Fannie Mae Servicing Guide D1-4.1-02 — Allowable Exemptions Due to the Type of Transfer

Fannie Mae Servicing Guide D1-4.1-02 — Allowable Exemptions Due to the Type of Transfer

D1-4.1-02, Allowable Exemptions Due to the Type of Transfer (08/13/2025) Introduction This topic contains information on allowable exemptions due to the type of transfer. The servicer is responsible for ensuring the transfer of ownership complies with applicable law, including with respect to the preemption of due-on-sale prohibitions. 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 they are 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 their 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 to any of the below exempt transferees: a relative of the deceased borrower, 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, as long as the transferee occupies the property; a spouse of the borrower 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 in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property. Note: If a borrower is an inter vivos revocable trust, a transfer of a beneficial interest in the trust to any such transferee (including to a new inter vivos trust) is exempt provided that the transferee's relationship is to the individual who established the trust. In the case of a transfer of a beneficial interest in an inter vivos revocable trust into a new inter vivos trust, the individual who established the original inter vivos revocable trust must be the beneficiary of the new trust and such trust must not relate to a transfer of the rights of occupancy type to an investment property. A change in occupancy type must not violate the security instrument (for example, the 12-month occupancy requirement for a principal residence). Published May 13, 2026 271 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 in order to qualify for a refinance loan and to meet Fannie Mae’s Selling Guide underwriting requirements. For a mortgage loan acquired by Fannie Mae after June 1, 2007, if a servicer reasonably believes that a due-on- transfer provision is unenforceable by law or would not be enforced by a court, the servicer is authorized to approve a transfer of an interest in the mortgaged property or a direct or indirect interest in the borrower (if an entity), provided the servicer has notified Fannie Mae’s Legal department (see F-4-02, List of Contacts) of the reason for its belief and Fannie Mae has either sent a notice of non-objection to the proposed transfer or not responded within 60 days of its receipt of the notice. The servicer must notify the applicable property insurance companies, tax authorities, the mortgage insurer, and any other interested parties when it processes a transfer of ownership. ​The servicer must follow the procedures in Obtaining MI Approval for a Conventional Mortgage Loan in F-1-17, Processing a Transfer of Ownership for information on obtaining mortgage insurer approval and in Completing a Transfer of Ownership in F-1-17, Processing a Transfer of Ownership for detailed requirements related to executing the assumption or assumption and release agreement, as applicable. ​If the mortgage loan is delinquent and the transferee is unable to bring the mortgage loan current, the servicer must evaluate them for all available workout options in accordance with D2-2, Requirements for Contacting a Borrower and D2-3, Fannie Mae's Home Retention and Liquidation Workout Options and offer the transferee the appropriate workout option for which they are eligible. If the servicer determines that a mortgage loan modification is an appropriate workout solution, the servicer must ​ensure that the transfer is an exempt transaction, and review the transferee for a mortgage loan modification as if they were a borrower based on the requirements in this Servicing Guide and applicable law. If the transferee satisfies all the requirements of a mortgage loan modification, then the servicer must require the transferee to sign an assumption agreement (which would be signed in conjunction with the modification agreement). If the previous borrower requests a release of liability, the servicer must determine that the transferee’s credit and financial capacity is acceptable (see F-1-28, Reviewing a Transfer of Ownership for Credit and Financial Capacity). Recent Related Announcements The table below provides references to recently issued Announcements that are related to this topic. Published May 13, 2026 272 Announcements Issue Date Announcement SVC-2025-05 August 13, 2025 Announcement SVC-2023-06 December 20, 2023 Announcement SVC-2022-02 April 13, 2022 Announcement SVC-2020-04 September 9, 2020 D1-4.1-03, Allowable Exceptions Due to State Law Restrictions (“Window-Period” Mortgage Loans) (11/08/2017) Introduction This topic contains information on allowable exceptions due to state law restrictions (“window-period” mortgage loans). The Garn-St. Germain Depository Institutions Act of 1982, which authorized enforcement of due-on-sale (or due- on-transfer) provisions, exempted certain mortgage loans that were already subject to state law restrictions on due-on-sale (or due-on-transfer) enforcement. Mortgage loans originated or assumed between the time the state enacted its restrictions and the date the Garn-St. Germain Depository Institutions Act went into effect are “window-period” mortgage loans. A list of the states having window-period mortgage loans, the term of the exemption, and Fannie Mae’s specific enforcement policy related to a fixed-rate first lien mortgage loan or a second lien mortgage loan secured by a property located in one of these states are shown below: Michigan: Mortgage loan may be assumed at a blended rate, in accordance with state law. Window period runs from January 5, 1977, to October 15, 1982. Restrictions are in effect for the full term of the mortgage loan. New Mexico: Mortgage loan may be assumed with a 2% increase in the existing interest rate, subject to any maximum limitation specified in the state law. Window period runs from March 15, 1979, to October 15, 1982. Restrictions are in effect for the full term of the mortgage loan. Utah: Mortgage loan may be assumed with a 1% increase in the existing interest rate and an additional 1% increase five years later. Window period runs from May 12, 1981 to October 15, 1982. Restrictions are in effect for the full term of the mortgage loan. The servicer must verify whether a mortgage loan is a “window-period” mortgage loan. If the mortgage loan is a “window-period” mortgage loan, the servicer is authorized to approve a transfer of ownership as long as the criteria listed in the following table are satisfied. Published May 13, 2026 273 ✓ Criteria required to approve a transfer of ownership on window-period mortgage loans The purchaser’s credit and financial capacity are acceptable under Fannie Mae’s current underwriting guidelines (see F-1-28, Reviewing a Transfer of Ownership for Credit and Financial Capacity). The mortgage insurer approves the transfer and the mortgage insurer’s specified conditions are satisfied, if applicable. The servicer must follow the procedures in Obtaining MI Approval for a Conventional Mortgage Loan in F-1-17, Processing a Transfer of Ownership for information on obtaining mortgage insurer approval. Note: If the mortgage insurer denies the transfer or imposes conditions for approval, the servicer must inform the parties involved in the transaction of the mortgage insurer’s decision as its reason for not approving the request or the imposition of conditions for approval. When the state law allows an increase in the mortgage loan interest rate, the servicer should determine the new rate for a whole mortgage loan or a participation pool mortgage loan by adding the allowable increase to the existing mortgage loan interest rate, unless the state law requires a different method. That new interest rate for the mortgage loan should be used to evaluate the purchaser’s financial ability. The servicer must not change the interest rate if the mortgage loan is in an MBS pool, even though the state law would permit an increase. If the transfer of ownership is not approved or the required eligibility criteria are not satisfied and the transfer of ownership occurs, the servicer must take all steps necessary to enforce the due-on-sale (or due-on-transfer) provision. If the funds required to satisfy the mortgage loan debt are not received after the mortgage loan is accelerated, the servicer must initiate foreclosure proceedings. The servicer must follow the procedures in Completing a Transfer of Ownership in F-1-17, Processing a Transfer of Ownership for detailed requirements related to executing an assumption (or assumption and release) agreement. The servicer must notify the applicable property insurance companies, tax authorities, and any other interested parties. If the purchaser did not provide a new property insurance policy, the servicer must obtain an endorsement to the existing property insurance policy. Recent Related Announcements There are no recently issued Announcements related to this topic.

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