Freddie Mac Single-Family Seller/Servicer Guide 8601.5 — Default management, foreclosure processes and legal considerations

The brown font text used throughout this chapter denotes the special requirements for Servicing Senior Subordinate Mortgages. Text in black or green font denotes general Servicing requirements that also apply elsewhere in the Guide. This section contains information related to: ■ General requirements for Freddie Mac Default Legal Matters ■ Referral to foreclosure documentation requirements ■ Foreclosing in the Servicer’s name ■ Expedited foreclosures ■ Deficiency rights ■ Non-routine default-related legal matters ■ Counsel retained by Servicers pursuant to Servicer’s duty to indemnify Freddie Mac ■ Retention of firm ■ Referral of Freddie Mac Default Legal Matters to firm

(a) General requirements for Freddie Mac Default Legal Matters This subsection has been adapted from Section 9301.1(b) to reflect special Servicing requirements for Senior Subordinate Mortgages. When following the requirements provided in Chapter 9301 while processing Freddie Mac Default Legal Matters, the Servicer must comply with: 1. The terms and conditions of the Mortgage documents, including the Note 2. Applicable federal, State and local laws and customs 3. Requirements of the FHA, VA, RHS or MI, if applicable 4. The Guide and other Purchase Documents 5. The limited power of attorney granted to the Servicer by Freddie Mac on behalf of the Senior Subordinate Trust

(b) Referral to foreclosure documentation requirements This subsection has been adapted from Section 9301.2(f) to reflect special Servicing requirements for Senior Subordinate Mortgages. For a Senior Subordinate Mortgage, appropriate foreclosure documentation includes, but is not limited to, all documents required by the foreclosure counsel to complete the first legal action. The Servicer must continue to comply with applicable law but at a minimum must supply the foreclosure counsel with the following: 1. A statement that informs foreclosure counsel that the Senior Subordinate Mortgage is owned by a Senior Subordinate Trust and that also provides counsel with the name of the Senior Subordinate Trust 2. A copy of the limited power of attorney provided to the Servicer by Freddie Mac authorizing the Servicer to pursue foreclosure on behalf of the Senior Subordinate Trust 3. Instructions, given along with the limited power of attorney, requiring foreclosure counsel to inform the Servicer if counsel determines upon referral or at any later time that the limited power of attorney provided to the Servicer by Freddie Mac cannot be relied upon under applicable law* 4. Copies of the Note (or the original Note if required by applicable law) evidencing the indebtedness along with any intervening assignments, endorsements or any applicable modifying instrument, such as a modification agreement, a conversion agreement or an assumption of indebtedness and release of liability agreement 5. Mortgage or deed of trust 6. Copy of the original title insurance policy. For Cooperative Share Loans recognized as personal property, refer to Section 8801.1(f) regarding certain Servicer warranties when foreclosing on a Cooperative Share Loan 7. Copy of the breach, acceleration or demand letter sent to the Borrower 8. Military affidavits 9. Executed Substitution of Trustee, as necessary 10. Payoff statement with per diem interest as of the date of the foreclosure referral 11. Send foreclosure counsel the following information by facsimile transmission or other electronic means: ■ Name, mailing address and telephone number of the Borrower(s) ■ Property address (if different from the Borrower’s mailing address) ■ A statement that the Senior Subordinate Mortgage is a Freddie Mac Guaranteed Mortgage and that includes the nine-digit Freddie Mac loan number ■ Name and address of the person to contact in the Servicer’s foreclosure department *The Servicer must comply with any applicable requirements in Section 8601.1(d) if the Servicer makes the determination, on advice of foreclosure counsel or otherwise, that the limited power of attorney cannot be relied upon and the Servicer has also determined that a limited power of attorney issued directly by the Senior Subordinate Trust and/or action by Freddie Mac, such as the execution of documents, is necessary to the proper Servicing of the Senior Subordinate Mortgage. Referral to foreclosure documentation requirements on a Senior Subordinate Mortgage secured by a Manufactured Home In addition to the above requirements, if the Mortgage is secured by a Manufactured Home, the Servicer must notify the foreclosure counsel that the property is a Manufactured Home when it submits the case to the foreclosure counsel. The Servicer must also provide the foreclosure counsel with evidence that the property is legally classified as real property under the laws in the State where the property is located. (i) Evidence that the property is real property in a non-certificate of title State The Servicer must provide the