assignment of lease vs leasehold mortgage

Assignment of Lease vs. Mortgage of Lease

This article may only be applicable in certain jurisdictions.

When lenders consider their real property security options, their analysis often goes beyond simply taking a mortgage from a debtor who owns real estate. A debtor's interest in real property leases (whether as landlord or tenant) means a lender often obtains either an Assignment of Lease or a Mortgage of Lease as additional security. Like any other specific security agreement, these agreements facilitate the orderly and more effective enforcement of the Lender's security in the underlying debtor asset.

Assignment of Lease

In cases where the debtor owns real property but does not occupy it, the revenue stream from third party leases is a significant asset that should be secured. Although most mortgage standard charge terms include at least a brief paragraph related to assignment of leases, they do not provide the benefit of the more fulsome provisions typically contained in a stand alone specific Assignment of Lease (in cases where there may be a significant tenant) or a general Assignment of Lease (securing all present and future leases without reference to a specific tenant).

The debtor's interest as landlord is secured by registration against title to the debtor's real property, typically immediately following the registration of the mortgage of land. It should be noted that in order to register a specific Assignment of Lease, there first requires the registration of a Notice of Lease in respect of the lease that is being specifically assigned. The Assignment of Lease also has a personal property component that cannot be overlooked. The rents and leases that are secured by the Assignment of Lease fall within the definition of personal property under the personal property security legislation; and as such require the registration of a financing statement against the debtor.

An Assignment of Lease document includes certain generally accepted provisions.

The debtor assigns to the lender (as collateral security for the payment of principal and interest under the mortgage of land) all rents and other monies due to it by tenants and the benefit of all tenant covenants under all current and future leases.

The debtor typically covenants to not collect rent more than one month in advance (to ensure that the normal revenue stream is available to the lender on enforcement) and not amend any material terms of the leases without the lender's approval. In the case of a specific Assignment of Lease, it is prudent to also obtain similar covenants from the tenant itself and an acknowledgement that the tenant will attorn to the Lender in the event of default by the debtor.

The debtor is permitted to continue to collect rent according to the terms of the leases until an event of default occurs pursuant to the mortgage of land, after which the Lender may give notice to the tenants to pay all future rents to the lender directly.

Mortgage of Lease

In cases where the debtor does not own real estate but rents space instead, the right to occupy the premises may be a key asset of the debtor that is secured. Although it is typical that a general security agreement includes a reference to leasehold interests in the description of the charged collateral, the general security agreement does not provide the benefit of the more complete language in a stand alone specific Mortgage of Lease document.

The debtor's interest as tenant is secured by registration against title to the debtor's leasehold interest in the real property. This requires the prior registration of a Notice of Lease in respect of the lease that is being secured.

It should be noted that if there is a real property mortgage on title granted by the owner/landlord to another lender prior to the lease, and if the tenant/debtor or tenant's lender has not obtained a non-disturbance agreement from the owner/landlord, the Mortgage of Lease will be no better security than the lease itself (i.e., subject to being terminated at the option of the prior mortgagee in the event of default under the real property mortgage). Most leases will contain a prohibition against mortgaging the lease, so it will be necessary to obtain the landlord's consent to a Mortgage of Lease.

A Mortgage of Lease document typically contains some basic standard provisions.

As in a mortgage of land, the Mortgage of Lease specifies a principal amount, interest rate, payment dates, and contains charging language whereby the debtor's leasehold interest is security for payment of the principal and interest.

Similarly, in the event of default, the lender has the ability to exercise a power of sale and sublease or assign the leasehold interest to a third party.

The debtor covenants to not pay rent more than one month in advance, to not amend any material terms of the leases without the lender's approval, to not terminate or surrender the term of the lease and to hold possession of the premises in trust for the lender.

Most lender mortgage standard charge terms contain flexible language that contemplates use of the terms for both cases where the chargor owns a freehold interest in the property or a leasehold interest in the property.

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.

Leasehold Financing: Key Issues for Mortgage Lenders

When entering into a long-term ground lease, one of the ground lessee’s principal concerns is assuring that its leasehold interest in the property is “financeable.” [1]  A mortgage lender providing financing to the holder of a leasehold interest needs to confirm the ground lease contains certain key features in order to protect its lien position during the term of the loan and maximize the likelihood of a successful refinancing.

Fee Mortgages

The prospective leasehold mortgagee should confirm that there is nothing in the ground lease that would cause the ground lessee’s interest and the leasehold mortgage to become subordinate or inferior to a subsequent mortgage granted by the ground lessor on its fee simple estate. Before closing on the leasehold financing, a lender should also confirm that no mortgage on the ground lessor’s estate already exists.

Assignability/Mortgagability

The ground lessee’s interest should be freely assignable such that the ground lessor does not have any approval rights over (i) the granting of the mortgage by the ground lessee, (ii) the realization on the leasehold by the leasehold mortgagee in connection with an action to foreclose the mortgage or (iii) the sale of the leasehold by the mortgage lender (or its designee) to a third party buyer after the foreclosure is complete.

Many ground leases require the ground lessee to provide written notice to the ground lessor of the granting of a mortgage and the contact information of the mortgagee (which is certainly fine, and indeed a good idea), but the leasehold mortgagee should be wary of provisions that require the ground lessor’s “consent” to the mortgaging and/or assignment of the leasehold. It is also important to review the ground lease to see if it provides that only a certain “type” of mortgagee may qualify as a “permitted” or “recognized” lender. That is, some ground leases state that only an “institutional lender” or “financial institution” may be a recognized and permitted leasehold lender. These definitions must be reviewed (and sometimes revised) to make sure they are not overly narrow or restrictive. In addition to making sure these definitions do not unnecessarily exclude certain types of financing sources, it is not uncommon to see the “leasehold mortgagee protections” in ground leases being “extended” to mezzanine lenders and preferred equity providers to facilitate financings that involve multi-tiered capital stacks.

