Freddie Mac Single-Family Seller/Servicer Guide 8406.1 — General policy and federal regulation on Transfers of Ownership and assumptions

This section contains requirements related to: ■ General policy on Transfers of Ownership and assumptions ■ Transfers of Ownership and assumptions of Mortgages insured by the FHA or guaranteed by the VA or RHS ■ Federal restrictions on the exercise of the due-on-transfer clause ■ Additional permitted Transfers of Ownership

(a) General policy on Transfers of Ownership and assumptions (i) General policy on Transfers of Ownership Ownership of the Mortgaged Premises securing a Mortgage that does not contain a dueon-transfer clause can be transferred without restriction. However, the Servicer must accelerate the maturity of a Mortgage that contains a due-on-sale or due-on-transfer clause when a Transfer of Ownership occurs, unless acceleration is prohibited by provisions of Section 8406.1(c) or 8406.1(d) or applicable law. References in the Guide to “due-on-transfer clause” includes “due-on-sale clauses” and similar provisions in the Mortgage documents that require acceleration upon a Transfer of Ownership. Servicers should review the definition of Transfer of Ownership in the Glossary for a list of impacted transactions. Servicers are reminded that when a Transfer of Ownership occurs that involves a modified Mortgage, they must review the modification documents in addition to the Note and Security Instrument to determine if a due-on-transfer clause has been triggered. In accordance with Section 9206.2(c), such clauses must be included in a modified Mortgage. Upon learning of a Transfer of Ownership that is subject to acceleration under the terms of this chapter, the Servicer must accelerate the debt and initiate appropriate foreclosure action in accordance with applicable law, the terms of the Security Instrument and Chapter 9301. No penalty may be charged for a prepayment resulting from such acceleration. (ii) General policy on assumptions of delinquent Mortgages It may be in the best interest of Freddie Mac to permit an assumption of a delinquent Mortgage by a creditworthy applicant, even if the Mortgage contains a due-on-transfer clause. Freddie Mac approval is necessary to approve or decline any request to assume a delinquent Mortgage. In these instances, refer to Section 9207.1 for workout Mortgage assumption requirements and contact Freddie Mac (see Directory 5) to determine whether a workout Mortgage assumption is an appropriate alternative to foreclosure. (iii) Change in Note Rate requirements Freddie Mac will not permit a change in the Note Rate upon a Transfer of Ownership of the Mortgaged Premises, except in connection with a simultaneous assumption and modification that meets the requirements set forth in Section 9207.1(b). A Servicer that intends to modify the Note Rate without meeting the requirements of Section 9207.1(b) must first repurchase Freddie Mac’s interest in the Mortgage in accordance with Chapter 3602.

(b) Transfers of Ownership and assumptions of Mortgages insured by the FHA or guaranteed by the VA or RHS The Mortgaged Premises securing Mortgages insured by the FHA or guaranteed by the VA or RHS may be transferred in accordance with applicable FHA, VA or RHS regulations. The Servicer must comply with all applicable FHA, VA or RHS requirements to ensure that the FHA insurance, or VA or RHS guaranty is maintained and must provide all notices and disclosures required under the Equal Credit Opportunity Act, Truth in Lending Act and any other applicable law or regulation. Freddie Mac need not be notified of any change of ownership allowed by the FHA, VA or RHS, but the Servicer must ensure that all insurance and guaranty documents reflect the change. When prior FHA, VA or RHS approval is required and such approval is not granted, the Servicer must provide an adverse action notice to all applicable parties, in addition to any other notice or disclosure required under the Equal Credit Opportunity Act, Fair Credit Reporting Act, Truth in Lending Act and any other applicable law or regulation. The application for assumption of a Mortgage insured by the FHA or guaranteed by the VA or RHS is not complete until the Servicer receives the following: 1. The completed application for approval of a loan assumption 2. An executed copy of the contract of sale or other document reflecting the Transfer of Ownership (e.g., quitclaim deed) 3. With regard to (a) the continuation of the mortgage insurance provided by the FHA, the Mortgage guaranty provided by the VA or the Mortgage guaranty provided by the RHS, as applicable, and (b) the release of the prior Borrower of liability, when applicable, written approval from: ■ The FHA for Mortgages insured by the FHA ■ The VA for Mortgages guaranteed by the VA ■ The RHS for Mortgages insured by the RHS; and 4. All other information the FHA, VA or RHS, as applicable, may require