foreclosure counsel with copies of the following documentation in non-certificate of title States (see Section 5703.5) evidencing that the Manufactured Home and the land are real property under the laws of the State where the property is located: ■ Information stating the legal basis (statutory or common law) for determining that the Manufactured Home is real property that is exempt from certificate of title requirements. This information may be included in the documentation received at origination of the Senior Subordinate Mortgage from the title insurance company that the Manufactured Home is real property, and ■ Evidence that a certificate of title has not been issued, such as the manufacturer’s statement of origin, if the manufacturer’s statement of origin is not required to be surrendered to a State agency (ii) Evidence that the property is real property in a certificate of title surrender State The Servicer must provide the foreclosure counsel with copies of the following documentation in certificate of title surrender States (see Section 5703.5) evidencing that the Manufactured Home and the land are real property under the laws of the State where the property is located: ■ A certificate of cancelation, notification letter or other acknowledgment from the State motor vehicles administration or the appropriate State agency to which the certificate of title was surrendered, or a copy of the documents submitted in connection with the surrender along with evidence that the documents were delivered and received by the appropriate State agency, and ■ Copies of the documents, such as an affidavit of affixture, recorded in the land records as part of the title surrender procedures to show the Manufactured Home has been converted to real property (iii) Evidence of clear and marketable title to the Manufactured Home and land in certificate of title States The Servicer must provide the foreclosure counsel with the following documentation in certificate of title States (see Section 5703.5) evidencing the Borrower’s ownership of both the Manufactured Home and the land on which it is permanently affixed and documentation evidencing that the land is legally classified as real property under the laws in the State where the property is located: ■ The original or a copy of the certificate of title showing the Borrower as owner of the Manufactured Home. The certificate of title must have a notation of the original Seller/Servicer’s security interest in the Manufactured Home in the name of the Seller and its successors in interest and assigns and have a notation of all intervening assignments from the original mortgagee to each successive Servicer, ending with the current Servicer, and ■ A copy of the deed evidencing ownership of the land showing the owner of the land on the deed to be identical to the owner of the Manufactured Home on the certificate of title This and any other relevant information must be provided within five days of the referral to foreclosure so that the foreclosure counsel has the information necessary to simultaneously enforce the liens (whenever possible) and so as not to unnecessarily lengthen the foreclosure process.

(c) Foreclosing in the Servicer’s name This subsection has been adapted from Section 9301.3(c) to reflect special Servicing requirements for Senior Subordinate Mortgages. (i) Conducting the foreclosure The Servicer must instruct the foreclosure counsel to process the foreclosure in the Servicer’s name and in a manner that would avoid any obligation to pay a transfer tax. However, the Servicer may instruct foreclosure counsel to conduct the foreclosure in the Senior Subordinate Trust’s name if applicable law: ■ Precludes the Servicer from conducting the foreclosure in its name because it owns or services a subordinate Mortgage on the Mortgaged Premises, or ■ Requires the foreclosure to be processed in the Senior Subordinate Trust’s name to avoid any obligation to pay a transfer tax and foreclosure counsel could not otherwise process the foreclosure in a manner that would successfully avoid imposition of the transfer tax obligation When Servicing Senior Subordinate Mortgages, the Servicer may not, under any circumstance, foreclose or take title in Freddie Mac’s name, even if doing so would be necessary to avoid any obligation to pay a transfer tax. For these special circumstances, the Servicer does not need to obtain written approval but must notify Freddie Mac within two Business Days of the Servicer’s determination to foreclose in the Senior Subordinate Trust’s name and record the basis of the decision in the Mortgage file. All notifications must be sent via e-mail (see Directory 5). For all other circumstances in which the Servicer may need to instruct foreclosure counsel to conduct the foreclosure in the Senior Subordinate Trust’s name, the Servicer must obtain written approval from Freddie Mac (refer to Section 8601.5(f) regarding initiating legal actions on the Senior Subordinate Trust’s behalf). When processing the foreclosure in the Senior Subordinate