2012-03-15, 11:04

New Fanie Mae Loan Documents (Continued)

By: Chris Iavarone
Continuing our discussion about the new Fannie Mae Loan Documents, below are items 7 and 8 from our list of key issues:

7. Failure to Complete Life/Safety Repairs within Completion Period. Under the new Loan Agreement, it is now an automatic Event of Default if the borrower fails to make repairs associated with fire, life or safety issues within the completion period without apparent regard to force majeure delays other than weather. This is a policy change for Fannie Mae, so Fannie Mae is unlikely to change this provision. Further, Fannie Mae has refused our requests to grant any notice or cure period for a breach of its terms in the Loan Agreement. The completion periods specified in the loan documents are often short and, therefore, any delay can present a risk of default for a borrower. The borrower will have to put a greater emphasis on managing the completion timeline for the repairs and, in advance of signing the loan documents, raising with Fannie Mae any concerns that the borrower may have in completing the required repairs by the specified deadline.

8. Supplemental Insurance. The definition of “Mortgaged Property” in the Security Instrument includes all “insurance policies related to the Mortgaged Property” and all proceeds thereof. This is broad enough to include any supplemental insurance carried by the borrower, even if that insurance is not required by the lender. The borrower should consider excluding this supplemental insurance from the collateral for the loan.

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