Bulletin: SLS2012005

Dear Associates:

Federal National Mortgage Association (aka Fannie Mae) is frequently the recipient of property following a foreclosure sale.  It is typical for Fannie Mae to deed out to a third party in a post-foreclosure sale using a Special Warranty Deed.  Relying on the conveyance via Special Warranty Deed is acceptable; however, please note that many of these deeds contain a restriction prohibiting the Grantee from conveying or encumbering the property for a period of three months from the date of the deed.

The restriction typically provides a specific dollar amount associated with these restrictions.  For example, the deed may state that the Grantee is prohibited from conveying the property "to a bona fide purchaser for value for a sales price of greater than $100,000 for a period of 3 months from the date of this deed".  It may also state "Grantee shall be prohibited from encumbering subject property with a security interest in the principal amount of greater than $100,000 for a period of 3 months from the date of this deed".  Dollar amounts will vary, and they are not necessarily consistent with the consideration amount paid for the current transfer.

The purpose of this bulletin is to remind you to review post-foreclosure conveyance deeds carefully in order to identify and address these restrictions.  These restrictions must be disclosed on a preliminary title report or preliminary title commitment prepared within the time period specified on the deed.  Please clearly spell out the restriction in your exception.  Do not simply note that there is a restriction contained in a deed.  Identify the dates and dollar amounts stated on the deed.

If the time period specified on the deed has expired, you must carefully review any post-foreclosure transaction to ensure that the restrictions were not violated. 

If the restriction appears on the preliminary title report or preliminary title commitment, it may not be removed from the final policy until the transaction is closed and you can confirm that the restriction was not violated.  If there is any question or ambiguity as to whether or not the transaction will violate the restriction (i.e. if the property is being used as additional collateral for a loan) the exception must remain on the policy.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

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