partial assignment of loan

Loan Participation Vs Assignment

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Sub-participation

Sub-participation is a form of loan participation in which a lender shares its risk with a second party. This type of loan participation does not change the documentation of the loan. This type of loan participation can also include future amounts for loans that have not yet been fully disbursed, such as a revolving credit facility.

The legality of sub-participation is dependent on the conditions of the loan agreement. In general, a loan participant cannot enforce the loan or proceed against the collateral on their own. Furthermore, the borrower may not even be aware that the loan participant is involved. However, the seller of the participation retains the right to enforce or compromise the loan, as well as to amend it without the consent of the participant.

As for drafting sub-participation agreements, there are many ways to do so. But it is important to include at least the following provisions: The term of the agreement, the rate of interest, and the repurchase provisions. These provisions should be included in the sub-participation or assignment agreement.

Assignment and sub-participation are standard terms in inter-bank transactions. We will examine the purposes of the loan participation and assignment agreements, as well as the terms of the transaction. While they are essentially interchangeable, they are fundamentally different.

Loan participation and assignment are both ways to transfer ownership of a loan. Assigning a loan to a third party or sub-assigning it to yourself is a common way to transfer the loan.

The terms “loan participation” and “assignment” are often used in the banking industry. Both terms refer to the transfer of a loan’s rights and payments between two financial institutions. We’ll look at what each term means and how they differ from each other.

Loan participation has long been a common form of loan transfer. Its advantages over other loan transfer methods include the ability to diversify a portfolio and limit risk. It also eliminates the need for loan servicing. However, this option can be problematic when it differs from underlying loans. For this reason, it’s important to structure loan participation carefully.

Whether a loan is a participation or an assignment depends on a variety of factors. The percentage of loan ownership, relationship with the other financial institution, and confidence in the other party are all important considerations. However, the basic difference between participation and assignment is that the former involves the original lender continuing to manage the loan while the latter takes on the responsibility of doing so.

As a rule, loan participation is a good option if the original lender does not want to keep the title of the loan. It allows the borrower to avoid the costs associated with the loan and is more attractive for borrowers. In addition, loan participation arrangements can be more flexible than outright assignments. However, it’s important to make sure that the arrangement you enter into is formal. This will prevent any confusion or conflict down the road.

Syndication

Understanding the differences between loan participation and syndication is important for lenders. Understanding these two options can help them find the best solutions for their lending needs. Syndication is a common type of lending program where lenders pool their loans together to reduce the risks of defaults. Loan participation programs can be more complex and require due diligence to be effective.

Syndicated lending allows lenders to access the expertise and business relationships of their fellow lenders while maximizing their exposure to deal flow. However, lenders who join a syndicated lending arrangement often give up some of their independence and flexibility to take unilateral action. In addition, these arrangements often involve the involvement of legal counsel, which can also be important.

A loan participation arrangement is a group of lenders coming together to fund a large loan. A lead bank underwrites the loan and sells portions of it to other financial institutions. Loan syndication, on the other hand, is an arrangement whereby multiple financial institutions pool their money together and make one large loan. In this type of arrangement, the original lender transfers the rights and obligations to the purchasing financial institution. The risk is then shared among the participating lenders, allowing them to share in the interest and the risks of the loan’s default.

A syndication contract can be structured in as many tranches as necessary to meet the borrowing needs of a customer. The underlying contract will contain a commitment contract that specifies the ratio of participation among the participants. Each tranche will have a borrower, which will be a common participant or may be different. The contract will require that each participant fulfill their commitments before the scheduled due dates.

Loan participation and assignment are standard transactions between banks. They are similar in some respects but have different purposes. 

There are many types of loan participation agreements. Some involve a full assignment, while others are a sub-participation. If you are involved in loan participation or assignment, you need to understand which type of agreement applies to your situation. There are several types of loan participation agreements, including sub-participation agreements, undisclosed agencies, and assignments.

Sub-participation agreements are typically used to assign part of the loan amount to a new lender, and the loan documentation remains unchanged. In addition, these types of agreements include future amounts, which may be provided as part of a revolving credit facility or a portion of a loan that hasn’t been fully disbursed.

Loan participation is a popular option for lenders to limit their exposure to borrowers. Lenders may sell a portion of the loan to an investor or sell a portion of their interest to another party. While the transfer of a loan portion does not always require the consent of the transferor, lenders must consider participating interest guidelines and the applicable rules.

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Understanding the Assignment of Mortgages: What You Need To Know

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A mortgage is a legally binding agreement between a home buyer and a lender that dictates a borrower's ability to pay off a loan. Every mortgage has an interest rate, a term length, and specific fees attached to it.

Written by Attorney Todd Carney .  Updated November 26, 2021

If you’re like most people who want to purchase a home, you’ll start by going to a bank or other lender to get a mortgage loan. Though you can choose your lender, after the mortgage loan is processed, your mortgage may be transferred to a different mortgage servicer . A transfer is also called an assignment of the mortgage. 

No matter what it’s called, this change of hands may also change who you’re supposed to make your house payments to and how the foreclosure process works if you default on your loan. That’s why if you’re a homeowner, it’s important to know how this process works. This article will provide an in-depth look at what an assignment of a mortgage entails and what impact it can have on homeownership.

Assignment of Mortgage – The Basics

When your original lender transfers your mortgage account and their interests in it to a new lender, that’s called an assignment of mortgage. To do this, your lender must use an assignment of mortgage document. This document ensures the loan is legally transferred to the new owner. It’s common for mortgage lenders to sell the mortgages to other lenders. Most lenders assign the mortgages they originate to other lenders or mortgage buyers.

Home Loan Documents

When you get a loan for a home or real estate, there will usually be two mortgage documents. The first is a mortgage or, less commonly, a deed of trust . The other is a promissory note. The mortgage or deed of trust will state that the mortgaged property provides the security interest for the loan. This basically means that your home is serving as collateral for the loan. It also gives the loan servicer the right to foreclose if you don’t make your monthly payments. The promissory note provides proof of the debt and your promise to pay it.

When a lender assigns your mortgage, your interests as the mortgagor are given to another mortgagee or servicer. Mortgages and deeds of trust are usually recorded in the county recorder’s office. This office also keeps a record of any transfers. When a mortgage is transferred so is the promissory note. The note will be endorsed or signed over to the loan’s new owner. In some situations, a note will be endorsed in blank, which turns it into a bearer instrument. This means whoever holds the note is the presumed owner.

Using MERS To Track Transfers

Banks have collectively established the Mortgage Electronic Registration System , Inc. (MERS), which keeps track of who owns which loans. With MERS, lenders are no longer required to do a separate assignment every time a loan is transferred. That’s because MERS keeps track of the transfers. It’s crucial for MERS to maintain a record of assignments and endorsements because these land records can tell who actually owns the debt and has a legal right to start the foreclosure process.

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Assignment of Mortgage Requirements and Effects

The assignment of mortgage needs to include the following:

The original information regarding the mortgage. Alternatively, it can include the county recorder office’s identification numbers. 

The borrower’s name.

The mortgage loan’s original amount.

The date of the mortgage and when it was recorded.

Usually, there will also need to be a legal description of the real property the mortgage secures, but this is determined by state law and differs by state.

Notice Requirements

The original lender doesn’t need to provide notice to or get permission from the homeowner prior to assigning the mortgage. But the new lender (sometimes called the assignee) has to send the homeowner some form of notice of the loan assignment. The document will typically provide a disclaimer about who the new lender is, the lender’s contact information, and information about how to make your mortgage payment. You should make sure you have this information so you can avoid foreclosure.

Mortgage Terms

When an assignment occurs your loan is transferred, but the initial terms of your mortgage will stay the same. This means you’ll have the same interest rate, overall loan amount, monthly payment, and payment due date. If there are changes or adjustments to the escrow account, the new lender must do them under the terms of the original escrow agreement. The new lender can make some changes if you request them and the lender approves. For example, you may request your new lender to provide more payment methods.

Taxes and Insurance

If you have an escrow account and your mortgage is transferred, you may be worried about making sure your property taxes and homeowners insurance get paid. Though you can always verify the information, the original loan servicer is responsible for giving your local tax authority the new loan servicer’s address for tax billing purposes. The original lender is required to do this after the assignment is recorded. The servicer will also reach out to your property insurance company for this reason.  

If you’ve received notice that your mortgage loan has been assigned, it’s a good idea to reach out to your loan servicer and verify this information. Verifying that all your mortgage information is correct, that you know who to contact if you have questions about your mortgage, and that you know how to make payments to the new servicer will help you avoid being scammed or making payments incorrectly.

