Page 332
Transfers between family members do not require Agency concurrence since the transferee is not required to assume the debt.
Page 333
A. Transfer without Assumption
If the borrower transfers the security property and the transferee does not assume the debt, the servicer does not need to seek Agency approval but must simply notify the Servicing Office at rd.so.hsb@usda.gov to withdraw the loan guarantee.
B. Transfer Under Garn-St. Germain
In the following limited cases, which generally involve transfers of title between family members, the Agency will continue to honor the guarantee regardless of whether the transferee assumes the outstanding debt. The due-on-sale clause will not be triggered in the following cases as defined by the Garn-St. Germain Depository Institutions Act of 1982: x A transfer from the borrower to a spouse or children not resulting from the death
of the borrower; x A transfer to a relative, joint tenant, or tenant by the entirety resulting from the
death of the borrower; x A transfer to a spouse or an ex-spouse resulting from a divorce decree, legal
separation agreement, or property settlement agreement; x A transfer to a person other than a deceased borrower’s spouse who wishes to
assume the loan for the benefit of persons who were dependent on the deceased borrower at the time of death, if the dwelling will be occupied by one or more persons who were dependent on the borrower at the time of death, and there is a reasonable prospect of repayment; or x A transfer into an inter vivos trust in which the borrower does not transfer rights
of occupancy in the property.
When a transferee obtains a property with a guaranteed loan through a transfer of title as noted above, the following actions will occur:
x The servicer will notify the Rural Development Guaranteed Loans Servicing
Office at rd.so.hsb@usda.gov of the transfer.
x Rural Development will continue with the guarantee, whether or not the transferee
assumes the guaranteed loan.
1. Requirements for an Assumption Under Garn-St. Germain
Page 334
The Agency may approve a transfer with an assumption of the outstanding debt if the following conditions are met:
x Transferor must remain liable for the debt; and acknowledge continued
liability for the debt in writing.
x The transferee must assume the entire outstanding debt and acquire all the
property securing the guaranteed loan balance.
x The priority of the existing lien securing the guaranteed loan must be
maintained or improved.
x The use of GUS is unavailable for transfer and assumptions and must be
manually submitted and underwritten; however, the documents can be submitted through GUS. A job aid for this type of submission is available in the https://www.rd.usda.gov/resources/usda-linc-training-resource- library in the “Loan Origination” tab.
When a transferee assumes a property with a guaranteed loan through a transfer of title as noted above, the following options are available:
x The transferee may assume the guaranteed loan on the rates and terms
contained in the promissory note.
x The transferee may assume the guaranteed loan under new rates and terms
if the transferee applies and is eligible. Any new rates and terms must not exceed the current market interest rate and term, and the interest rate must not exceed the interest rate on the initial loan as described in HB-1-3555, Chapter 7.
x If the account is past due at the time an assumption agreement is executed,
the transferee may be reviewed for loss mitigation and, if eligible, the loan may be modified to bring the account current as described in HB-1-3555, Chapter 18, Attachment A, The Loss Mitigation Guide.
x Any subsequent transfer of title, except upon the death of the inheritor or
between inheritors to consolidate title, will trigger the due-on-sale clause.
2. Closing a Transfer with an Assumption of the Outstanding Debt
The Agency will review the application as it does any other request for a loan guarantee and will issue a conditional commitment if it approves the transfer. Once the servicer obtains Agency approval, the servicer may proceed with closing
Page 335
the transaction. Along with all other required loan closing documents, the servicer must provide the Agency with a copy of the executed assumption agreement. The servicer must process the assumption on a form approved by Fannie Mae, Freddie Mac, HUD, or VA and signed by all parties.
The existing Form RD 35517, Loan Note Guarantee, will remain in effect. The servicer should note the date, amount assumed, and name(s) of the assuming party on the original Form RD 3555-17 and provide with all other required loan closing documents. The lender will follow the same procedures as provided in Chapter 16 of this Handbook.
C. Unauthorized Sale or Transfer
If a servicer becomes aware that a borrower has transferred title to a property without the servicer’s knowledge and the transfer does not fall under the Garn-St. Germain rule, the servicer must take one of the following actions:
x Liquidate the guaranteed loan and submit a claim for any loss; or
x Notify the Agency of the transfer and continue with the loan without the
guarantee.
D. Modification to Promissory Note and Security Instruments
If the repayment schedule or interest rate changes as a result of the transfer and assumption, the transferor will remain liable for the debt and, therefore, must approve any changes. The rates and terms must not exceed the rates and terms allowed for new guaranteed loans and must not exceed the current market interest rate. The following will apply:
x The debt must not exceed the remaining amount due on the original loan; and
x The term of the loan must not exceed thirty years from the date of the transfer and
assumption.
The servicer must request and obtain prior approval for the transfer and submit an explanation of the reasons for the proposed change in rates and terms. Refer to HB-1- 3555, Chapter 18 for additional guidance regarding servicing of non-performing loans.