Freddie Mac Guidelines: Resale Restrictions and Public Record Documentation

What Are Resale Restrictions and Why Do They Matter

Resale restrictions are legal limits on how you can sell your home in the future. They appear most often in affordable housing programs where a government agency, nonprofit, or housing authority helped make the home affordable for you to buy.

Say you bought a home through a city's first-time buyer program that provided down payment assistance. The program might require you to sell the home back to the city at a below-market price if you move within 10 years. Or it might limit how much profit you can make when you sell.

These restrictions protect the public investment in affordable housing. They prevent buyers from flipping subsidized homes for quick profits and help keep the housing affordable for future buyers.

How Fannie Mae Handles These Properties

Fannie Mae will purchase mortgages on properties with resale restrictions, but the restrictions must follow specific rules. The lender needs to document exactly what restrictions exist and prove they're properly recorded in public records.

The restrictions can't interfere with Fannie Mae's ability to foreclose and sell the property if you default on your mortgage. This creates a balance between preserving affordable housing and protecting mortgage investors.

Your lender will review the restriction documents during underwriting to make sure they comply with Fannie Mae requirements. Properties that don't meet these standards won't qualify for conventional financing.

The Model Declaration Documents

Fannie Mae accepts standardized documents created by the Grounded Solutions Network. These include the 2021 Model Declaration of Affordability Covenants with Refinance and Resale Restriction and Purchase Option, plus a companion subordinate mortgage document.

These model documents were designed to create consistency across different affordable housing programs. Before these standards existed, every city and housing authority created their own restriction language, making it harder for lenders to evaluate the loans.

The Model Declaration covers common scenarios like what happens when you want to refinance, how the resale price gets calculated, and who has the right to purchase the home when you sell. It also includes provisions for hardship situations where strict enforcement of restrictions might cause problems.

Public Record Requirements

All resale restrictions must appear in your county's public land records. This typically means they're recorded as deed restrictions, covenants, or liens that show up when someone searches the property title.

The restriction documents need to be indexed and filed in a way that a standard title examination will discover them. If a title company can't find the restrictions through their normal search process, the property won't meet Fannie Mae requirements.

Your lender will order a title report that identifies all recorded restrictions on the property. The title company will review these documents to make sure they're properly recorded and don't create title problems that would prevent a clear transfer of ownership.

Required Documentation for Your Lender

Your lender needs copies of all recorded restriction documents from the public records. This includes the original deed restrictions, any amendments or modifications, and proof that everything was properly recorded with the county.

The lender will also need a copy of any subordination agreements that establish the priority between your mortgage and the restriction documents. These agreements clarify what happens if you default and the property goes to foreclosure.

If your property uses the GSN Model Declaration documents, your lender can reference the standard commentary that explains how these restrictions work. This speeds up the underwriting process because the lender doesn't need to analyze custom restriction language.

What Could Go Wrong

Problems arise when restriction documents aren't properly recorded or contain language that conflicts with mortgage requirements. Some older affordable housing programs created restrictions that are too broad or don't include proper exceptions for mortgage foreclosure.

Recording errors can also create issues. If the restrictions were filed in the wrong place or with incorrect property descriptions, they might not show up in a title search. This can delay your loan approval while the issues get resolved.

Changes to restriction terms after your original purchase can complicate financing. If the housing authority modified the restrictions but didn't properly record the changes, your lender might not be able to determine what rules actually apply to your property.

Working with Housing Authorities and Nonprofits

If you're buying through an affordable housing program, the sponsoring organization should provide you with copies of all restriction documents before closing. Review these carefully and make sure you understand what they mean for your future plans.

Ask the housing authority or nonprofit whether they use the GSN Model Declaration documents. Programs that use these standardized forms typically have smoother mortgage approval processes because lenders are familiar with the terms.

Some programs require you to get approval before refinancing or taking out a home equity loan. Make sure you understand these requirements upfront, as they could affect your financing options later.

References

For the official guidelines, see 4406.6: Documentation options and public land records requirements for Mortgages secured by properties subject to resale restrictions in the Fannie Mae Selling Guide.