Trust’s name, all pleadings and related documents must comply with Section 8601.5(f). The Servicer remains obligated to notify Freddie Mac pursuant to Section 9501.5(d) in the event that any foreclosure conducted in the Senior Subordinate Trust’s name evolves into a non-routine litigation matter (see Section 8601.5(f)). When a Servicer conducts the foreclosure in the Senior Subordinate Trust’s name, the Servicer is not permitted to have the same foreclosure counsel represent the Servicer or another lienholder in the same proceeding. Freddie Mac, as master servicer and/or trustee of the Senior Subordinate Trust, does not consent to dual representation of the Senior Subordinate Trust and another lienholder on the same property. (ii) Executing documents If Freddie Mac needs to execute a document for the Servicer to process the foreclosure, or execute a document related to a foreclosure sale, the Servicer must submit Form 105, Multipurpose Loan Servicing Transmittal, to Freddie Mac (see Directory 5) with all supporting documentation, which may include, but is not limited to, the last recorded document in the chain of title, and include the document Freddie Mac needs to execute. If an assignment of the Security Instrument to the Senior Subordinate Trust has been recorded and the Servicer is conducting the foreclosure in the Servicer’s name, then the Security Instrument must be assigned back to the Servicer before the foreclosure counsel files the first legal action. Refer to Section 9301.5(a)(i) for an explanation of first legal action. The limited power of attorney provided to the Servicer by Freddie Mac authorizing the Servicer to pursue foreclosure on behalf of the Senior Subordinate Trust should provide the Servicer with the authority to assign the Security Instrument assigned back to the Servicer. The Servicer must comply with any applicable requirements in Section 8601.2(a) if the Servicer makes the determination that the limited power of attorney granted to the Servicer by Freddie Mac cannot be relied upon under the applicable State or local law. If the Servicer is foreclosing on a Senior Subordinate Mortgage registered with MERS®, the Servicer must prepare and execute (using the Servicer’s employee who is a MERS authorized “signing officer”) an assignment of the Security Instrument from MERS to the Servicer. The Servicer must record the prepared assignment where required by State law. State mandated recordings are non-reimbursable by Freddie Mac, are not considered part of the Freddie Mac allowable foreclosure counsel fees and must not be billed to the Borrower. If the Senior Subordinate Mortgage is an FHA, Section 502 GRH or VA Mortgage, then the Servicer must follow FHA, RHS or VA guidelines to determine in whose name the foreclosure action should be brought. Refer to Sections 6301.2(d) and 6301.4(a) for additional information on Freddie Mac’s requirements for assignments of the Security Instrument.

(d) Expedited foreclosures This subsection has been adapted from Sections 9301.5(b), 9301.5(d) and 9301.5(e) to reflect special Servicing requirements for Senior Subordinate Mortgages. Servicers must always consider how to resolve a Freddie Mac Default Legal Matter in a legally compliant manner that obtains the best result for the Senior Subordinate Trust. While Servicers are not required to use expedited methods identified in Chapter 9301 or corresponding expedited methods in this chapter, if a Servicer does proceed with an expedited method, it must adhere to the requirements set forth in those chapters. Chapter 9301 and this section provide requirements for expediting Freddie Mac Default Legal Matters, such as: ■ Waiving the Senior Subordinate Trust’s right to pursue deficiency actions against a Borrower ■ Expediting the foreclosure if the Mortgaged Premises is identified as vacant/abandoned ■ Obtaining default judgment for an amount less than total amount owed by the Borrower ■ State-specific methods for expediting Freddie Mac Default Legal Matters (i) Expedited foreclosures – Illinois In Illinois, Servicers may obtain a consent judgment from a Borrower and take title to the Mortgaged Premises in the name of the Senior Subordinate Trust instead of selling the Mortgaged Premises at foreclosure sale. In doing so, Servicers must follow the requirements of Section 9301.5(d). (ii) Expedited foreclosures – New York Servicers may use the New York Foreclosure Inquest Program as a method to expedite foreclosure actions on Senior Subordinate Mortgages in accordance with the requirements of Section 9301.5(e).

(e) Deficiency rights In implementing the requirements of Sections 9301.6(a)(ii), 9301.6(b), 9601.1(a) and 9601.1(b), all references concerning the right to pursue a deficiency are the right of the Senior Subordinate Trust with respect to Senior Subordinate Mortgages. In addition, the Servicer must ensure that any consent judgment in Illinois results in title to the Mortgaged Premises being conveyed to the Senior Subordinate Trust and not to Freddie Mac or the Servicer.