Notice of Default and Opportunity to Cure

It is critical that the ground lease contain provisions requiring the ground lessor to provide the leasehold mortgagee with a copy of any notice of default sent to the ground lessee (these notices should be provided simultaneously) and an independent opportunity for the leasehold mortgagee to cure the ground lessee’s default. The exact number of “extra” days afforded the mortgagee to effect a cure (i) for a monetary default (five or ten business days beyond what is afforded the ground lessee is not uncommon) and (ii) for a non-monetary default (30 to 60 days beyond what is afforded the ground lessee is also not uncommon, and sometimes, depending on the circumstances, such additional time as may reasonably be necessary to actually obtain control of the leasehold property), is another important issue to be aware of when reviewing the ground lease.

The right to obtain a “new lease” from the ground lessor in the event the ground lease is ever terminated, including being rejected in a bankruptcy proceeding, is also a key element of a “financeable” ground lease. The ground lessor will often require the mortgage lender to elect or exercise its right to obtain a new lease within an agreed upon time frame after termination of the lease (30 or 60 days is not unusual) and to cure defaults committed by the prior ground lessee (to the extent such defaults are reasonably curable) before the leasehold mortgagee can earn the right to obtain a new lease and salvage its investment.

Modifications to the Ground Lease

The ground lessor and the ground lessee should not be permitted to amend, modify, or agree to cancel the ground lease without the leasehold mortgagee’s prior written consent. Without a lender consent right or override in place, the two parties to the ground lease would be free to negatively impact the lender’s collateral through an amendment to the ground lease and/or even cause the collateral to disappear if the ground lease were to be cancelled.

The term of the ground lease should not be overlooked. A ground lease with a short period of time remaining (five years, for example) or which contains extension options subject to material pre-conditions is problematic and can negatively impact (or completely eviscerate) the refinancability of a lender’s position. For an interest-only financing with a substantial balloon payment at maturity, it is, for example, generally recognized that a remaining term of at least 20 years beyond the upcoming maturity date is required in order to maximize refinancability.

Insurance Proceeds/Condemnation Awards

The interplay between the insurance and condemnation provisions of the ground lease, on one hand, and the leasehold mortgage, on the other hand, must be reconciled. From the mortgage lender’s perspective, it is important that in the event of a casualty and/or condemnation the proceeds and/or award be used to repair and restore the affected property or be available to pay off the leasehold mortgage. It is important for a mortgage lender to have maximum involvement and control in obtaining and deploying these monies, and it should be made as clear as possible that the provisions of the security instrument (whether mortgage, deed of trust, or deed to secure debt) control over conflicting provisions in the ground lease.

Memorandum of Ground Lease 

Although rarely a controversial point, the ground lessor and the ground lessee should be sure to record a memorandum of the ground lease in the land records to register the tenant’s interest of record and facilitate the leasehold mortgage financing when it comes time to record the applicable security instrument and secure title insurance.

It is not unusual for ground leases (particularly older ones) to be missing at least some of the key points which make the ground lessee’s interest useable for financing purposes. In these situations, the parties often agree to amend or supplement the existing ground lease by adding or refining the missing concept(s) through a ground lessor estoppel and/or amendment to the lease. Such a document can also serve to provide important current information in the “estoppel” segment for the benefit of the prospective mortgage lender, i.e. , providing confirmation from the ground lessor that (i) no default exists under the ground lease, (ii) the ground lessor has not encumbered its fee simple interest, and (iii) the lease has not been amended, except as expressly described in the agreement.

Ground lease financing is complex and care must be taken to review the ground lease to confirm that the mortgage lender has the full list of “protections” for its position during the term of the loan and to maximize the likelihood of a successful take out of its loan at maturity.

If you have any questions or comments, please contact Timothy Davis (215.864.6829; davist@whiteandwilliams.com ) or William Johnston (215.864.6341; johnstonw@whiteandwilliams.com ).

[1] For purposes of this discussion, this Client Alert assumes that the mortgage lender’s lien will not also encumber the ground lessor’s fee simple interest.

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What Is a Leasehold Mortgage? Everything You Need to Know

If you’re considering purchasing a property, you may have come across the term “leasehold mortgage.” But what exactly does it mean? In this comprehensive guide, we’ll delve into the world of leasehold mortgages, understanding what they entail and how they differ from freehold properties. Let’s uncover the essential details surrounding leasehold mortgages.

What Is the Difference Between Freehold and a Leasehold?

Before delving into the intricacies of leasehold mortgages, it’s crucial to grasp the fundamental difference between freehold and leasehold properties.

In a nutshell:

• Freehold Property: When you own a freehold property, you own both the property and the land it stands on outright. You have complete control and ownership rights, with no time limit on your tenure.
• Leasehold Property: In contrast, a leasehold property means you own the property but not the land it’s situated on. Instead, you have a lease agreement with the landowner, specifying the duration of your ownership rights, often ranging from 99 to 999 years.

Leasehold properties are common in urban areas and are often associated with apartments, flats, and some houses. The landowner, typically referred to as the freeholder, grants a lease to the leaseholder, outlining the terms and conditions of ownership. These terms include ground rent, service charges, and the duration of the lease.

What Are the Disadvantages of Buying a Leasehold Property?

While owning a leasehold property can offer various advantages, such as the opportunity to reside in a prime location or a well-maintained building, it also comes with certain disadvantages:

• Limited Ownership Period: The most significant disadvantage of a leasehold property is the finite ownership period. When the lease expires, the property reverts to the freeholder, unless the lease is extended.
• Ground Rent and Service Charges: Leasehold properties often come with ground rent and service charges. Ground rent is a regular payment to the freeholder, and service charges cover the maintenance of communal areas. These costs can escalate and impact your budget.
• Less Control: As a leaseholder, you have less control over the property. You may need the freeholder’s permission for certain alterations or renovations.
• Lease Extension Costs: Extending the lease can be costly, and the price may increase as the lease term diminishes.
• Potential for Disputes: Disagreements can arise with the freeholder, particularly concerning service charges, maintenance, or lease extensions.