Let's Summarize…

In a mortgage assignment, your original lender or servicer transfers your mortgage account to another loan servicer. When this occurs, the original mortgagee or lender’s interests go to the next lender. Even if your mortgage gets transferred or assigned, your mortgage’s terms should remain the same. Your interest rate, loan amount, monthly payment, and payment schedule shouldn’t change. 

Your original lender isn’t required to notify you or get your permission prior to assigning your mortgage. But you should receive correspondence from the new lender after the assignment. It’s important to verify any change in assignment with your original loan servicer before you make your next mortgage payment, so you don’t fall victim to a scam.

Attorney Todd Carney

Attorney Todd Carney is a writer and graduate of Harvard Law School. While in law school, Todd worked in a clinic that helped pro-bono clients file for bankruptcy. Todd also studied several aspects of how the law impacts consumers. Todd has written over 40 articles for sites such... read more about Attorney Todd Carney

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Assignment Of Loan: Definition & Sample

Jump to section, what is an assignment of loan.

Under an assignment of loan, a lender (the assignor) assigns its rights relating to a loan agreement to a new lender (the assignee). Only the assignor's rights under the loan agreement are assigned. The assignor will still have to perform any obligations it has under the facility agreement.

The debtor, the recipient of the loan, must be notified when a debt is assigned. When there is an assignment of a loan, a Notice of Assignment (NOA) is sent out to the debtor informing them that a new party is now responsible for collecting any outstanding amount.

Assignment Of Loan Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.14 5 dex1014.htm ASSIGNMENT OF LOAN DOCUMENTS , Viewed October 21, 2021, View Source on SEC .

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A corporate and commercial attorney with experience in transactional legal services including corporate and finance transactions, mergers and acquisitions, real estate, commercial contracts, bankruptcy, restructuring, international business transactions and general counsel services. Additional background skills and experience include investment banking, financial analysis, and commercial litigation. Sectors covered include technology, media, franchises, and business services providers, from start-ups to medium and large enterprises.

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Alen Aydinian is a seasoned real estate attorney with a wealth of experience in handling transactional matters, real estate transactions, and lease agreements. As a licensed real estate broker, Alen Aydinian brings a unique perspective to the table, allowing clients to benefit from both legal expertise and practical industry knowledge. He is a trusted advisor in the realm of real estate transactions and lease agreements. Whether representing buyers, sellers, landlords, or tenants, Alen Aydinian is committed to providing strategic counsel and dedicated advocacy every step of the way. Clients rely on him for sound legal guidance, proactive problem-solving, and unwavering support throughout the transaction process.

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Partial Release in Mortgages: Understanding How It Works, Application Process, and Considerations

Last updated 03/08/2024 by

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Understanding partial releases in mortgages, the dynamics of partial release, special considerations in partial release agreements.

• Flexibility for borrowers to release part of the collateral.
• Potential for borrowers to meet specific property needs or deals.
• Not all lenders permit partial releases.
• May involve additional fees and an application process.

Frequently asked questions

Can any lender offer a partial release in mortgages, is there a standard time period before qualifying for a partial release, can borrowers apply for a partial release after recent payment defaults, what incentives can be offered to a lender for approving a partial release, key takeaways.

• Partial release dynamics are contingent on lender-borrower agreements.
• Consistent payment history is crucial for qualifying for a partial release.
• Application process involves detailed documentation and potential nonrefundable fees.

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Assignment, novation or sub-participation of loans             

Transfers of loan portfolios between lending institutions have always been commonplace in the financial market.  A number of factors may come into play – some lenders may wish to lower their risks and proportion of bad debts in their balance sheets; some may undergo restructuring or divest their investment portfolios elsewhere, to name a few.  The real estate market in particular has been affected by the announcement of the “three red lines” policy by the People’s Bank of China in 2020 which led to a surge of transfers, or attempted transfers, of non-performing loans.  Other contributing factors include the continuous effects of the Sino-US trade war and the Covid-19 pandemic.

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Transferability of Loans

The legal analysis regarding the transferability of loans can be complex.  The loan agreement should be examined with a view to identifying any restrictions on transferability of the loan between lenders, such as prior consent of the debtor and, in some cases, whether such consent may be withheld.  Other general restrictions may apply given that most banks have internal confidentiality rules and data protection requirements, the latter of which may also be subject to governmental regulations.  Certain jurisdictions may restrict the transfer of loans relating to specific types of receivables – mortgage or consumer loans being prime examples.  It is imperative to conduct proper due diligence on the documentation and underlying assets in order to be satisfied with the transferability of the relevant loans.  This may be complicated further if there are multiple projects, facility lines or debtors.  It is indeed common to see a partial transfer of loans to an incoming lender or groups of lenders.

Methods of Transfer

The transfer of loans may be carried out in different ways and often involves assignment, novation or sub-participation.

A typical assignment amounts to the transfer of the rights of the lender (assignor) under the loan documentation to another lender (assignee), whereby the assignee takes on the assignor’s rights, such as the right to receive payment of principal and interest on the loan.  The assignor is still required to perform any obligations under the loan documentation.  Therefore, there is no need to terminate the loan documentation and, unless the loan documentation stipulates otherwise, there is no need to obtain the debtor’s consent, but notice of the assignment must be served on the debtor.  However, many debtors are in fact involved in the negotiation stage, where the parties would also take the opportunity to vary the terms of the facility and security arrangement.

Novation of a loan requires that the debtor, the existing lender (transferor) and the incoming lender (transferee) enter into new documentation which provides that the rights and obligations of the transferor will be novated to the transferee.  The transferee replaces the transferor in the loan facility and the transferor is completely discharged from all of its rights and obligations.  This method of transfer does require the prior consent of the relevant debtor.

Sub-participation is often used where a lender, whilst wishing to share the risks of certain loans, nonetheless prefers to maintain the status quo.  There is no change to the loan documentation – the lender simply sells all or part of the loan portfolio to another lender or lenders.  From the debtor’s perspective, nothing has changed and, in principle, there is no need to obtain the debtor’s consent or serve notice on the debtor.  This method of transfer is sometimes preferred if the existing lender is keen to maintain a business relationship with the debtor, or where seeking consent from the debtor or notifying the debtor of any transfer is not feasible or desirable.  In any case, there would be no change to the balance sheet treatment of the existing lender.

Offshore Security Arrangements

The transfer of a loan in a cross-border transaction often involves an offshore security package.  A potential purchaser will need to conduct due diligence on the risks relating to such security.  From a legal perspective, the security documents require close scrutiny to confirm their legality, validity and enforceability, including the nature and status of the assets involved.  Apart from transferability generally, the documents would reveal whether any consent is required.  A lender should seek full analysis on the risks relating to enforcement of security, which may well be complicated by the involvement of various jurisdictions for potential enforcement actions.

A key aspect to the enforcement consideration is whether a particular jurisdiction requires that any particular steps be taken to perfect a security interest relating to the loan portfolio (if the concept of perfection applies at all) and, if so, whether any applicable filing or registration has been made to perfect the security interest and, more importantly, whether there exists any prior or subsequent competing security interest over all or part of the same assets.  For example, security interests may be registered in public records of the security provider maintained by the companies registry in Bermuda or the British Virgin Islands for the purpose of obtaining priority over competing interests under the applicable law.  The internal register of charges of the security provider registered in the Cayman Islands, Bermuda or the British Virgin Islands should also be examined as part of the due diligence process.  Particular care should be taken where the relevant assets require additional filings under the laws of the relevant jurisdictions, notable examples of such assets being real property, vessels and aircraft.  Suites of documents held in escrow pending a potential default under the loan documentation should also be checked as they would be used by the lender or security agent to facilitate enforcement of security when the debtor defaults on the loan.

Due Diligence and Beyond

Legal due diligence on the loan documentation and security package is an integral part of the assessment undertaken by a lender of the risks of purchasing certain loan portfolios, regardless of whether the transfer is to be made by way of an assignment, novation or sub-participation.  Whilst the choice of method of transfer is often a commercial decision, enforceability of security interests over underlying assets is the primary consideration in reviewing sufficiency of the security package in any proposed loan transfer.

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Assignment and Assumption: Single Assignment of Loans | Practical Law

Assignment and Assumption: Single Assignment of Loans

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§ 1026.39 Mortgage transfer disclosures.