(f) Non-routine default-related legal matters This subsection has been adapted from Section 9402.1(b) to reflect special Servicing requirements for Senior Subordinate Mortgages. Freddie Mac reserves the right to direct and control all litigation involving a Senior Subordinate Mortgage, regardless of whether Freddie Mac or the Senior Subordinate Trust is a named party. The Servicer and any law firm handling the litigation must cooperate fully with Freddie Mac in the prosecution, defense and handling of the matter. (i) Definition of routine and non-routine litigation Routine litigation generally is a contested action in which the Borrower alleges casespecific defenses or issues that, if successful, would not create negative legal precedent beyond the immediate case. Non-routine litigation generally is a contested action in which the Borrower alleges case-specific defenses or issues that, if successful, would create negative legal precedent beyond the immediate case. Examples of non-routine litigation that must be reported to Freddie Mac as non-routine litigation include, but are not limited to, the following: ■ Actions that name Freddie Mac and/or the Senior Subordinate Trust as a party ■ Action that seeks monetary relief against Freddie Mac and/or the Senior Subordinate Trust, including any claim (including counterclaims, cross-claims or third-party claims in foreclosure or bankruptcy actions) for damages against Freddie Mac or its officers, directors, or employees and/or the Senior Subordinate Trust ■ Actions that challenge the validity, priority or enforceability of a Senior Subordinate Mortgage or seek to impair Freddie Mac’s and/or the Senior Subordinate Trust’s interest in an REO, including, by way of example: 1. An action seeking to demolish a structure on the property or the property as a result of a code violation 2. An action seeking to avoid a lien based on a failure to comply with a law or regulation 3. An attempt by a junior lienholder to assert priority over a Senior Subordinate Mortgage or extinguish Freddie Mac’s or the Senior Subordinate Trust’s interests 4. A quiet title action seeking to declare the Senior Subordinate Trust’s lien void, and 5. An attempt by a Borrower to effect a cramdown of a Senior Subordinate Mortgage in bankruptcy as to which Freddie Mac has not delegated authority to the Servicer or law firm to address ■ Actions that present an issue that may pose significant legal or reputational risk to Freddie Mac, including, by way of example: 1. Any issue involving Freddie Mac’s conservatorship, its conservator (FHFA), Freddie Mac’s status as a federal instrumentality or an interpretation of Freddie Mac’s charter 2. Any assertion that Freddie Mac is a federal agency or otherwise part of the U.S. Government 3. Any “due process” or other constitutional challenge 4. Any challenge to the methods by which Freddie Mac does business 5. Any putative class actions involving a Senior Subordinate Mortgage 6. Challenges to the standing of the Servicer or the Senior Subordinate Trust to conduct foreclosures or bankruptcies that, if successful, could create negative legal precedent with an impact beyond the immediate case 7. Challenges to the methods by which MERS does business or its ability to act as nominee under a Mortgage 8. Any “show cause orders” or motions for sanctions relating to a Senior Subordinate Mortgage, whether against a Senior Subordinate Trust, Freddie Mac, the Servicer, a law firm or a vendor of the Servicer or law firm 9. Any appellate or other action for post-judgment relief in any foreclosure, bankruptcy or legal action in which Freddie Mac and/or the Senior Subordinate Trust is a named party 10. Foreclosures on HUD-Guaranteed Section 184 Native American Mortgages 11. Any environmental litigation relating to a Senior Subordinate Mortgage 12. A need to foreclose judicially in a State where non-judicial foreclosures predominate 13. Any claim brought by a governmental body 14. Cross-border insolvency proceedings under Chapter 15 of the Bankruptcy Code 15. Any claim of predatory lending or discrimination in Mortgage origination or Servicing, and 16. Any claim implicating the interpretation of the terms of the Fannie Mae/Freddie Mac Uniform Mortgage Instruments Given the evolving nature of default-related litigation, it is not possible to provide an exhaustive list of non-routine litigation. Each contested action presents unique circumstances, and the Servicer should evaluate each action on a case-by-case basis to determine whether a contested action is routine or non-routine. (ii) Legal actions