Continuity of Title for Refinances

Definition of Continuity of Obligation

Continuity of obligation occurs on a refinance transaction when at least one of the borrower(s) on
the existing mortgage is also a borrower on the new refinance transaction secured by the subject
property.

 

Requirements for Continuity of Obligation
All refinance transactions must

  • comply with the definition above,
  • meet one of the permissible exceptions described below, or
  • comply with the limited eligibility parameters described below.

Note the following:

  • Continuity of obligation requirements do not apply when there is no existing mortgage on the subject property as a result of the borrower either having purchased the subject property withcash or when any prior mortgage for which the borrower was an obligor was paid in full.
  • All time period references in this section are measured from the date of the event (for example, transfer of title) and end with the disbursement date of the new refinance transaction.

 

Per Selling Guide page 228

 

 

 

Permissible Exceptions to Continuity of Obligation
Although the following refinance transactions do not meet the definition of continuity of obligation, the new refinance transaction will be eligible and not bound by the limited eligibility parameters described below if any of the following are applicable:

  • The borrower on the new refinance transaction was added to title 24 months or more prior to the disbursement date of the new refinance transaction.
  • The lender documents that the borrower acquired the property through an inheritance or was legally awarded the property (for example, divorce, separation, or dissolution of a domestic partnership). There is no minimum waiting period with regard to when the borrower acquired the property before completing a new refinance transaction.
  • The borrower on the new refinance transaction has been added to title through a transfer from a trust, or a limited liability company (LLC), or partnership. The following requirements apply:

– the borrower must have been a beneficiary/creator (trust) or a 25% or more owner of the LLC or partnership prior to the transfer, and
– the transferring entity and/or the borrower has had a consecutive ownership (on title) for at least the most recent 6 months prior to disbursement of the new loan.

Note: Transfer of ownership from a corporation to an individual does not meet the continuity of obligation requirement.

• The borrower has been on title for at least 12 months but is not obligated on the existing mortgage(s) that is being refinanced and the borrower meets at least one of the following requirements:

– has been residing in the property for at least 12 months,

– has paid the mortgage for at least 12 months, or

– can demonstrate a relationship with the current obligor (for example, relative or domestic partner).

Continuity of Obligation

Per Fannie Mae, Continuity of obligation occurs on a refinance transaction when at least one of the borrower(s) on the existing mortgage is also a borrower on the new refinance transaction secured by the subject property. Continuity of obligation requirements do not apply when there is no existing mortgage on the subject property as a result of the borrower either having purchased the subject property with cash or when any prior mortgage for which the borrower was an obligor was paid in full.

Permissible Exceptions to Continuity of Obligation
Although the following refinance transactions do not meet the definition of continuity of obligation, the new refinance transaction will be eligible and not bound by the limited eligibility
parameters described below if any of the following are applicable:

  • The borrower on the new refinance transaction was added to title 24 months or more prior to the disbursement date of the new refinance transaction.
  • The lender documents that the borrower acquired the property through an inheritance or was legally awarded the property (for example, divorce, separation, or dissolution of a domestic
    partnership). There is no minimum waiting period with regard to when the borrower acquired the property before completing a new refinance transaction.
  • The borrower on the new refinance transaction has been added to title through a transfer from a trust, or a limited liability company (LLC), or partnership. The following requirements
    apply:
  • the borrower must have been a beneficiary/creator (trust) or a 25% or more owner of the LLC or partnership prior to the transfer, and
  • the transferring entity and/or the borrower has had a consecutive ownership (on title) for at least the most recent 6 months prior to disbursement of the new loan.
  • Note: Transfer of ownership from a corporation to an individual does not meet the continuity of obligation requirement.

  • The borrower has been on title for at least 12 months but is not obligated on the existing mortgage(s) that is being refinanced and the borrower meets at least one of the following requirements:
    • has been residing in the property for at least 12 months,
    • has paid the mortgage for at least 12 months, or
    • can demonstrate a relationship with the current obligor (for example, relative or domestic partner).

 

All Other Refinance Transactions — Limited Eligibility

All other refinance transactions that do not meet either the continuity of obligation requirements or a permissible exception must comply with the following LTV, CLTV, HCLTV ratio restrictions
regardless of the occupancy of the property. The LTV, CLTV, HCLTV ratios must be based on the current appraised value.

Months On Title – Eligibility Requirements

< 6 months – Ineligibile

> 6 months and < 24 months – Limited to 50% CLTV

> 24 months – no additional restrictions

Leave a Reply

Your email address will not be published.