Mortgage Lease Agreement

Now, let’s get back to the core topic: the leasehold mortgage. A mortgage lease agreement is essentially a mortgage loan taken out on a leasehold property. Here’s how it works:

• Mortgage on Leasehold Property: When you buy a leasehold property and need financing, you can apply for a mortgage specifically designed for leasehold properties.
• Mortgage Lender’s Role: Your mortgage lender will assess the lease terms, including the length of the lease, ground rent, and service charges. They may also consider the remaining lease term, as it influences the property’s value and the risk associated with the mortgage.
• Responsibilities: As a leaseholder with a mortgage, you are responsible for paying both your mortgage and the lease-related charges, such as ground rent and service charges.
• Lease Extension: Some mortgage lenders may require you to extend the lease if it’s relatively short. This is because a longer lease is seen as less risky.
• Risk Mitigation: Mortgage lenders are cautious about leasehold properties due to the limited ownership period. Extending the lease and maintaining it can help mitigate risks.

It’s essential to choose a mortgage lender experienced in dealing with leasehold properties, as they will have a better understanding of the unique challenges and requirements associated with such properties.

In conclusion, a leasehold mortgage is a mortgage taken out on a leasehold property, where the ownership of the property is subject to a lease agreement with a freeholder. While owning a leasehold property has its advantages, such as prime locations and well-maintained buildings, it also comes with disadvantages, including limited ownership period and additional costs.

When considering a leasehold mortgage, it’s crucial to work with a lender experienced in leasehold properties to navigate the complexities involved. Additionally, understanding the terms of your lease, including ground rent, service charges, and the remaining lease term, is essential in securing a mortgage for your leasehold property.

So, whether you’re interested in a leasehold or freehold property, understanding the differences and the associated financial aspects is key to making an informed decision in your property purchase journey.

Leasehold Financing: Key Issues for Mortgage Lenders

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B2-3-03, Special Property Eligibility and Underwriting Considerations: Leasehold Estates (11/06/2024)

Leasehold estates, definitions, general requirements for leasehold mortgages, lease requirements, borrower's option to purchase fee interest, exceptions to leasehold requirements.

Fannie Mae purchases or securitizes loans that are secured by properties subject to leasehold estates in areas in which this type of property ownership has received market acceptance. 

Eligible property types are:

one- to four-unit properties,

condo units,

co-op units,

manufactured homes located in a condo or PUD project approved by Fannie Mae's Project Review Eligibility Service (PERS). See  B4-2.2-06, Project Eligibility Review Service (PERS) B4-2.2-06, Project Eligibility Review Service (PERS) .

A loan secured by a unit in a project that is subject to a ground lease is considered a loan secured by a leasehold estate for purposes of this topic. For these loans, lenders must also comply with all legal and eligibility requirements for condos, co-ops, and PUDs. See Chapter B4-2, Project Standards, for additional information.

The following definitions apply to this topic:

• A loan secured by a leasehold estate is also known as a "leasehold mortgage."
• The term "lease" includes any form of lease or ground lease (for example, a master lease, business lease, sublease, or unit lease), together with any addendum, amendment, or rider, or a memorandum thereof.
• The terms "lessor" and "lessee" includes sublessor and sublessee.
• The borrower may also be called the "unit lessee," "unit mortgagor," or "unit owner."
• The "ground lease" may also be called a "land lease" or "underlying lease."
• For co-ops, this topic does not apply to a borrower's "proprietary lease" or "occupancy agreement."
• For a loan secured by a unit in a project, the term "lender" does not refer to the project's blanket lender or blanket mortgagee, if applicable.

The lender must comply with all requirements for leasehold mortgages. In addition, the lender agrees that in accordance with A2-2-07, Life-of-Loan Representations and Warranties A2-2-07, Life-of-Loan Representations and Warranties , any failure to comply at any time with requirements in this topic is a breach of the life-of-loan representations and warranties if it impacts first-lien enforceability.

The following table provides general requirements for leasehold mortgages.

The lender must ensure all leases associated with the subject property, regardless of the form of the lease (including a master lease, sublease, or unit lease) comply with the requirements below. The lessee (or sublessee, when applicable) must be the borrower, condo or PUD homeowners' association (HOA) or the co-op corporation. For manufactured homes located in a condo or PUD project approved by PERS, the HOA must be the lessee without any further sublessees.

Compliance with these lease requirements may be satisfied by:

• separate agreement(s) incorporated into the lease (e.g., addendum, amendment, or rider), or
• the project's constituent documents (project documents) (e.g., for co-ops, the Recognition Agreement or other agreement).

Note : For units in projects subject to a ground lease in which the HOA or co-op corporation is the lessee, the lender must ensure the lease complies with these lease requirements unless the project has been approved by Fannie Mae in Condo Project Manager (CPM).

Regardless of the lessee, the lender must ensure the terms of the lease address all of the following:

• The lease must have an unexpired term that exceeds the maturity date of the loan by five (5) years or more.
• The lease must not preclude the borrower's membership or voting rights in the HOA or co-op corporation, as applicable.
• If the loan is secured by a sublease, a default under the master lease will not automatically result in the termination of the sublease.

The following table provides additional lease requirements depending on whether the borrower or the HOA or co-op corporation is the lessee.