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(a) Scope. The disclosure requirements of this section apply to any covered person except as otherwise provided in this section. For purposes of this section:

See interpretation of 39(a) Scope in Supplement I

(1) A “ covered person” means any person, as defined in §  1026.2(a)(22), that becomes the owner of an existing mortgage loan by acquiring legal title to the debt obligation, whether through a purchase, assignment or other transfer, and who acquires more than one mortgage loan in any twelve-month period. For purposes of this section, a servicer of a mortgage loan shall not be treated as the owner of the obligation if the servicer holds title to the loan, or title is assigned to the servicer, solely for the administrative convenience of the servicer in servicing the obligation.

1. Covered persons. The disclosure requirements of this section apply to any “covered person” that becomes the legal owner of an existing mortgage loan, whether through a purchase, or other transfer or assignment, regardless of whether the person also meets the definition of a “creditor” in Regulation Z. The fact that a person purchases or acquires mortgage loans and provides the disclosures under this section does not by itself make that person a “creditor” as defined in the regulation.

2. Acquisition of legal title. To become a “covered person” subject to this section, a person must become the owner of an existing mortgage loan by acquiring legal title to the debt obligation.

i. Partial interest. A person may become a covered person by acquiring a partial interest in the mortgage loan. If the original creditor transfers a partial interest in the loan to one or more persons, all such transferees are covered persons under this section.

ii. Joint acquisitions. All persons that jointly acquire legal title to the loan are covered persons under this section, and under § 1026.39(b)(5), a single disclosure must be provided on behalf of all such covered persons. Multiple persons are deemed to jointly acquire legal title to the loan if each acquires a partial interest in the loan pursuant to the same agreement or by otherwise acting in concert. See comments 39(b)(5)-1 and 39(d)(1)(ii)-1 regarding the disclosure requirements for multiple persons that jointly acquire a loan.

iii. Affiliates. An acquiring party that is a separate legal entity from the transferor must provide the disclosures required by this section even if the parties are affiliated entities.

3. Exclusions. i. Beneficial interest. Section 1026.39 does not apply to a party that acquires only a beneficial interest or a security interest in the loan, or to a party that assumes the credit risk without acquiring legal title to the loan. For example, an investor that acquires mortgage-backed securities, pass-through certificates, or participation interests and does not acquire legal title in the underlying mortgage loans is not covered by this section.

ii. Loan servicers. Pursuant to TILA Section 131(f)(2), the servicer of a mortgage loan is not the owner of the obligation for purposes of this section if the servicer holds title to the loan as a result of the assignment of the obligation to the servicer solely for the administrative convenience of the servicer in servicing the obligation.

4. Mergers, corporate acquisitions, or reorganizations. Disclosures are required under this section when, as a result of a merger, corporate acquisition, or reorganization, the ownership of a mortgage loan is transferred to a different legal entity.

See interpretation of Paragraph 39(a)(1) in Supplement I

(2) A “ mortgage loan” means:

1. Mortgage transactions covered. Section 1026.39 applies to closed-end or open-end consumer credit transactions secured by the principal dwelling of a consumer.

See interpretation of Paragraph 39(a)(2) in Supplement I

(i) An open-end consumer credit transaction that is secured by the principal dwelling of a consumer; and

(ii) A closed-end consumer credit transaction secured by a dwelling or real property.

(b) Disclosure required. Except as provided in paragraph (c) of this section, each covered person is subject to the requirements of this section and shall mail or deliver the disclosures required by this section to the consumer on or before the 30th calendar day following the date of transfer.

1. Generally. A covered person must mail or deliver the disclosures required by this section on or before the 30th calendar day following the date of transfer, unless an exception in § 1026.39(c) applies. For example, if a covered person acquires a mortgage loan on March 15, the disclosure must be mailed or delivered on or before April 14.

See interpretation of 39(b) Disclosure Required in Supplement I

(1) Form of disclosures. The disclosures required by this section shall be provided clearly and conspicuously in writing, in a form that the consumer may keep. The disclosures required by this section may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq. ).

1. Combining disclosures. The disclosures under this section can be combined with other materials or disclosures, including the transfer of servicing notices required by the Real Estate Settlement Procedure Act (12 U.S.C. 2601 et seq. ) so long as the combined disclosure satisfies the timing and other requirements of this section.

See interpretation of 39(b)(1) Form of Disclosures in Supplement I

(2) The date of transfer. For purposes of this section, the date of transfer to the covered person may, at the covered person's option, be either the date of acquisition recognized in the books and records of the acquiring party, or the date of transfer recognized in the books and records of the transferring party.

(3) Multiple consumers. If more than one consumer is liable on the obligation, a covered person may mail or deliver the disclosures to any consumer who is primarily liable.

(4) Multiple transfers. If a mortgage loan is acquired by a covered person and subsequently sold, assigned, or otherwise transferred to another covered person, a single disclosure may be provided on behalf of both covered persons if the disclosure satisfies the timing and content requirements applicable to each covered person.

1. Single disclosure for multiple transfers. A mortgage loan might be acquired by a covered person and subsequently transferred to another entity that is also a covered person required to provide the disclosures under this section. In such cases, a single disclosure may be provided on behalf of both covered persons instead of providing two separate disclosures if the disclosure satisfies the timing and content requirements applicable to each covered person. For example, if a covered person acquires a loan on March 15 with the intent to assign the loan to another entity on April 30, the covered person could mail the disclosure on or before April 14 to provide the required information for both entities and indicate when the subsequent transfer is expected to occur.

2. Estimating the date. When a covered person provides the disclosure required by this section that also describes a subsequent transfer, the date of the subsequent transfer may be estimated when the exact date is unknown at the time the disclosure is made. Information is unknown if it is not reasonably available to the covered person at the time the disclosure is made. The “reasonably available” standard requires that the covered person, acting in good faith, exercise due diligence in obtaining information. The covered person normally may rely on the representations of other parties in obtaining information. The covered person might make the disclosure using an estimated date even though the covered person knows that more precise information will be available in the future. For example, a covered person may provide a disclosure on March 31 stating that it acquired the loan on March 15 and that a transfer to another entity is expected to occur “on or around” April 30, even if more precise information will be available by April 14.

3. Duty to comply. Even though one covered person provides the disclosures for another covered person, each has a duty to ensure that disclosures related to its acquisition are accurate and provided in a timely manner unless an exception in § 1026.39(c) applies.

See interpretation of 39(b)(4) Multiple Transfers in Supplement I

(5) Multiple covered persons. If an acquisition involves multiple covered persons who jointly acquire the loan, a single disclosure must be provided on behalf of all covered persons.

1. Single disclosure required. If multiple covered persons jointly acquire the loan, a single disclosure must be provided on behalf of all covered persons instead of providing separate disclosures. See comment 39(a)(1)-2.ii regarding a joint acquisition of legal title, and comment 39(d)(1)(ii)-1 regarding the disclosure requirements for multiple persons that jointly acquire a loan. If multiple covered persons jointly acquire the loan and complete the acquisition on separate dates, a single disclosure must be provided on behalf of all persons on or before the 30th day following the earliest acquisition date. For examples, if covered persons A and B enter into an agreement with the original creditor to jointly acquire the loan, and complete the acquisition on March 15 and March 25, respectively, a single disclosure must be provided on behalf of both persons on or before April 14. If the two acquisition dates are more than 30 days apart, a single disclosure must be provided on behalf of both persons on or before the 30th day following the earlier acquisition date, even though one person has not completed its acquisition. See comment 39(b)(4)-2 regarding use of an estimated date of transfer.

2. Single disclosure not required. If multiple covered persons each acquire a partial interest in the loan pursuant to separate and unrelated agreements and not jointly, each covered person has a duty to ensure that disclosures related to its acquisition are accurate and provided in a timely manner unless an exception in § 1026.39(c) applies. The parties may, but are not required to, provide a single disclosure that satisfies the timing and content requirements applicable to each covered person.

3. Timing requirements. A single disclosure provided on behalf of multiple covered persons must satisfy the timing and content requirements applicable to each covered person unless an exception in § 1026.39(c) applies.

4. Duty to comply. Even though one covered person provides the disclosures for another covered person, each has a duty to ensure that disclosures related to its acquisition are accurate and provided in a timely manner unless an exception in § 1026.39(c) applies. See comments 39(c)(1)-2, 39(c)(3)-1 and 39(c)(3)-2 regarding transfers of a partial interest in the mortgage loan.