and strategies initiated by the Servicer A Servicer must obtain written approval (see Directory 5) from the Freddie Mac Legal Division prior to initiating the following legal actions and strategies: ■ Filing a new legal action, other than a Freddie Mac Default Legal Matter, on behalf of Freddie Mac and/or the Senior Subordinate Trust ■ Filing a motion to intervene in a pending legal action on behalf of Freddie Mac and/or the Senior Subordinate Trust ■ Appealing or otherwise challenging a judgment in any foreclosure or bankruptcy proceeding, or any legal action in which Freddie Mac and/or the Senior Subordinate Trust is a named party ■ Filing a notice of removal to federal district court for any legal action in which Freddie Mac and/or the Senior Subordinate Trust is a named party ■ Asserting any position in a legal action that relates to Freddie Mac’s status as a government-sponsored enterprise, its conservatorship or FHFA ■ Propounding discovery requests or otherwise serving or providing any discovery responses on behalf of Freddie Mac and/or the Senior Subordinate Trust (iii) Referring to Freddie Mac in litigation Freddie Mac must be described in legal proceedings as “Federal Home Loan Mortgage Corporation (“Freddie Mac”), a corporation organized and existing under the laws of the United States of America.” Freddie Mac may not be referred to as a “government agency.” (iv) Referring to the Senior Subordinate Trust in litigation The Senior Subordinate Trust must be described in legal proceedings as “[insert legal name], an entity organized and existing under the laws of the United States of America.” Servicers and counsel must not refer to any Senior Subordinate Trust as a “government agency.” (v) MERS-registered Mortgages See Section 8101.5 for additional requirements relating to notices from MERS and MERS-registered Mortgages.

(g) Counsel retained by Servicers pursuant to Servicer’s duty to indemnify Freddie Mac This subsection has been adapted from Section 9402.2(b) to reflect special Servicing requirements for Senior Subordinate Mortgages. From time to time, the Servicer may retain counsel to represent Freddie Mac, the Senior Subordinate Trust and the Servicer, or any combination thereof, with respect to litigation involving, related to or arising out of allegations which, if true, could subject the Servicer to liability to Freddie Mac for a failure to comply with any selling or Servicing representation or warranty or requirement of the Guide or other Purchase Documents. When the Servicer retains counsel for this purpose, the Servicer remains liable for legal fees and costs incurred in the defense of any litigation, as well as any and all losses, judgments, damages and expenses, including fees and costs entered against and incurred on behalf of Freddie Mac. Freddie Mac will reimburse the Servicer for the Senior Subordinate Trust’s proportionate share of expenses for responding to Borrower defenses. Counsel retained and paid by Servicers pursuant to Section 8601.5(f) and this section do not need to be selected and engaged pursuant to Chapter 9501. In all other Freddie Mac Default Legal Matters, the Servicer must use counsel selected and engaged pursuant to Chapter 9501. Servicers must notify Freddie Mac (see Directory 5) of its retention of counsel not selected and engaged pursuant to Chapter 9501 and are required to comply with the reporting requirements in Section 9402.2(a)(ii). The Servicer must ensure that the law firm to which the Freddie Mac Default Legal Matter was originally referred is updated on the current status of the litigation either by the Servicer or its new counsel. Once the litigation for which new counsel is retained concludes, unless the entire legal matter or action is resolved, the Servicer is responsible for transitioning the Freddie Mac Default Legal Matter back to the law firm to which it was originally referred for any required further proceedings no later than one Business Day after the resolution of the litigation matter. In instances in which the Security Instrument provides for the Borrower to reimburse any legal fees and costs incurred by the Servicer, the Servicer should instruct its counsel to notify the Borrower about his or her responsibility for such expenses. The Servicer’s counsel should attempt to handle such matters by stipulation or any other expeditious manner that will reduce the fees and costs that the Borrower has to pay.

(h) Retention of firm This subsection has been adapted from Section 9501.3(b) to reflect special Servicing requirements for Senior Subordinate Mortgages.