The lease may, but is not required to, include an option for the borrower to purchase the fee interest in the land. If the option is included, the purchase must be at the borrower’s sole option, and there can be no time limit within which the option must be exercised. If the option to purchase the fee title is exercised, the mortgage must become a lien on the fee title with the same degree of priority that it had on the leasehold. Both the lease and the option to purchase must be assignable, together, subject to permissible restrictions noted above.

The following table provides requirements for establishing the purchase price of the land.

Leasehold estates granted by community land trusts and high LTV refinance loans secured by leasehold estates are not subject to the requirements in this topic. See  B5-5.3-02, Shared Equity Transactions: General Requirements B5-5.3-02, Shared Equity Transactions: General Requirements ,  B5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting and Collateral Requirements B5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting and Collateral Requirements  and B5-7-01, High LTV Refinance Loan and Borrower Eligibility B5-7-01, High LTV Refinance Loan and Borrower Eligibility  for additional information.

The table below provides references to recently issued Announcements that are related to this topic.

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(Published: Nov 06 2024)

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• Copyright and Preface
• A1-1-01, Application and Approval of Seller/Servicer
• A2-1-01, Contractual Obligations for Sellers/Servicers
• A2-1-02, Nature of Mortgage Transaction
• A2-1-03, Indemnification for Losses
• A2-2-01, Representations and Warranties Overview
• A2-2-02, Delivery Information and Delivery-Option Specific Representations and Warranties
• A2-2-03, Document Warranties
• A2-2-04, Limited Waiver and Enforcement Relief of Representations and Warranties
• A2-2-05, Invalidation of Limited Waiver of Representations and Warranties
• A2-2-06, Representations and Warranties on Property Value
• A2-2-07, Life-of-Loan Representations and Warranties
• A2-3.1-01, Lender Breach of Contract
• A2-3.1-02, Sanctions, Suspensions, and Terminations
• A2-3.2-01, Loan Repurchases and Make Whole Payments Requested by Fannie Mae
• A2-3.2-02, Enforcement Relief for Breaches of Certain Representations and Warranties Related to Underwriting and Eligibility
• A2-3.2-03, Remedies Framework
• A2-3.3-01, Compensatory Fees
• A2-4.1-01, Establishing Loan Files
• A2-4.1-02, Ownership and Retention of Loan Files and Records
• A2-4.1-03, Electronic Records, Signatures, and Transactions
• A2-4.1-04, Notarization Standards
• A2-5-01, Fannie Mae Trade Name and Trademarks
• A3-1-01, Fannie Mae’s Technology Products
• A3-2-01, Compliance With Laws
• A3-2-02, Responsible Lending Practices
• A3-3-01, Outsourcing of Mortgage Processing and Third-Party Originations
• A3-3-02, Concurrent Servicing Transfers
• A3-3-03, Other Servicing Arrangements
• A3-3-04, Document Custodians
• A3-3-05, Custody of Mortgage Documents
• A3-4-01, Confidentiality of Information
• A3-4-02, Data Quality and Integrity
• A3-4-03, Preventing, Detecting, and Reporting Mortgage Fraud
• A3-5-01, Fidelity Bond and Errors and Omissions Coverage Provisions
• A3-5-02, Fidelity Bond Policy Requirements
• A3-5-03, Errors and Omissions Policy Requirements
• A3-5-04, Reporting Fidelity Bond and Errors and Omissions Events
• A4-1-01, Maintaining Seller/Servicer Eligibility
• A4-1-02, Submission of Financial Statements and Reports
• A4-1-03, Report of Changes in the Seller/Servicer’s Organization
• A4-1-04, Submission of Irrevocable Limited Powers of Attorney
• B1-1-01, Contents of the Application Package
• B1-1-02, Blanket Authorization Form
• B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns
• B2-1.1-01, Occupancy Types
• B2-1.2-01, Loan-to-Value (LTV) Ratios
• B2-1.2-02, Combined Loan-to-Value (CLTV) Ratios
• B2-1.2-03, Home Equity Combined Loan-to-Value (HCLTV) Ratios
• B2-1.2-04, Subordinate Financing
• B2-1.3-01, Purchase Transactions
• B2-1.3-02, Limited Cash-Out Refinance Transactions
• B2-1.3-03, Cash-Out Refinance Transactions
• B2-1.3-04, Prohibited Refinancing Practices
• B2-1.3-05, Payoff of Installment Land Contract Requirements
• B2-1.4-01, Fixed-Rate Loans
• B2-1.4-02, Adjustable-Rate Mortgages (ARMs)
• B2-1.4-03, Convertible ARMs
• B2-1.4-04, Temporary Interest Rate Buydowns
• B2-1.5-01, Loan Limits
• B2-1.5-02, Loan Eligibility
• B2-1.5-03, Legal Requirements
• B2-1.5-04, Escrow Accounts
• B2-1.5-05, Principal Curtailments
• B2-2-01, General Borrower Eligibility Requirements
• B2-2-02, Non–U.S. Citizen Borrower Eligibility Requirements
• B2-2-03, Multiple Financed Properties for the Same Borrower
• B2-2-04, Guarantors, Co-Signers, or Non-Occupant Borrowers on the Subject Transaction
• B2-2-05, Inter Vivos Revocable Trusts
• B2-2-06, Homeownership Education and Housing Counseling
• B2-2-07, First-Generation Homebuyer Loans
• B2-3-01, General Property Eligibility
• B2-3-02, Special Property Eligibility and Underwriting Considerations: Factory-Built Housing
• B2-3-03, Special Property Eligibility and Underwriting Considerations: Leasehold Estates
• B2-3-04, Special Property Eligibility Considerations
• B2-3-05, Properties Affected by a Disaster
• B3-1-01, Comprehensive Risk Assessment
• B3-2-01, General Information on DU
• B3-2-02, DU Validation Service
• B3-2-03, Risk Factors Evaluated by DU
• B3-2-04, DU Documentation Requirements
• B3-2-05, Approve/Eligible Recommendations
• B3-2-06, Approve/Ineligible Recommendations
• B3-2-07, Refer with Caution Recommendations
• B3-2-08, Out of Scope Recommendations
• B3-2-09, Erroneous Credit Report Data
• B3-2-10, Accuracy of DU Data, DU Tolerances, and Errors in the Credit Report