See interpretation of 39(b)(5) Multiple Covered Person in Supplement I

(c) Exceptions. Notwithstanding paragraph (b) of this section, a covered person is not subject to the requirements of this section with respect to a particular mortgage loan if:

See interpretation of 39(c) Exceptions in Supplement I

(1) The covered person sells, or otherwise transfers or assigns legal title to the mortgage loan on or before the 30th calendar day following the date that the covered person acquired the mortgage loan which shall be the date of transfer recognized for purposes of paragraph (b)(2) of this section;

1. Transfer of all interest. A covered person is not required to provide the disclosures required by this section if it sells, assigns or otherwise transfers all of its interest in the mortgage loan on or before the 30th calendar day following the date that it acquired the loan. For example, if covered person A acquires the loan on March 15 and subsequently transfers all of its interest in the loan to covered person B on April 1, person A is not required to provide the disclosures required by this section. Person B, however, must provide the disclosures required by this section unless an exception in § 1026.39(c) applies.

2. Transfer of partial interests. A covered person that subsequently transfers a partial interest in the loan is required to provide the disclosures required by this section if the covered person retains a partial interest in the loan on the 30th calendar day after it acquired the loan, unless an exception in § 1026.39(c) applies. For example, if covered person A acquires the loan on March 15 and subsequently transfers fifty percent of its interest in the loan to covered person B on April 1, person A is required to provide the disclosures under this section if it retains a partial interest in the loan on April 14. Person B in this example must also provide the disclosures required under this section unless an exception in § 1026.39(c) applies. Either person A or person B could provide the disclosure on behalf of both of them if the disclosure satisfies the timing and content requirements applicable to each of them. In this example, a single disclosure for both covered persons would have to be provided on or before April 14 to satisfy the timing requirements for person A's acquisition of the loan on March 15. See comment 39(b)(4)-1 regarding a single disclosure for multiple transfers.

See interpretation of Paragraph 39(c)(1) in Supplement I

(2) The mortgage loan is transferred to the covered person in connection with a repurchase agreement that obligates the transferor to repurchase the loan. However, if the transferor does not repurchase the loan, the covered person must provide the disclosures required by this section within 30 days after the date that the transaction is recognized as an acquisition on its books and records; or

1. Repurchase agreements. The original creditor or owner of the mortgage loan might sell, assign or otherwise transfer legal title to the loan to secure temporary business financing under an agreement that obligates the original creditor or owner to repurchase the loan. The covered person that acquires the loan in connection with such a repurchase agreement is not required to provide disclosures under this section. However, if the transferor does not repurchase the mortgage loan, the acquiring party must provide the disclosures required by this section within 30 days after the date that the transaction is recognized as an acquisition on its books and records.

2. Intermediary parties. The exception in § 1026.39(c)(2) applies regardless of whether the repurchase arrangement involves an intermediary party. For example, legal title to the loan may transfer from the original creditor to party A through party B as an intermediary. If the original creditor is obligated to repurchase the loan, neither party A nor party B is required to provide the disclosures under this section. However, if the original creditor does not repurchase the loan, party A must provide the disclosures required by this section within 30 days after the date that the transaction is recognized as an acquisition on its books and records unless another exception in § 1026.39(c) applies.

See interpretation of Paragraph 39(c)(2) in Supplement I

(3) The covered person acquires only a partial interest in the loan and the party authorized to receive the consumer's notice of the right to rescind and resolve issues concerning the consumer's payments on the loan does not change as a result of the transfer of the partial interest.

1. Acquisition of partial interests. This exception applies if the covered person acquires only a partial interest in the loan, and there is no change in the agent or person authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments. If, as a result of the transfer of a partial interest in the loan, a different agent or party is authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments, the disclosures under this section must be provided.

2. Examples. i. A covered person is not required to provide the disclosures under this section if it acquires a partial interest in the loan from the original creditor who remains authorized to receive the notice of the right to rescind and resolve issues concerning the consumer's payments after the transfer.

ii. The original creditor transfers fifty percent of its interest in the loan to covered person A. Person A does not provide the disclosures under this section because the exception in § 1026.39(c)(3) applies. The creditor then transfers the remaining fifty percent of its interest in the loan to covered person B and does not retain any interest in the loan. Person B must provide the disclosures under this section.

iii. The original creditor transfers fifty percent of its interest in the loan to covered person A and also authorizes party X as its agent to receive notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. Since there is a change in an agent or party authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments, person A is required to provide the disclosures under this section. Person A then transfers all of its interest in the loan to covered person B. Person B is not required to provide the disclosures under this section if the original creditor retains a partial interest in the loan and party X retains the same authority.

iv. The original creditor transfers all of its interest in the loan to covered person A. Person A provides the disclosures under this section and notifies the consumer that party X is authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. Person A then transfers fifty percent of its interest in the loan to covered person B. Person B is not required to provide the disclosures under this section if person A retains a partial interest in the loan and party X retains the same authority.

See interpretation of Paragraph 39(c)(3) in Supplement I

(d) Content of required disclosures. The disclosures required by this section shall identify the mortgage loan that was sold, assigned or otherwise transferred, and state the following, except that the information required by paragraph (d)(5) of this section shall be stated only for a mortgage loan that is a closed-end consumer credit transaction secured by a dwelling or real property other than a reverse mortgage transaction subject to §  1026.33 of this part:

1. Identifying the loan. The disclosures required by this section must identify the loan that was acquired or transferred. The covered person has flexibility in determining what information to provide for this purpose and may use any information that would reasonably inform a consumer which loan was acquired or transferred. For example, the covered person may identify the loan by stating:

i. The address of the mortgaged property along with the account number or loan number previously disclosed to the consumer, which may appear in a truncated format;

ii. The account number alone, or other identifying number, if that number has been previously provided to the consumer, such as on a statement that the consumer receives monthly; or

iii. The date on which the credit was extended and the original amount of the loan or credit line.

2. Partial payment policy. The disclosures required by § 1026.39(d)(5) must identify whether the covered person accepts periodic payments from the consumer that are less than the full amount due and whether the covered person applies the payments to a consumer's loan or holds the payments in a separate account until the consumer pays the remainder of the full amount due. The disclosures required by § 1026.39(d)(5) apply only to a mortgage loan that is a closed-end consumer credit transaction secured by a dwelling or real property and that is not a reverse mortgage transaction subject to § 1026.33. In an open-end consumer credit transaction secured by the consumer's principal dwelling, § 1026.39(d) requires a covered person to provide the disclosures required by § 1026.39(d)(1) through (4), but not the partial payment policy disclosure required by § 1026.39(d)(5). If, however, the dwelling in the open-end consumer credit transaction is not the consumer's principal dwelling ( e.g., it is used solely for vacation purposes), none of the disclosures required by § 1026.39(d) is required because the transaction is not a mortgage loan for purposes of § 1026.39. See § 1026.39(a)(2). In contrast, a closed-end consumer credit transaction secured by the consumer's dwelling that is not the consumer's principal dwelling is considered a mortgage loan for purposes of § 1026.39. Assuming that the transaction is not a reverse mortgage transaction subject to § 1026.33, § 1026.39(d) requires a covered person to provide the disclosures under § 1026.39(d)(1) through (5). But if the transaction is a reverse mortgage transaction subject to § 1026.33, § 1026.39(d) requires a covered person to provide only the disclosures under § 1026.39(d)(1) through (4).

See interpretation of 39(d) Content of Required Disclosures in Supplement I

(1) The name, address, and telephone number of the covered person.

1. Identification of covered person. Section 1026.39(d)(1) requires a covered person to provide its name, address, and telephone number. The party identified must be the covered person who owns the mortgage loan, regardless of whether another party services the loan or is the covered person's agent. In addition to providing its name, address and telephone number, the covered person may, at its option, provide an address for receiving electronic mail or an Internet Web site address, but is not required to do so.

See interpretation of Paragraph 39(d)(1) in Supplement I

(i) If a single disclosure is provided on behalf of more than one covered person, the information required by this paragraph shall be provided for each of them unless paragraph (d)(1)(ii) of this section applies.

1. Multiple transfers, single disclosure. If a mortgage loan is acquired by a covered person and subsequently transferred to another covered person, a single disclosure may be provided on behalf of both covered persons instead of providing two separate disclosures as long as the disclosure satisfies the timing and content requirements applicable to each covered person. See comment 39(b)(4)-1 regarding multiple transfers. A single disclosure for multiple transfers must state the name, address, and telephone number of each covered person unless § 1026.39(d)(1)(ii) applies.