(c) Federal restrictions on the exercise of the due-on-transfer clause For the following Transfers of Ownership, when the Mortgaged Premises is either occupied or to be occupied by the Borrower, the Servicer may not accelerate the maturity of the indebtedness: ■ The creation of a lien or other encumbrance subordinate to the lender’s Security Instrument, which does not relate to a transfer of rights of occupancy in the Mortgaged Premises, provided that the lien or encumbrance is not created pursuant to a contract for deed ■ The creation of a purchase-money security interest for household appliances ■ A transfer by devise, descent or operation of law on the death of a joint tenant or tenant by the entirety ■ The granting of a leasehold interest with a term of three years or less and without an option to purchase ■ A transfer in which the transferee occupies or will occupy the Mortgaged Premises and that is one of the following: ❑ A transfer to a relative, resulting from the Borrower’s death Note: In the case of a Borrower’s death, the occupancy requirement may be waived. The Servicer should submit the waiver recommendation to Freddie Mac (see Directory 5) for approval. ❑ A transfer wherein the spouse, domestic partner or a child of the transferor becomes an owner of the Mortgaged Premises ❑ A transfer resulting from a decree of dissolution of a marriage or domestic partnership, a legal separation agreement or from an incidental property settlement agreement by which the spouse or domestic partner becomes an owner of the Mortgaged Premises ■ A transfer into an inter vivo trust in which the Borrower is and remains the beneficiary and occupant of the Mortgaged Premises unless, as a condition precedent to such a transfer, the Borrower refuses to provide the Servicer with reasonable means acceptable to the Servicer by which the Servicer will be assured of timely notice of any subsequent transfer of the beneficial interest or change in occupancy ■ Any other transfer or disposition described in regulations of the Federal Home Loan Bank Board as a basis on which due-on-transfer clauses may not be exercised Except for the waiver of occupancy requirements for transferees as described above, Servicers may not evaluate the creditworthiness of a transferee, require a transferee to assume the Mortgage or otherwise require the Servicer’s or Freddie Mac’s approval for any of the Transfers of Ownership types listed in this section. If the transferee requests to assume the Mortgage and/or the transferor requests to be released from liability, then the Servicer must determine the creditworthiness of the transferee in accordance with the requirements in Sections 8406.2(a) and 8406.2(b).