• B3-2-11, DU Underwriting Findings Report
• B3-3.1-01, General Income Information
• B3-3.1-02, Standards for Employment Documentation
• B3-3.1-03, Base Pay (Salary or Hourly), Bonus, and Overtime Income
• B3-3.1-04, Commission Income
• B3-3.1-05, Secondary Employment Income (Second Job and Multiple Jobs) and Seasonal Income
• B3-3.1-06, Requirements and Uses of IRS IVES Request for Transcript of Tax Return Form 4506-C
• B3-3.1-07, Verbal Verification of Employment
• B3-3.1-08, Rental Income
• B3-3.1-09, Other Sources of Income
• B3-3.1-10, Income Calculator
• B3-3.2-01, Underwriting Factors and Documentation for a Self-Employed Borrower
• B3-3.2-02, Business Structures
• B3-3.2-03, IRS Forms Quick Reference
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• B3-3.3-04, Income or Loss Reported on IRS Form 1040, Schedule D
• B3-3.3-05, Income or Loss Reported on IRS Form 1040, Schedule E
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• B3-3.3-07, Income or Loss Reported on IRS Form 1065 or IRS Form 1120S, Schedule K-1
• B3-3.4-01, Analyzing Partnership Returns for a Partnership or LLC
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• B3-3.5-01, Income and Employment Documentation for DU
• B3-3.5-02, Income from Rental Property in DU
• B3-4.1-01, Minimum Reserve Requirements
• B3-4.1-02, Interested Party Contributions (IPCs)
• B3-4.1-03, Types of Interested Party Contributions (IPCs)
• B3-4.1-04, Virtual Currency
• B3-4.2-01, Verification of Deposits and Assets
• B3-4.2-02, Depository Accounts
• B3-4.2-03, Individual Development Accounts
• B3-4.2-04, Pooled Savings (Community Savings Funds)
• B3-4.2-05, Foreign Assets
• B3-4.3-01, Stocks, Stock Options, Bonds, and Mutual Funds
• B3-4.3-02, Trust Accounts
• B3-4.3-03, Retirement Accounts
• B3-4.3-04, Personal Gifts
• B3-4.3-05, Gifts of Equity
• B3-4.3-06, Grants and Lender Contributions
• B3-4.3-07, Disaster Relief Grants or Loans
• B3-4.3-08, Employer Assistance
• B3-4.3-09, Earnest Money Deposit
• B3-4.3-10, Anticipated Sales Proceeds
• B3-4.3-11, Trade Equity
• B3-4.3-12, Rent-Related Credits
• B3-4.3-13, Sweat Equity
• B3-4.3-14, Bridge/Swing Loans
• B3-4.3-15, Borrowed Funds Secured by an Asset
• B3-4.3-16, Credit Card Financing and Reward Points
• B3-4.3-17, Personal Unsecured Loans
• B3-4.3-18, Sale of Personal Assets
• B3-4.3-19, Cash Value of Life Insurance
• B3-4.3-20, Anticipated Savings and Cash-on-Hand
• B3-4.3-21, Borrower's Earned Real Estate Commission
• B3-4.4-01, DU Asset Verification
• B3-4.4-02, Requirements for Certain Assets in DU
• B3-5.1-01, General Requirements for Credit Scores
• B3-5.1-02, Determining the Credit Score for a Mortgage Loan
• B3-5.2-01, Requirements for Credit Reports
• B3-5.2-02, Types of Credit Reports
• B3-5.2-03, Accuracy of Credit Information in a Credit Report
• B3-5.3-01, Number and Age of Accounts
• B3-5.3-02, Payment History
• B3-5.3-03, Previous Mortgage Payment History
• B3-5.3-04, Inquiries: Recent Attempts to Obtain New Credit
• B3-5.3-05, Credit Utilization
• B3-5.3-06, Authorized Users of Credit
• B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit
• B3-5.3-08, Extenuating Circumstances for Derogatory Credit
• B3-5.3-09, DU Credit Report Analysis
• B3-5.4-01, Eligibility Requirements for Loans with Nontraditional Credit
• B3-5.4-02, Number and Types of Nontraditional Credit References
• B3-5.4-03, Documentation and Assessment of a Nontraditional Credit History
• B3-6-01, General Information on Liabilities
• B3-6-02, Debt-to-Income Ratios
• B3-6-03, Monthly Housing Expense for the Subject Property
• B3-6-04, Qualifying Payment Requirements
• B3-6-05, Monthly Debt Obligations
• B3-6-06, Qualifying Impact of Other Real Estate Owned
• B3-6-07, Debts Paid Off At or Prior to Closing
• B3-6-08, DU: Requirements for Liability Assessment
• B4-1.1-01, Definition of Market Value
• B4-1.1-02, Lender Responsibilities
• B4-1.1-03, Appraiser Selection Criteria
• B4-1.1-04, Unacceptable Appraisal Practices
• B4-1.1-05, Disclosure of Information to Appraisers
• B4-1.1-06, Uniform Appraisal Dataset (UAD) and the Uniform Collateral Data Portal (UCDP)
• B4-1.2-01, Appraisal Report Forms and Exhibits
• B4-1.2-02, Desktop Appraisals
• B4-1.2-03, Hybrid Appraisals
• B4-1.2-04, Appraisal Age and Use Requirements
• B4-1.2-05, Requirements for Verifying Completion and Postponed Improvements
• B4-1.3-01, Review of the Appraisal Report
• B4-1.3-02, Subject and Contract Sections of the Appraisal Report
• B4-1.3-03, Neighborhood Section of the Appraisal Report
• B4-1.3-04, Site Section of the Appraisal Report
• B4-1.3-05, Improvements Section of the Appraisal Report
• B4-1.3-06, Property Condition and Quality of Construction of the Improvements
• B4-1.3-07, Sales Comparison Approach Section of the Appraisal Report
• B4-1.3-08, Comparable Sales
• B4-1.3-09, Adjustments to Comparable Sales
• B4-1.3-10, Cost and Income Approach to Value
• B4-1.3-11, Valuation Analysis and Reconciliation
• B4-1.3-12, Appraisal Quality Matters
• B4-1.4-01, Factory-Built Housing: Manufactured Housing
• B4-1.4-02, Factory-Built Housing: Modular, Prefabricated, Panelized, or Sectional Housing
• B4-1.4-03, Condo Appraisal Requirements
• B4-1.4-04, Co-op Appraisal Requirements
• B4-1.4-05, Leasehold Interests Appraisal Requirements
• B4-1.4-06, Community Land Trust Appraisal Requirements
• B4-1.4-07, Mixed-Use Property Appraisal Requirements
• B4-1.4-08, Environmental Hazards Appraisal Requirements
• B4-1.4-09, Special Assessment or Community Facilities Districts Appraisal Requirements
• B4-1.4-10, Value Acceptance (Appraisal Waiver)
• B4-1.4-11, Value Acceptance + Property Data
• B4-2.1-01, General Information on Project Standards
• B4-2.1-02, Waiver of Project Review
• B4-2.1-03, Ineligible Projects
• B4-2.1-04, Environmental Hazard Assessments
• B4-2.1-05, Unacceptable Environmental Hazards