See interpretation of Paragraph 39(d)(1)(i) in Supplement I

(ii) If a single disclosure is provided on behalf of more than one covered person and one of them has been authorized in accordance with paragraph (d)(3) of this section to receive the consumer's notice of the right to rescind and resolve issues concerning the consumer's payments on the loan, the information required by paragraph (d)(1) of this section may be provided only for that covered person.

1. Multiple covered persons, single disclosure. If multiple covered persons jointly acquire the loan, a single disclosure must be provided on behalf of all covered persons instead of providing separate disclosures. The single disclosure must provide the name, address, and telephone number of each covered person unless § 1026.39(d)(1)(ii) applies and one of the covered persons has been authorized in accordance with § 1026.39(d)(3) of this section to receive the consumer's notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. In such cases, the information required by § 1026.39(d)(1) may be provided only for that covered person.

2. Multiple covered persons, multiple disclosures. If multiple covered persons each acquire a partial interest in the loan in separate transactions and not jointly, each covered person must comply with the disclosure requirements of this section unless an exception in § 1026.39(c) applies. See comment 39(a)(1)-2.ii regarding a joint acquisition of legal title, and comment 39(b)(5)-2 regarding the disclosure requirements for multiple covered persons.

See interpretation of Paragraph 39(d)(1)(ii) in Supplement I

(2) The date of transfer.

(3) The name, address and telephone number of an agent or party authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. However, no information is required to be provided under this paragraph if the consumer can use the information provided under paragraph (d)(1) of this section for these purposes.

1. Identifying agents. Under § 1026.39(d)(3), the covered person must provide the name, address and telephone number for the agent or other party having authority to receive the notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. If multiple persons are identified under this paragraph, the disclosure shall provide the name, address and telephone number for each and indicate the extent to which the authority of each person differs. Section 1026.39(d)(3) does not require that a covered person designate an agent or other party, but if the consumer cannot contact the covered person for these purposes, the disclosure must provide the name, address and telephone number for an agent or other party that can address these matters. If an agent or other party is authorized to receive the notice of the right to rescind and resolve issues concerning the consumer's payments on the loan, the disclosure can state that the consumer may contact that agent regarding any questions concerning the consumer's account without specifically mentioning rescission or payment issues. However, if multiple agents are listed on the disclosure, the disclosure shall state the extent to which the authority of each agent differs by indicating if only one of the agents is authorized to receive notice of the right to rescind, or only one of the agents is authorized to resolve issues concerning payments.

2. Other contact information. The covered person may also provide an agent's electronic mail address or Internet Web site address, but is not required to do so.

See interpretation of Paragraph 39(d)(3) in Supplement I

(4) Where transfer of ownership of the debt to the covered person is or may be recorded in public records, or, alternatively, that the transfer of ownership has not been recorded in public records at the time the disclosure is provided.

1. Where recorded. Section 1026.39(d)(4) requires the covered person to disclose where transfer of ownership of the debt to the covered person is recorded if it has been recorded in public records. Alternatively, the disclosure can state that the transfer of ownership of the debt has not been recorded in public records at the time the disclosure is provided, if that is the case, or the disclosure can state where the transfer may later be recorded. An exact address is not required and it would be sufficient, for example, to state that the transfer of ownership is recorded in the office of public land records or the recorder of deeds office for the county or local jurisdiction where the property is located.

See interpretation of Paragraph 39(d)(4) in Supplement I

(5) Partial payment policy. Under the subheading “Partial Payment”:

1. Format of disclosure. Section 1026.39(d)(5) requires disclosure of the partial payment policy of covered persons for closed-end consumer credit transactions secured by a dwelling or real property, other than a reverse mortgage transaction subject to § 1026.33. A covered person may utilize the format of the disclosure illustrated by form H-25 of appendix H to this part for the information required to be disclosed by § 1026.38(l)(5). For example, the statement required § 1026.39(d)(5)(iii) that a new covered person may have a different partial payment policy may be disclosed using the language illustrated by form H-25, which states “If this loan is sold, your new lender may have a different policy.” The text illustrated by form H-25 may be modified to suit the format of the covered person's disclosure under § 1026.39. For example, the format illustrated by form H-25 begins with the text, “Your lender may” or “Your lender does not,” which may not be suitable to the format of the covered person's other disclosures under § 1026.39. This text may be modified to suit the format of the covered person's integrated disclosure, using a phrase such as “We will” or “We are your new lender and have a different Partial Payment Policy than your previous lender. Under our policy we will.” Any modifications must be appropriate and not affect the substance, clarity, or meaningful sequence of the disclosure.

See interpretation of 39(d)(5) Partial payment policy. in Supplement I

(i) If periodic payments that are less than the full amount due are accepted, a statement that the covered person, using the term “lender,” may accept partial payments and apply such payments to the consumer's loan;

(ii) If periodic payments that are less than the full amount due are accepted but not applied to a consumer's loan until the consumer pays the remainder of the full amount due, a statement that the covered person, using the term “lender,” may hold partial payments in a separate account until the consumer pays the remainder of the payment and then apply the full periodic payment to the consumer's loan;

(iii) If periodic payments that are less than the full amount due are not accepted, a statement that the covered person, using the term “lender,” does not accept any partial payments; and

(iv) A statement that, if the loan is sold, the new covered person, using the term “lender,” may have a different policy.

(e) Optional disclosures. In addition to the information required to be disclosed under paragraph (d) of this section, a covered person may, at its option, provide any other information regarding the transaction.

1. Generally. Section 1026.39(e) provides that covered persons may, at their option, include additional information about the mortgage transaction that they consider relevant or helpful to consumers. For example, the covered person may choose to inform consumers that the location where they should send mortgage payments has not changed. See comment 39(b)(1)-1 regarding combined disclosures.

See interpretation of 39(e) Optional Disclosures in Supplement I

(f) Successor in interest. If, upon confirmation, a servicer provides a confirmed successor in interest who is not liable on the mortgage loan obligation with a written notice and acknowledgment form in accordance with Regulation X, §  1024.32(c)(1) of this chapter, the servicer is not required to provide to the confirmed successor in interest any written disclosure required by paragraph (b) of this section unless and until the confirmed successor in interest either assumes the mortgage loan obligation under State law or has provided the servicer an executed acknowledgment in accordance with Regulation X, §  1024.32(c)(1)(iv) of this chapter, that the confirmed successor in interest has not revoked.

• Insights & events

Assigning debts and other contractual claims - not as easy as first thought

Harking back to law school, we had a thirst for new black letter law. Section 136 of the Law of the Property Act 1925 kindly obliged. This lays down the conditions which need to be satisfied for an effective legal assignment of a chose in action (such as a debt). We won’t bore you with the detail, but suffice to say that what’s important is that a legal assignment must be in writing and signed by the assignor, must be absolute (i.e. no conditions attached) and crucially that written notice of the assignment must be given to the debtor.

When assigning debts, it’s worth remembering that you can’t legally assign part of a debt – any attempt to do so will take effect as an equitable assignment. The main practical difference between a legal and an equitable assignment is that the assignor will need to be joined in any legal proceedings in relation to the assigned debt (e.g. an attempt to recover that part of the debt).

Recent cases which tell another story

Why bother telling you the above?  Aside from our delight in remembering the joys of debating the merits of legal and equitable assignments (ehem), it’s worth revisiting our textbooks in the context of three recent cases. Although at first blush the statutory conditions for a legal assignment seem quite straightforward, attempts to assign contractual claims such as debts continue to throw up legal disputes:

• In  Sumitomo Mitsui Banking Corp Europe Ltd v Euler Hermes Europe SA (NV) [2019] EWHC 2250 (Comm),  the High Court held that a performance bond issued under a construction contract was not effectively assigned despite the surety acknowledging a notice of assignment of the bond. Sadly, the notice of assignment failed to meet the requirements under the bond instrument that the assignee confirm its acceptance of a provision in the bond that required the employer to repay the surety in the event of an overpayment. This case highlights the importance of ensuring any purported assignment meets any conditions stipulated in the underlying documents.
• In  Promontoria (Henrico) Ltd v Melton [2019] EWHC 2243 (Ch) (26 June 2019) , the High Court held that an assignment of a facility agreement and legal charges was valid, even though the debt assigned had to be identified by considering external evidence. The deed of assignment in question listed the assets subject to assignment, but was illegible to the extent that the debtor’s name could not be deciphered. The court got comfortable that there had been an effective assignment, given the following factors: (i) the lender had notified the borrower of its intention to assign the loan to the assignee; (ii) following the assignment, the lender had made no demand for repayment; (iii) a manager of the assignee had given a statement that the loan had been assigned and the borrower had accepted in evidence that he was aware of the assignment. Fortunately for the assignee, a second notice of assignment - which was invalid because it contained an incorrect date of assignment - did not invalidate the earlier assignment, which was found to be effective. The court took a practical and commercial view of the circumstances, although we recommend ensuring that your assignment documents clearly reflect what the parties intend!
• Finally, in Nicoll v Promontoria (Ram 2) Ltd [2019] EWHC 2410 (Ch),  the High Court held that a notice of assignment of a debt given to a debtor was valid, even though the effective date of assignment stated in the notice could not be verified by the debtor. The case concerned a debt assigned by the Co-op Bank to Promontoria and a joint notice given by assignor and assignee to the debtor that the debt had been assigned “on and with effect from 29 July 2016”. A subsequent statutory demand served by Promontoria on the debtor for the outstanding sums was disputed on the basis that the notice of assignment was invalid because it contained an incorrect date of assignment. Whilst accepting that the documentation was incapable of verifying with certainty the date of assignment, the Court held that the joint notice clearly showed that both parties had agreed that an assignment had taken place and was valid. This decision suggests that mistakes as to the date of assignment in a notice of assignment may not necessarily be fatal, if it is otherwise clear that the debt has been assigned.

