Servicing Guide

Published September 9, 2020

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What is an exempt transfer of ownership?

Unless the previous borrower requests a release of liability, the servicer must process the following exempt transactions without reviewing or approving the terms of the transfer:

  • A transfer of the property to

    • the surviving party in the event of the death of a joint tenant or a tenant by the entirety;

    • a junior lienholder as a result of a foreclosure or acceptance of a deed-in-lieu of foreclosure for the subordinate mortgage loan;

    • one of the borrowers if the property is jointly owned by unrelated co-borrowers, as long as the borrower who is gaining full ownership of the property continues to occupy it and the transfer occurs after at least 12 months have elapsed since the mortgage loan was closed;

    • a related or unrelated natural person, provided the transferee acknowledges in writing that he or she

      • is assuming all of the obligations under, and will be bound by the note and the security interest; and

      • will occupy the property with the transferor as his or her principal residence.

  • The granting of a leasehold interest that has a term of three or fewer years and does not provide an option to purchase the property. If the lease has a renewal option that would allow the term to extend beyond three years, this exemption does not apply.

  • The creation of a subordinate lien, as long as it does not relate to a transfer of occupancy rights.

  • The creation of a purchase money security interest for household appliances.

  • A transfer of the property (or, if the borrower is an inter vivos revocable trust, a transfer of a beneficial interest in the trust) to

    • a relative of the deceased borrower (or, in the case of an inter vivos revocable trust borrower, to a relative of the individual who established the trust), as long as the transferee occupies the property;

    • the spouse, child(ren), parent(s), brother(s) or sister(s), grandparent(s), or grandchild(ren) of the borrower (or, in the case of an inter vivos revocable trust borrower, of the individual who established the trust), as long as the transferee occupies the property;

    • a spouse of the borrower (or, in the case of an inter vivos revocable trust borrower, of the individual who established the trust) under a divorce decree or legal separation agreement or from an incidental property settlement agreement, as long as the transferee will occupy the property;

    • an inter vivos trust (or, if the borrower is an inter vivos revocable trust, into a new trust) provided that the borrower (or the individual who established the original inter vivos revocable trust) will be the beneficiary of the trust and the occupant of the property and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).

      Note: For all such transfers affecting mortgage loans purchased or securitized by Fannie Mae on or after June 1, 2016, the transferee is not required to occupy the property.

    • a limited liability company (LLC), provided that

      • the mortgage loan was purchased or securitized by Fannie Mae on or after June 1, 2016, and

        the LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).

      Note: The servicer must notify the borrower that a property transferred to an LLC must be transferred back to a natural person prior to any subsequent refinance application in order to meet Fannie Mae’s Selling Guide underwriting requirements.

For more information please see: D1-4.1-02, Allowable Exemptions Due to the Type of Transfer

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