• B4-2.1-06, Remedial Actions for Environmental Hazard Assessments Below Standards
• B4-2.2-01, Limited Review Process
• B4-2.2-02, Full Review Process
• B4-2.2-03, Full Review: Additional Eligibility Requirements for Units in New and Newly Converted Condo Projects
• B4-2.2-04, Geographic-Specific Condo Project Considerations
• B4-2.2-05, FHA-Approved Condo Review Eligibility
• B4-2.2-06, Project Eligibility Review Service (PERS)
• B4-2.2-07, Projects with Special Considerations and Project Eligibility Waivers
• B4-2.3-01, Eligibility Requirements for Units in PUD Projects
• B4-2.3-02, Co-op Project Eligibility
• B4-2.3-03, Legal Requirements for Co-op Projects
• B4-2.3-04, Loan Eligibility for Co-op Share Loans
• B4-2.3-05, Geographic-Specific Co-op Project Considerations
• B5-1-01, High-Balance Mortgage Loan Eligibility and Underwriting
• B5-1-02, High-Balance Pricing, Mortgage Insurance, Special Feature Codes, and Delivery Limitations
• B5-2-01, Manufactured Housing
• B5-2-02, Manufactured Housing Loan Eligibility
• B5-2-03, Manufactured Housing Underwriting Requirements
• B5-2-04, Manufactured Housing Pricing, Mortgage Insurance, and Loan Delivery Requirements
• B5-2-05, Manufactured Housing Legal Considerations
• B5-3.1-01, Conversion of Construction-to-Permanent Financing: Overview
• B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions
• B5-3.1-03, Conversion of Construction-to-Permanent Financing: Two-Closing Transactions
• B5-3.2-01, HomeStyle Renovation Mortgages
• B5-3.2-02, HomeStyle Renovation Mortgages: Loan and Borrower Eligibility
• B5-3.2-03, HomeStyle Renovation Mortgages: Collateral Considerations
• B5-3.2-04, HomeStyle Renovation Mortgages: Costs and Escrow Accounts
• B5-3.2-05, HomeStyle Renovation Mortgages: Completion Certification
• B5-3.2-06, HomeStyle Renovation: Renovation Contract, Renovation Loan Agreement, and Lien Waiver
• B5-3.3-01, HomeStyle Energy for Improvements on Existing Properties
• B5-3.4-01, Property Assessed Clean Energy Loans
• B5-4.1-01, Texas Section 50(a)(6) Loans
• B5-4.1-02, Texas Section 50(a)(6) Loan Eligibility
• B5-4.1-03, Texas Section 50(a)(6) Loan Underwriting, Collateral, and Closing Considerations
• B5-4.1-04, Texas Section 50(a)(6) Loan Delivery and Servicing Considerations
• B5-4.2-01, Native American Conventional Lending Initiative (NACLI)
• B5-4.2-02, Disaster-Related Limited Cash-Out Refinance Flexibilities
• B5-4.2-03, Loans Secured by HomePath Properties
• B5-5.1-01, Community Seconds Loans
• B5-5.1-02, Community Seconds Loan Eligibility
• B5-5.1-03, Community Seconds: Shared Appreciation Transactions
• B5-5.2-01, Loans With Resale Restrictions: General Information
• B5-5.2-02, Loans with Resale Restrictions: Eligibility, Collateral and Delivery Requirements
• B5-5.3-01, Shared Equity Overview
• B5-5.3-02, Shared Equity Transactions: General Requirements
• B5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting and Collateral Requirements
• B5-5.3-04, Massachusetts Resale Restriction Loan Eligibility Requirements
• B5-6-01, HomeReady Mortgage Loan and Borrower Eligibility
• B5-6-02, HomeReady Mortgage Underwriting Methods and Requirements
• B5-6-03, HomeReady Mortgage Loan Pricing, Mortgage Insurance, and Special Feature Codes
• B5-7-01, High LTV Refinance Loan and Borrower Eligibility
• B5-7-02, High LTV Refinance Underwriting, Documentation, and Collateral Requirements for the New Loan
• B5-7-03, High LTV Refinance Alternative Qualification Path
• B5-7-04, High LTV Refinance Representations and Warranties
• B5-7-05, High LTV Refinance Pricing, Mortgage Insurance, and Special Feature Codes
• B6-1-01, General Government Mortgage Loan Requirements
• B6-1-02, Eligible FHA-Insured Mortgage Loans
• B6-1-03, Eligible VA-Guaranteed Mortgages
• B6-1-04, Eligible HUD-Guaranteed Section 184 Mortgages
• B6-1-05, Eligible RD-Guaranteed Mortgages
• B7-1-01, Provision of Mortgage Insurance
• B7-1-02, Mortgage Insurance Coverage Requirements
• B7-1-03, Lender-Purchased Mortgage Insurance
• B7-1-04, Financed Borrower-Purchased Mortgage Insurance
• B7-1-05, Government Mortgage Loan Guaranty or Insurance
• B7-2-01, Provision of Title Insurance
• B7-2-02, Title Insurer Requirements
• B7-2-03, General Title Insurance Coverage
• B7-2-04, Special Title Insurance Coverage Considerations
• B7-2-05, Title Exceptions and Impediments
• B7-2-06, Attorney Title Opinion Letter Requirements
• B7-3-01, General Property Insurance Requirements for All Property Types
• B7-3-02, Property Insurance Requirements for One-to Four-Unit Properties
• B7-3-03, Master Property Insurance Requirements for Project Developments
• B7-3-04, Individual Property Insurance Requirements for a Unit in a Project Development
• B7-3-05, Additional Insurance Requirements
• B7-3-06, Flood Insurance Requirements for All Property Types
• B7-3-07, Evidence of Property Insurance
• B7-3-08, Mortgagee Clause, Named Insured, and Notice of Cancellation Requirements
• B7-4-01, General Liability Insurance Requirements for Project Developments
• B7-4-02, Fidelity/Crime Insurance Requirements for Project Developments
• B8-1-01, Publication of Legal Documents
• B8-2-01, Security Instruments for Conventional Mortgages
• B8-2-02, Special-Purpose Security Instruments
• B8-2-03, Signature Requirements for Security Instruments
• B8-3-01, Notes for Conventional Mortgages
• B8-3-02, Special Note Provisions and Language Requirements
• B8-3-03, Signature Requirements for Notes
• B8-3-04, Note Endorsement
• B8-4-01, Riders and Addenda
• B8-5-01, General Information on Special-Purpose Legal Documents
• B8-5-02, Inter Vivos Revocable Trust Mortgage Documentation and Signature Requirements
• B8-5-03, HomeStyle Renovation Mortgage Documentation Requirements
• B8-5-04, Sample Legal Documents
• B8-5-05, Requirements for Use of a Power of Attorney