(i) Servicer contract with firm Unless the Servicer has entered into a contract with a selected firm and Freddie Mac has provided a “no objection” determination, then the Servicer must enter into a contract with the firm. The Servicer must notify Freddie Mac when the contract has been executed by updating the Servicer Attorney Tracking System (SATS) via https://www.freddiemacsats.com and must provide a copy of the contract to Freddie Mac, upon request. (ii) Freddie Mac limited retention agreement with firm Freddie Mac, on its behalf and on behalf of each Senior Subordinate Trust that Freddie Mac creates, will enter into a limited retention agreement that sets forth certain key retention provisions with each selected firm for each State in which the firm has received a “no objection” determination. (iii) Conflict between Servicer’s contract and limited retention agreements; Servicer’s respective consent The Servicer acknowledges that the limited retention agreement recognizes and reflects a joint attorney-client relationship between the law firm, Freddie Mac, each Senior Subordinate Trust and the Servicer, and the Servicer consents to such joint representation. The Servicer consents, in advance, to the selected firm’s representation of Freddie Mac, the Senior Subordinate Trust or both in any Freddie Mac Default Legal Matter that is or might be adverse to the Servicer and further agrees that the firm can use in such representation any information the firm gained in the course of jointly representing the Servicer, Freddie Mac and the Senior Subordinate Trust. In the event of any inconsistency or conflict between the terms and conditions of the Servicer’s contract with the selected firm and the terms and conditions of Freddie Mac’s limited retention agreement with the firm, Freddie Mac’s limited retention agreement shall control. (i) Referral of Freddie Mac Default Legal Matters to firm This subsection has been adapted from Section 9501.4(b) to reflect special Servicing requirements for Senior Subordinate Mortgages. (i) Requirements prior to referral Prior to referring a Freddie Mac Default Legal Matter to a firm, the Servicer must confirm that the firm is eligible to receive a referral by ensuring that: ■ The firm meets the Firm Minimum Requirements, as specified in Section 9501.2 ■ Freddie Mac has provided a “no objection” determination, as specified in Section 9501.3(a) ■ The firm has executed a contract with the Servicer requiring the firm to comply with all applicable Freddie Mac requirements, as specified in Section 8601.5(h)(ii) ■ The firm has executed a limited retention agreement with Freddie Mac, as specified in Section 8601.5(h)(ii) ■ The firm has completed Freddie Mac training and any additional Servicer training, as specified in Section 9501.4(a) ■ There are no conflicts of interest with respect to the retention of the firm and referral of Freddie Mac Default Legal Matters to the firm (ii) Diversification of referrals The Servicer must diversify its referrals of Freddie Mac Default Legal Matters to an appropriate number of firms in each State to protect the interests of Freddie Mac and to mitigate the risks related to a high concentration of Freddie Mac files. In selecting firms for referrals, the Servicer must consider firm capacity and management of staff-to-file ratios. (iii) Bankruptcy and foreclosure matters The Servicer must not refer foreclosure matters directly to trustees listed on deeds of trust. Note: Refer to Section 9401.3(b)(ii) for additional referral requirements. (iv) Providing documentation to firm The Servicer must identify a file as a Freddie Mac Default Legal Matter when sending the file to a firm. In this file, the Servicer must also include the name of the Senior Subordinate Trust that owns the delinquent Senior Subordinate Mortgage that prompted the referral and identify the Senior Subordinate Trust as owner of the Senior Subordinate Mortgage and Freddie Mac as both master servicer and trustee to the Senior Subordinate Trust. When referring a file to a firm, the Servicer must provide all documentation required to initiate a foreclosure. If the firm requests any additional information and/or documentation at any time, the Servicer must provide such requested information and/or documents within three Business Days after receipt of the request or within such earlier time frame if necessary to comply with timing requirements under applicable law or court orders and procedures. For any Mortgage that the Servicer refers for foreclosure that is subsequently repurchased by Freddie Mac from the Senior Subordinate Trust and/or subsequently repurchased by the Servicer from Freddie Mac, whether voluntarily or involuntarily, the Servicer must notify foreclosure and/or bankruptcy counsel within two Business Days of the completed repurchase. (See Chapter 3602 for additional information about repurchases.) (v) Contingency plan All Servicers must have a contingency plan in place, either in the form of a standalone document or incorporated into policies and procedures, to redirect new foreclosure and bankruptcy referrals.