The conclusion from the above? Maybe it’s not quite as easy as first thought to get an assignment right. Make sure you follow all of the conditions for a legal assignment according to the underlying contract and ensure your assignment documentation is clear.

Contact our experts for further advice

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D1-1-01, Evaluating a Request for the Release, or Partial Release, of Property Securing a Mortgage Loan (07/12/2023)

Evaluating a request for the release of a beneficial easement or the grant of a burdensome easement, evaluating a request for the lease of oil, gas, or mineral rights, evaluating a request for the partial release of real property, evaluating a request for the addition of land, evaluating a request for the partition of real property, evaluating a request for the substitution of property securing a mortgage loan, evaluating a request for the partial or total taking of property securing a mortgage loan by condemnation or eminent domain, evaluating a request to lease real property for the installation of a semi-permanent structure, evaluating a request for the subdivision of real property.

This topic provides information related to evaluating a request for the release, or partial release of property securing a mortgage loan. The evaluation requirements for each of the various types of requests are described in this topic.

To request a review for a release, or partial release, of property securing a mortgage loan, the borrower must submit an  Application for Release of Security  ( Form 236)  to the servicer. An application is considered complete when all required documentation and information, as outlined within this  Servicing Guide  and  Form 236 , has been obtained. When the servicer receives a complete application, the servicer must counsel the borrower to consider the costs and benefits of any action covered by this policy prior to evaluating the request. The servicer must then evaluate each request in accordance with this  Guide.  

If the complete application meets all the applicable requirements as outlined within this topic, then the servicer is authorized to approve the request. If upon the evaluation of the borrower's request the servicer determines that it does not meet all of the applicable requirements as outlined within this topic, but the servicer determines that extenuating circumstances exist, the servicer must submit the request to Fannie Mae for a non-delegated review. Additionally, with the exception of eminent domain actions that fall within the policies in this  Guide , all requests related to Texas Section 50(a)(6) loans must be escalated to Fannie Mae for review and decisioning. To submit a request for a non-delegated review, the servicer must submit the complete application and all required documentation to Fannie Mae’s SF CPM division (see  F-4-02, List of Contacts F-4-02, List of Contacts ). The servicer must also follow the processing requirements found in  Processing a Request for the Release of Property Securing a Mortgage Loan  in F-1-04, Evaluating a Request for the Release, or Partial Release, of Property Securing a Mortgage Loan F-1-04, Evaluating a Request for the Release, or Partial Release, of Property Securing a Mortgage Loan .

When a borrower requests a release or grant of an easement, the servicer must ensure that the borrower submits a completed Application for Release of Security ( Form 236 ). A complete application must include all information and documentation required per the form.

Request for the Release of a Beneficial Easement: The servicer must evaluate the request for the release of a beneficial easement to determine whether or not the release will adversely affect the value of the property securing a mortgage loan by considering the following:

the convenience, access, or other benefits provided by the easement, which will be lost upon release, and

the value of the property with the easement in place compared with the value of the property without the easement.

The servicer must assess the effect a release of the easement may have on the use or value of the property.

The following table describes the servicer's action based upon the impact to the property securing a mortgage loan.

Request for the Grant of a Burdensome Easement: The servicer must evaluate the request for the granting of a burdensome easement to determine the extent to which granting a burdensome easement adversely affects the use, value or future marketability of the property securing a mortgage loan, which depends on the following:

the degree and quantity of rights that are released with the easement;

the community’s customs, attitudes, and prevalent practices regarding such easements;

the value of the property without the easement in place compared with the value of the property with the easement in place; and

the manner and extent of the use of the easement.

The servicer is authorized to approve any request for a customary public utility easement as long as

A subsurface utility easement does not extend under the house or other improvements to the property.

An above-surface utility easement for distribution purposes that runs along any of the property lines or easements for drainage purposes that run along the rear property line if the easements do not extend more than 12 feet from the property line, do not interfere with any of the improvements or use of the property, and do not present a health or safety hazard.

The servicer must evaluate requests for other types of easements based on the specific circumstance of the request, as described in the following table.

Any request to grant a burdensome easement on a limited basis (e.g., granting access to specific persons as opposed to all current and future owners of the property) must be denied.

If a request to grant a burdensome easement includes subordinating the mortgage lien to the easement, the servicer is authorized to agree on Fannie Mae's behalf to subordinate the mortgage lien to the easement if

the easement is the type that is customary in the area and does not interfere with the property owner’s use or enjoyment of the property, and

any cash consideration is applied to the outstanding mortgage loan debt in accordance with the mortgage loan documents.

When a borrower requests to lease oil, gas, or mineral rights to the property, the servicer must ensure that the borrower submits a completed Form 236 . A complete application must include all information and documentation required per the form.

Before agreeing to a lease of oil, gas, or mineral rights, the servicer must consider the extent to which the subject property and neighboring properties may be affected by the exercise of the rights covered in the lease. The servicer must take the following into consideration:

The extent to which the rights granted by the lease infringe on the property owner’s rights. For example, if the lease permits removal of deposits by directional exploration from an area outside of the property, there may be little or no adverse effect, depending on the location of the exploration area and the attitude of the community. On the other hand, if the lease allows for complete ingress and egress to explore any part of the property or to store or install equipment on it, the property may no longer have any real value as a residential property.

Any hazards, nuisances, or damages that may result from the exercise of the rights granted by the lease. In mineral areas where subsidence from directional mining may be a problem, the potential extent of a hazard or nuisance can be determined by reviewing the past history of such operations in the locality and taking into consideration the property’s subsurface soil structure and the extent and depth of the proposed mining. In oil-producing areas, hazards, nuisances, and damages can result from drilling operation, ingress and egress, storage, pipeline transportation, fire, explosion, or gusher wells. The effect of these potential hazards or nuisances on the value of the property would depend on their intensity and closeness and the community’s attitude toward such hazards or nuisances. For example, in areas in which oil exploration is a major part of the economy, the risk may be considered acceptable, whereas it might be unacceptable in areas in which such exploration has a minor effect on the economy.

The servicer must determine whether the leasing of oil, gas or mineral rights meets the conditions in the following table.

The servicer must evaluate requests for the leasing of oil, gas, and mineral rights based on the specific circumstances of the request, as described in the following table.

When a borrower requests a partial release of real property securing Fannie Mae’s mortgage loan, the servicer must ensure that the borrower submits a completed Form 236 . A complete application must include all information and documentation required per the form.

The servicer must determine whether the release of a portion of the real property meets the conditions in the following table.

The servicer must evaluate requests to release a portion of the real property securing the mortgage loan based on the specific circumstance of the request, as described in the following table.

If the request to release a portion of the real property securing the mortgage loan includes a concurrent request to add land, the requirements for each request type must be met.

When a borrower requests to add land to the real property securing the mortgage loan, the servicer must ensure that the borrower submits a complete Application for Release of Security ( Form 236 ). A complete application must include all information and documentation required per the form.

The servicer must determine whether the request to add the land to the real property securing the mortgage loan meets the conditions in the following table.

The servicer must evaluate requests to add land to the real property securing the mortgage loan based on the specific circumstances of the request, as described in the following table.

If the request to add a portion of the real property securing the mortgage loan includes a concurrent request to release land, the requirements for each request type must be met.