• B8-6-01, Authorized Use of Intervening and Blanket Assignments
• B8-7-01, Mortgage Electronic Registration Systems (MERS), Inc.
• B8-8-01, General Information on eMortgages
• B8-8-02, Requirements for Creating, Closing, and Correcting eNotes
• C1-1-01, Execution Options
• C1-2-01, General Information on Delivering Loan Data and Documents
• C1-2-02, Loan Data and Documentation Delivery Requirements
• C1-2-03, Ownership of Mortgage Loans Prior to Purchase or Securitization and Third-Party Security Interests
• C1-2-04, Delivering eMortgages to Fannie Mae
• C1-2-05, Delivering Green MBS to Fannie Mae
• C1-2-06, Bailee Letters
• C1-3-01, General Information on Remittance Types
• C2-1.1-01, Mandatory Commitment Process
• C2-1.1-02, General Information about Mandatory Commitment Pricing and Fees
• C2-1.1-03, Mandatory Commitment Terms, Amounts, Periods and Other Requirements
• C2-1.1-04, Mandatory Commitment Extensions and Pair-Offs
• C2-1.1-05, Servicing Fees
• C2-1.1-06, Accrued Interest Payments for Regularly Amortizing Mortgages
• C2-1.1-07, Standard ARM and Converted ARM Resale Commitments
• C2-1.2-01, Best Efforts Commitment Process
• C2-1.2-02, Best Efforts Commitment Pricing, Periods, and Fees
• C2-1.2-03, Best Efforts Commitment Terms, Amounts, and Other Requirements
• C2-1.3-01, Servicing Marketplace
• C2-2-01, General Requirements for Good Delivery of Whole Loans
• C2-2-02, Documentation Requirements for Whole Loan Deliveries
• C2-2-03, General Information on Whole Loan Purchasing Policies
• C2-2-04, Timing of Distribution of Whole Loan Purchase Proceeds
• C2-2-05, Whole Loan Purchasing Process
• C2-2-06, Authorization to Transfer Funds
• C2-2-07, Purchase Payee Codes
• C3-1-01, General Information About Fannie Mae’s MBS Program
• C3-1-02, Preparing to Pool Loans into MBS
• C3-2-01, Determining Eligibility for Loans Pooled into MBS
• C3-2-02, Selecting a Servicing Option
• C3-2-03, MBS Remittance Type and Selecting a Remittance Cycle
• C3-2-04, Mandatory MBS Commitments
• C3-3-01, Determining and Remitting Guaranty Fees
• C3-3-02, Accessing Buyup and Buydown Ratios and Calculating Payments or Charges
• C3-3-03, Buying Up and Buying Down the Guaranty Fee for MBS
• C3-4-01, Term-Related Fixed-Rate Mortgage Pooling Parameters
• C3-5-01, Creating Weighted-Average ARM MBS
• C3-5-02, Calculating the Weighted-Average Pool Accrual Rates for ARM Flex Pools Using a Fixed MBS Margin
• C3-5-03, Calculating the Weighted-Average Pool Accrual Rates for ARM Flex Pools Using a Weighted-Average MBS Margin
• C3-5-04, Pooling ARMs with a Conversion Option
• C3-5-05, Commingling ARMs in MBS
• C3-6-01, Parameters for Pooling Loans Into Fannie Majors
• C3-7-01, Establishing an MBS Trading Account
• C3-7-02, Initiating an MBS Sale
• C3-7-03, Making Good Delivery
• C3-7-04, Delivering MBS Pool Data and Documents
• C3-7-05, Confirming Presettlement Information
• C3-7-06, Settling the Trade
• C3-7-07, Sale of Fannie Mae Securities to Third Parties
• D1-1-01, Lender Quality Control Programs, Plans, and Processes
• D1-1-02, Lender Quality Control Staffing and Outsourcing of the Quality Control Process
• D1-2-01, Lender Prefunding Quality Control Review Process
• D1-3-01, Lender Post-Closing Quality Control Review Process
• D1-3-02, Lender Post-Closing Quality Control Review of Approval Conditions, Underwriting Decisions, and Documentation
• D1-3-03, Lender Post-Closing Quality Control Review of Data Integrity
• D1-3-04, Lender Post-Closing Quality Control Review of Appraisers, Appraisals, Property Data Collectors, and Property Data Collection
• D1-3-05, Lender Post-Closing Quality Control Review of Closing Documents
• D1-3-06, Lender Post-Closing Quality Control Reporting, Record Retention, and Audit
• D2-1-01, General Information on Fannie Mae QC Reviews
• D2-1-02, Fannie Mae QC File Request and Submission Requirements
• D2-1-03, Outcomes of Fannie Mae QC Reviews
• D2-1-04, Identifying and Remedying Origination Defects Under the Remedies Framework
• E-1-01, References to Fannie Mae's Website
• E-1-02, List of Contacts
• E-1-03, List of Lender Contracts
• E-2-01, Required Custodial Documents
• E-2-02, Suggested Format for Phase I Environmental Hazard Assessments
• E-2-03, Revocable Trust Rider (Sample Language)
• E-2-04, Signature Requirements for Mortgages to Inter Vivos Revocable Trusts
• E-2-05, Servicing Marketplace — Mortgage Loan Servicing Purchase and Sale Agreement
• E-2-06, Correcting Errors in eNotes
• E-2-07, Description of eNote Header, Footer, and eNote Clause
• E-3-01, Acronyms and Glossary of Defined Terms: A
• E-3-02, Acronyms and Glossary of Defined Terms: B
• E-3-03, Acronyms and Glossary of Defined Terms: C
• E-3-04, Acronyms and Glossary of Defined Terms: D
• E-3-05, Acronyms and Glossary of Defined Terms: E
• E-3-06, Acronyms and Glossary of Defined Terms: F
• E-3-07, Acronyms and Glossary of Defined Terms: G
• E-3-08, Acronyms and Glossary of Defined Terms: H
• E-3-09, Acronyms and Glossary of Defined Terms: I
• E-3-10, Acronyms and Glossary of Defined Terms: J
• E-3-11, Acronyms and Glossary of Defined Terms: K
• E-3-12, Acronyms and Glossary of Defined Terms: L
• E-3-13, Acronyms and Glossary of Defined Terms: M
• E-3-14, Acronyms and Glossary of Defined Terms: N
• E-3-15, Acronyms and Glossary of Defined Terms: O
• E-3-16, Acronyms and Glossary of Defined Terms: P
• E-3-17, Acronyms and Glossary of Defined Terms: Q
• E-3-18, Acronyms and Glossary of Defined Terms: R
• E-3-19, Acronyms and Glossary of Defined Terms: S
• E-3-20, Acronyms and Glossary of Defined Terms: T
• E-3-21, Acronyms and Glossary of Defined Terms: U
• E-3-22, Acronyms and Glossary of Defined Terms: V
• E-3-23, Acronyms and Glossary of Defined Terms: W
• E-3-24, Acronyms and Glossary of Defined Terms: X
• E-3-25, Acronyms and Glossary of Defined Terms: Y
• E-3-26, Acronyms and Glossary of Defined Terms: Z