(d) Additional permitted Transfers of Ownership (i) Unrestricted Transfers of Ownership In addition to the federal restrictions on the exercise of the due-on-transfer clause provided in Section 8406.1(c), Freddie Mac will not, and the Servicer may not, restrict a Transfer of Ownership of the Mortgaged Premises in the following situations: ■ The Security Instrument does not contain a due-on-transfer clause ■ The Security Instrument contains an unenforceable due-on-transfer clause ■ The title is acquired by the junior lienholder (that is an institutional counterparty) as the result of a foreclosure or acceptance of a deed-in-lieu of foreclosure of the junior lien. However, Freddie Mac will require acceleration of the indebtedness if the title is further transferred after acquisition by the junior lienholder; or ■ The title to the leasehold estate and the improvements are acquired by the fee simple landowner/lessor as the result of the Borrower being evicted from the leasehold estate by court order. However, Freddie Mac will require acceleration of the indebtedness if the title is further transferred to a new lessee after acquisition by the lessor. In connection with any Transfer of Ownership listed in this Section 8406.1(d)(i), a Servicer may not evaluate the creditworthiness of a transferee, require a transferee to assume the Mortgage, or otherwise require the Servicer’s or Freddie Mac’s approval of the transfer. However, if the transferee requests to assume the Mortgage and/or the transferor requests to be released of liability, the Servicer must determine the creditworthiness of the transferee, either manually or by using Loan Product Advisor®. Note: Refer to Sections 8406.2(a) and 8406.2(b) for additional information on Transfers of Ownership. (ii) Permitted Transfers of Ownership In situations where all of the following conditions are met, Freddie Mac will permit a Transfer of Ownership of the Mortgaged Premises: ■ At least 12 months have passed since the Origination Date ■ The Servicer has complied with all mortgage insurance requirements applicable to the transfer ■ Either: ❑ The transfer is to a transferee who occupies or will occupy the Mortgaged Premises as a Primary Residence and is: ■ A parent or child of the transferor ■ A grandparent or grandchild of the transferor ■ A brother or sister of the transferor, or ■ An original co-Borrower of the transferor under the Note, whether or not related to the transferor ❑ The transfer is to a limited liability company (LLC) or limited partnership (LP), provided that: ■ The managing member/general partner of the LLC/LP is the original Borrower. If there are multiple Borrowers, all of them must be members/partners of the LLC/LP, and at least one of them must be a managing member/general partner. If the transfer results in a permitted change of occupancy type to an investment property, such change must not violate the Security Instrument (e.g., the 12-month occupancy requirement for a Primary Residence), and ■ The Servicer notifies the original owner or natural person that the Mortgaged Premises transferred to an LLC/LP must be transferred back to the original owner or natural person prior to any subsequent refinance or modification application to meet Freddie Mac’s underwriting requirements ❑ The Mortgage is a HeritageOne® Mortgage, and the transfer is to the Eligible Native American Tribe (as defined in Section 4504.2(c)) within whose Tribal Area the Mortgaged Premises are located if, after acquisition, the Eligible Native American Tribe further transfers or will transfer the title to a transferee who occupies or will occupy the Mortgaged Premises as a Primary Residence, and at least one transferee is also an enrolled member of a Native American Tribe (as defined in Section 8901.1(a)) In connection with any Transfer of Ownership that meets the conditions of this Section 8406.1(d)(ii), a Servicer may not evaluate the creditworthiness of a transferee, require a transferee to assume the Mortgage or otherwise require the Servicer’s or Freddie Mac’s approval of the transfer. However, if the transferee requests to assume the Mortgage and/or the transferor requests to be released of liability, the Servicer must determine the creditworthiness of the transferee, either manually or by using Loan Product Advisor. Refer to Sections 8406.2(a) and 8406.2(b) for additional information. (iii) Transfers of Ownership that require a determination of creditworthiness In the following situations, the Servicer must determine the creditworthiness of the transferee, even if the transferee is not assuming the Mortgage, and process the Transfer of Ownership in accordance with Sections 8406.2(a) through 8406.3(b): ■ The Security Instrument contains a due-on-transfer clause that does not allow unrestricted or automatic acceleration of the indebtedness upon transfer of the Mortgaged Premises to a creditworthy transferee, or ■ The title is acquired by the junior lienholder (that is not an institutional counterparty) as the result of a foreclosure or acceptance of a deed-in-lieu of foreclosure of the junior lien. However, Freddie Mac will require acceleration of the indebtedness if the title is further transferred after acquisition by the junior lienholder. (iv) Assumptions, releases of liability and determination of creditworthiness If the transferee requests an assumption of the Mortgage obligation as part of a Transfer of Ownership, the Servicer must determine the creditworthiness of the transferee in accordance with the manual underwriting requirements in Topics 5100 through 5500. The Servicer must prepare a written assumption agreement that must be executed by all parties concerned as required in Section 8406.2(c). In addition, if the transferor requests to be released of liability, once the Servicer has determined the creditworthiness of the transferee, the Servicer must require a written assumption and release of liability agreement, which then must be executed by all parties concerned in accordance with Section 8406.2(c). Servicers must accelerate the Note if title is further transferred by the transferee to someone who is not an eligible transferee under Sections 8406.1(c) or 8406.1(d).