When a borrower requests a partition of the property, the servicer must ensure that the borrower submits a complete Application for Release of Security ( Form 236 ). A complete application must include all information and documentation required per the form.

The servicer must evaluate requests to partition real property based on the specific circumstance of the request, as described in the following table.

If the request for the partition of real property includes a request to release a borrower from liability under the mortgage loan, the servicer is authorized to approve the request if the borrower who retains possession of the property securing a mortgage loan has the financial ability to make the mortgage loan payments. To evaluate a borrower’s financial ability to make the mortgage payments the servicer should follow the procedures in F-1-28, Reviewing a Transfer of Ownership for Credit and Financial Capacity F-1-28, Reviewing a Transfer of Ownership for Credit and Financial Capacity .

The servicer must submit all requests for the substitution of property securing a mortgage loan, along with its recommendation, to Fannie Mae’s SF CPM division (see  F-4-02, List of Contacts F-4-02, List of Contacts ). Prior to submitting the request to Fannie Mae, the servicer must ensure that the substitution of property securing the mortgage loan satisfies the subdivision requirements of the applicable jurisdiction(s) and complies with all applicable zoning requirements and building codes. A complete application must include all information and documentation required per the form.

If Fannie Mae approves the substitution of property securing a mortgage loan, the servicer must take the actions described in the following table.

The servicer must do and pay for whatever is necessary to protect Fannie Mae’s interest in the property securing the mortgage loan when there is a legal proceeding that may significantly impact Fannie Mae’s interest. In the instance of eminent domain action, the servicer must also pursue any available legal remedies if it appears the compensation award offer does not accurately reflect the value of the property.

The servicer must follow the procedures in Protecting Fannie Mae’s Rights Regarding Taking of Property by Condemnation or Eminent Domain in F-1-04, Evaluating a Request for the Release, or Partial Release, of Property Securing a Mortgage Loan F-1-04, Evaluating a Request for the Release, or Partial Release, of Property Securing a Mortgage Loan to protect Fannie Mae’s interest in the property and Fannie Mae’s rights under the security instrument.

When a government takes eminent domain action against a property securing Fannie Mae’s mortgage loan, the servicer must ensure that an Application for Release of Security ( Form 236 ) is completed to adequately document the government action, and its impact to the property. A complete application must include all information and documentation required per the form.

The servicer must refer to the terms of the security instrument to determine how compensation awards are to be distributed in the event of either a partial taking or total taking of a property securing a mortgage loan. However, the terms of the security instrument permit some flexibility in determining how the proceeds should be applied if the borrower has abandoned the property or does not acknowledge a specific offer to award compensation or settle a claim.

The servicer is authorized to agree to Form 236 related to a partial or full taking of the property if

all required documentation has been received,

the compensation award is sufficient to fully satisfy the mortgage debt, and

the compensation award is determined to be an accurate representation of the property’s value based on the servicer’s assessment of the provided property valuation.

If the amount of the compensation award applied to the mortgage loan balance will not be sufficient to fully satisfy the mortgage debt, the servicer is authorized to agree for Form 236 if

the provided valuation document indicates the current value of the property prior to the seizure, the value of the property to be seized, and the value of the remaining property;

the provided valuation document was produced within six months of the date of the request;

the compensation offer is determined to be an accurate representation of the property’s value based on the servicer’s assessment of the provided property valuation; and

the LTV is less than or equal to the LTV ratio of the loan immediately prior to the eminent domain action.

If the value was not produced within six months of the date of the request, is determined to be inaccurate, or is missing one or more of the required values (current value of the property prior to the seizure, the value of the property to be seized, and the value of the remaining property) but all of the other conditions have been met, the servicer may evaluate the accuracy of the value or establish a value for the property for the purpose of assessing the compensation award by obtaining a value from one of the following sources:

Fannie Mae’s servicing solutions system;

Freddie Mac’s AVM;

a third-party AVM; or

the servicer’s own internal AVM, provided that

the servicer is subject to supervision by a federal regulatory agency, and

other servicer’s primary federal regulatory agency has reviewed the model.

If Fannie Mae’s servicing solutions system, Freddie Mac’s AVM, the third-party AVM, or the servicer’s internal AVM does not render a reliable confidence score, or if the value provided by the government agency lies outside of a 10% threshold in comparison to the value provided by an approved valuation model, the servicer must submit the application to Fannie Mae for review.

If the servicer disagrees that the compensation award is an accurate representation of the property’s value, the documentation provided is incomplete, or the provided value is missing one of more of the required values and cannot be confirmed via an alternative value, the servicer should contact Fannie Mae’s SF CPM division (see  F-4-02, List of Contacts F-4-02, List of Contacts ) to determine the action Fannie Mae wants it to take.

If the borrower has abandoned the property or fails to respond within 30 days to the servicer’s notification that the government has offered to pay a compensation award or settle a claim for damages in connection with a condemnation or taking by eminent domain, the servicer may disburse the proceeds without contacting the borrower. Generally, the servicer must apply the proceeds to reduce the mortgage loan debt unless there is only a partial taking of the property securing a mortgage loan and foreclosure proceedings have been initiated. In such cases, the servicer must contact Fannie Mae’s SF CPM division (see  F-4-02, List of Contacts F-4-02, List of Contacts ) to determine how to apply the proceeds, as Fannie Mae may prefer to use the proceeds to restore or repair the property.

When a borrower requests to lease a portion of the property for the installation of any semi-permanent structure such as a wind turbine, cellular base station or other similar structure, the servicer must ensure that the borrower submits a complete Application for Release of Security ( Form 236) . A complete application must include all information and documentation required per the form.

Before approving any agreement related to the placement of a semi-permanent structure on the security property, the servicer must consider the extent to which the subject property and neighboring properties may be affected by the exercise of the rights covered in the lease. The servicer must take the following into consideration:

The extent to which the rights granted by the agreement infringe on the property owner’s rights.

Any hazards, nuisances, or damages that may result from the exercise of the rights granted by the lease.

The servicer must determine whether the request to lease real property for the installation of a semi-permanent structure meets the conditions in the following table.

The servicer must evaluate requests to lease real property for the installation of a semi-permanent structure based on the specific circumstance of the request, as described in the following table.

When a borrower requests a subdivision of the property, the servicer must ensure that the borrower submits a complete Application for Release of Security ( Form 236) . A complete application must include all information and documentation required per the form.

The servicer must determine whether the request to subdivide real property meets the conditions in the following table.

The servicer must evaluate requests to subdivide real property based on the specific circumstance of the request, as described in the following table.

The table below provides references to recently issued Announcements that are related to this topic.

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Servicing Guide

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(Published: July 10 2024 )