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Key Points: Financing Leasehold Interests in Real Estate

Published on

• Merely adding the word “leasehold” to your standard mortgage form does not create an effective leasehold mortgage.
• Allow the tenant to grant a leasehold mortgage?
• Have a term longer than the loan?
• If not, have extension options the lender may utilize?
• Have purchase options the lender may utilize?
• Have predictable rent?
• Check the title to the fee estate (landlord/owner) and not just the leasehold estate (tenant/mortgagor).  Assure the lease or a memorandum has been recorded.
• If the landlord’s/owner’s interest is subject to a mortgage, obtain a non-disturbance agreement which specifically addresses the leasehold mortgage situation.
• receive notice of the tenant/borrower’s default;
• cure a tenant default and receive extra time to do so;
• obtain possession of the premises to cure; and
• receive a waiver of non-curable defaults (or a new lease).
• The potential responses to a bankruptcy filing by the tenant/borrower and by the landlord must be addressed – in the leasehold mortgage.
• Consider whether restrictive use provisions in the lease will diminish your collateral value (the lease) if you are forced to address a loan default.
• A leasehold mortgage can be enforced through foreclosure…but consider additional remedies: the granting of a new lease or the assignment of the lease to a new tenant.  The lease should have a “no merger” clause.
• Address the lender’s right to enforce the lease, consent to amendments, receive insurance proceeds, and obtain possession.
• Do you really want to take on the complexity of mortgaging a sublease?

Timothy G. Dietrich

• (610) 898-7154
• [email protected]

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