist
Fannie Mae's title requirements protect both you and the secondary mortgage market. Clear title ensures you actually own what you're buying and that your lender has proper security for the loan.
The distinction between major and minor impediments reflects practical reality. Some title issues are genuinely problematic and could affect your ability to sell or refinance later. Others are routine matters that don't impact normal property ownership.
The indemnification requirement puts skin in the game for lenders. When your lender agrees to cover losses from title impediments, they have strong incentive to evaluate these issues carefully.
Geographic variations in survey requirements acknowledge that real estate practices differ across the country. What's standard in Texas might be unusual in California, and Fannie Mae's rules adapt to these local customs.
Common Problems and Complications
Unpaid property taxes are the most common deal-killer. Even small tax liens must be resolved before closing. Your title company will calculate exact payoff amounts and collect funds at closing to clear these liens.
Survey disputes can delay closings, especially in areas where surveys are required but property lines are unclear. Boundary disputes between neighbors sometimes surface during the survey process, requiring legal resolution before your loan can close.
Redemption rights create unique challenges because they're not well understood. Many buyers don't realize they're purchasing property subject to these rights until late in the transaction. Your title company should explain these risks clearly if they apply to your property.
Complex easement arrangements sometimes exceed Fannie Mae's guidelines. Easements that interfere with buildings or restrict normal property use may require special review or could make the property ineligible.
Restrictive covenants occasionally contain forfeiture clauses that violate Fannie Mae requirements. If breaking a covenant could result in losing the property or facing financial penalties, additional review is needed.
References
For the official guidelines, see B7-2-05: Title Exceptions and Impediments in the Fannie Mae Selling Guide.
Mortgage guidelines change. Stay current.
Fannie Mae and Freddie Mac update their rules several times a year. Get notified when changes affect your mortgage eligibility, required documents, or loan terms.
No spam · Unsubscribe anytime
Original Fannie Mae Guideline Text
B7-2-05, Title Exceptions and Impediments (07/06/2022)
Title Exceptions
Minor Impediments to Title for Conventional Loans
Title Impediment – Loans Secured by Properties with Unexpired Redemption Periods
Title Exceptions
Fannie Mae will not purchase or securitize a loan secured by property that has an unacceptable title impediment, particularly unpaid real estate taxes and survey exceptions.
If surveys are not commonly required in particular jurisdictions, the lender must provide an ALTA 9 Endorsement. If it is not customary in a particular area to supply either the survey or an endorsement, the title policy must not have a survey exception.
Minor title impediments must not materially affect the marketability of the property. The lender must indemnify Fannie Mae (as described in A2-1-03, Indemnification for Losses) for any Fannie Mae losses that can be directly attributed to the impediment(s).
Minor Impediments to Title for Conventional Loans
Title for a property that secures a conventional loan is acceptable even though it may be subject to the following conditions, which Fannie Mae considers minor impediments:
customary public utility subsurface easements that were in place and completely covered when the loan was originated, as long as they do not extend under any buildings or other improvements;
above-surface public utility easements that extend along one or more of the property lines for distribution purposes or along the rear property line for drainage purposes, as long as they do not extend more than 12 feet from the property lines and do not interfere with any of the buildings or improvements or with the use of the property itself;
mutual easement agreements that establish joint driveways or party walls constructed on the security property and on an adjoining property, as long as all future owners have unlimited and unrestricted use of them;
restrictive covenants and conditions, and cost, minimum dwelling size, or set back restrictions, as long as their violation will not result in a forfeiture or reversion of title or a lien of any kind for damages, or have an adverse effect on the fair market value of the property;
encroachments of one foot or less on adjoining property by eaves or other overhanging projections or by driveways, as long as there is at least a ten-foot clearance between the buildings on the security property and the property line affected by the encroachment;
encroachments on adjoining properties, as long as those encroachments consist only of hedges or removable fences;
outstanding oil, water, or mineral rights that are customarily waived by other lenders, as long as they do not materially alter the contour of the property or impair its value or usefulness for its intended purposes;
variations between the appraisal report and the records of possession regarding the length of the property lines, as long as the variations do not interfere with the current use of the improvements and are within an acceptable range. (For front property lines, a 2% variation is acceptable; for all other property lines, 5% is acceptable.);
rights of lawful parties in possession, as long as such rights do not include the right of first refusal to purchase the property. (No rights of parties in possession, including the term of a tenant’s lease, may have a duration of more than two years.);
minor discrepancies in the description of the area, as long as the lender provides a survey and affirmative title insurance against all loss or damage resulting from the discrepancies;
exceptions to Indian claims, as long as the lender is insured against all loss and damage from such claims.
Title Impediment – Loans Secured by Properties with Unexpired Redemption Periods
Certain state laws provide a “redemption period” after a foreclosure or tax sale has occurred, during which time the property may be reclaimed by the prior mortgagor or other party upon payment of all amounts owed. The length of the redemption period varies by state and does not expire automatically upon sale of the property to a new owner. Although an unexpired redemption period will generally be deemed to be an unacceptable title impediment, Fannie Mae will consider it to be acceptable provided the following requirements are met:
✓
Requirements for Loans Subject to Unexpired Redemption Periods
The property must be located in a state where it is common and customary to sell single-family residential property during the redemption period.
The mortgagee policy of title insurance must take specific exception to the unexpired right of redemption but also affirmatively insure the mortgagee against all loss arising out of the exercise of any outstanding right of redemption, without qualification.
If any party exercises a right to redeem the mortgaged property, the loan must be paid off directly out of the redemption proceeds with no requirement for any further action or claim for repayment.
The lender must indemnify Fannie Mae (as described in
Note: Fannie Mae strongly encourages lenders to provide written disclosure to borrowers of properties that are subject to unexpired redemption periods if not otherwise required by law (or disclosed by the title company).