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Browse the Guide

• Copyright and Preface
• A1-1-01, Application and Approval of Seller/Servicer
• A1-1-02, Representation and Warranty Requirements
• A1-1-03, Evaluating a Servicer’s Performance
• A1-2-01, Servicer’s Termination of the Lender Contract
• A1-2-02, Fannie Mae’s Termination of the Lender Contract without Cause
• A1-3-01, Requirements for Voluntary Repurchase
• A1-3-02, Fannie Mae-Initiated Repurchases, Indemnifications, Make Whole Payment Requests and Deferred Payment Obligations
• A1-3-03, Repurchase Obligations Related to Bifurcated Mortgage Loans
• A1-3-04, Reporting the Repurchase
• A1-3-05, Redelivering a Mortgage Loan
• A1-3-06, Automatic Reclassification of MBS Mortgage Loans
• A1-4.1-01, Defining a Breach of Contract
• A1-4.1-02, Fannie Mae’s Remedies
• A1-4.2-01, Compensatory Fees Other Than Delays in the Liquidation Process
• A1-4.2-02, Compensatory Fees for Delays in the Liquidation Process
• A2-1-01, General Servicer Duties and Responsibilities
• A2-1-02, Servicer’s Duties and Responsibilities Related to MBS Mortgage Loans
• A2-1-03, Servicer's Duties and Responsibilities Related to Mortgage Loans with Resale Restrictions or Shared Equity Transactions
• A2-1-04, Execution of Legal Documents
• A2-1-05, Note Holder Status for Legal Proceedings Conducted in the Servicer’s Name
• A2-1-06, Use of Fannie Mae Trademarks
• A2-1-07, Subservicing
• A2-1-08, First Lien Mortgage Loan Requirements
• A2-1-09, Compliance with Requirements and Laws
• A2-2-01, Refinance and Lending Practices
• A2-3-01, Servicer Compensation
• A2-3-02, Servicing Fees for Portfolio and MBS Mortgage Loans
• A2-3-03, Yield Differential Adjustments
• A2-3-04, Late Charges as Compensation
• A2-3-05, Fees for Certain Servicing Activities
• A2-3-06, Prepayment Premiums
• A2-4-01, Quality Control Reviews
• A2-5-01, Ownership and Retention of Individual Mortgage Loan Files and Records
• A2-6-01, Custodial Documents
• A2-7-01, Concurrent Servicing Transfers
• A2-7-02, Pledge of Servicing Rights and Transfer of Interest in Servicing Income
• A2-7-03, Post-Delivery Servicing Transfers
• A2-8-01, Mortgage Electronic Registration System
• A2-9-01, General Requirements
• A2-9-02, Special Provision for Puerto Rico
• A3-1-01, Maintaining Fannie Mae Seller/Servicer Status
• A4-1-01, Staffing, Training, Procedures, and Quality Control Requirements
• A4-1-02, Establishing Custodial Bank Accounts
• A4-1-03, Addressing Borrower Inquiries and Disputes
• A4-2.1-01, Preventing Defaults and Managing Delinquencies
• A4-2.1-02, Property Inspection Vendor Management and Oversight
• A4-2.1-03, Managing Short Sales
• A4-2.1-04, Establishing Contact with the Borrower
• A4-2.1-05, Requirements for Collection and Foreclosure Prevention Strategies Unique to Second Lien Mortgage Loans
• A4-2.1-06, Adverse Action Notification Certification
• A4-2.1-07, Servicer's Duties and Responsibilities Related to Mortgage Loans with an Outstanding Non-Interest-Bearing Balance
• A4-2.2-01, Selecting and Retaining Law Firms
• A4-2.2-02, Law Firm Management and Oversight
• A4-2.2-03, Prohibition Against Servicer-Specified Vendors for Fannie Mae Referrals, Use of Vendors, and Outsourcing Companies
• A4-2.2-04, Law Firm Suspensions, Matter Transfers, and Terminations
• B-1-01, Administering an Escrow Account and Paying Expenses
• B-2-01, Property Insurance Requirements Applicable to All Property Types
• B-2-02, Property Insurance Requirements for One- to Four-Unit Properties
• B-2-03, Master Property Insurance Requirements for Project Developments
• B-2-04, Individual Property Insurance Requirements for Units in Project Developments
• B-3-01, Flood Insurance Requirements Applicable to All Property Types
• B-4-01, Additional Insurance Requirements
• B-5-01, Insured Loss Events
• B-5-02, Uninsured Loss Events
• B-6-01, Lender-Placed Insurance Requirements
• B-7-01, General Liability Insurance Requirements for Project Developments
• B-7-02, Fidelity/Crime Insurance Requirements for Project Developments
• B-8.1-01, Conventional Mortgage Insurance Servicer Responsibilities
• B-8.1-02, Paying Conventional Mortgage Insurance Premiums
• B-8.1-03, Replacing Conventional Mortgage Insurance Policies
• B-8.1-04, Termination of Conventional Mortgage Insurance
• B-8.2-01, FHA Mortgage Insurance Coverage Requirements
• B-8.2-02, Conversion of FHA Coinsured Mortgage Loans to Full Insurance
• B-8.2-03, Termination or Cancellation of FHA Mortgage Insurance and FHA Mortgage Insurance Premium
• C-1.1-01, Servicer Responsibilities for Processing Mortgage Loan Payments
• C-1.1-02, Processing Payment Shortages or Funds Received When a Mortgage Loan Modification Is Pending
• C-1.1-03, Automatically Drafting Payments from the Borrower’s Bank Account
• C-1.1-04, Accepting Biweekly Payments from Third-Party Payment Contractors
• C-1.2-01, Processing Additional Principal Payments
• C-1.2-02, Processing Short Sale Proceeds
• C-1.2-03, Processing Payments in Full
• C-1.2-04, Satisfying the Mortgage Loan and Releasing the Lien
• C-1.2-05, Charging for a Release of Lien
• C-2.1-01, Responsibilities for ARM Loan Servicing
• C-2.1-02, Notifying the Borrower Regarding Interest Rate and/or Payment Changes
• C-2.2-01, Identifying and Disclosing Adjustment Errors
• C-2.2-02, Assuming Responsibility for Conversion Notice Errors
• C-2.2-03, Determining Whether to Provide a Refund or Credit for Overcharges
• C-2.3-01, Processing ARM Conversions to Fixed Rate Mortgage Loans
• C-2.3-02, Notifying Fannie Mae of Conversions for Portfolio Mortgage Loans
• C-2.3-03, Repurchasing Converted MBS Mortgage Loans and Redelivering Them to Fannie Mae
• C-3-01, Responsibilities Related to Remitting P&I Funds to Fannie Mae
• C-3-02, Remitting Payoff Proceeds
• C-4.1-01, Notifying Credit Repositories
• C-4.2-01, Filing IRS Forms
• C-4.3-01, Servicer Responsibilities Related to Investor Reporting
• D1-1-01, Evaluating a Request for the Release, or Partial Release, of Property Securing a Mortgage Loan
• D1-1-02, Evaluating a First Lien Mortgage Loan for Charge-Off and Release of Lien
• D1-1-03, Evaluating a Second Lien Mortgage Charge-Off
• D1-2-01, Renovation Mortgage Loans
• D1-3-01, Evaluating the Impact of a Disaster Event and Assisting a Borrower
• D1-4.1-01, Determining Whether a Transfer of Ownership Is Permitted
• D1-4.1-02, Allowable Exemptions Due to the Type of Transfer
• D1-4.1-03, Allowable Exceptions Due to State Law Restrictions (“Window-Period” Mortgage Loans)
• D1-4.1-04, Transfers of Ownership by Grant Deed
• D1-4.1-05, Enforcing the Due-on-Sale (or Due-on-Transfer) Provision
• D1-4.2-01, Conventional Mortgage Loans that Do Not Include a Due-on-Sale (or Due-on-Transfer) Provision
• D1-4.2-02, Conventional Mortgage Loans That Include a Due- on-Sale (or Due-on-Transfer) Provision
• D1-4.3-01, Transfers of Ownership on FHA and VA Mortgage Loans
• D1-4.3-02, Transfers of Ownership on RD Mortgage Loans
• D1-5-01, Call Options and Cross-Default Provisions
• D1-6-01, Requesting to Waive Certain Rights under the Mortgage Loan
• D1-6-02, Handling Notices of Liens, Legal Action, Other Actions Impacting Fannie Mae’s Interest
• D1-6-03, Handling Property Forfeitures and Seizures
• D2-1-01, Determining if the Borrower’s Mortgage Payment is in Imminent Default
• D2-2-01, Achieving Quality Right Party Contact with a Borrower
• D2-2-02, Outbound Contact Attempt Requirements
• D2-2-03, Sending a Payment Reminder Notice
• D2-2-04, Sending a Borrower a Solicitation Package for a Workout Option
• D2-2-05, Receiving a Borrower Response Package
• D2-2-06, Sending a Breach or Acceleration Letter
• D2-2-07, Resolving an Appeal of a Mortgage Loan Modification Trial Period Plan Denial for a Principal Residence
• D2-2-08, Interviewing Face-to-Face with a Borrower for Certain FHA and HUD Mortgage Loans
• D2-2-09, Additional Borrower Contact Requirements for the Servicer of a Second Lien Mortgage Loan
• D2-2-10, Requirements for Performing Property Inspections
• D2-3.1-01, Determining the Appropriate Workout Option
• D2-3.1-02, Conditions of a First and Second Lien Mortgage Loan Modification for an MBS Mortgage Loan
• D2-3.1-03, Working with a Borrower that has a Group Home Mortgage Loan
• D2-3.1-04, Offering a Workout Option When Also Servicing a Subordinate Lien Mortgage Loan
• D2-3.1-05, Interacting with Mortgage Assistance Fund Program Providers
• D2-3.1-06, Notifying Fannie Mae of Lead-Based Paint Citations
• D2-3.2-01, Forbearance Plan
• D2-3.2-02, Repayment Plan
• D2-3.2-03, Government Mortgage Loan Modifications
• D2-3.2-04, Payment Deferral
• D2-3.2-05, Disaster Payment Deferral
• D2-3.2-06, Fannie Mae Flex Modification
• D2-3.3-01, Fannie Mae Short Sale
• D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure)
• D2-3.4-01, Military Indulgence
• D2-3.4-02, Offering a Mortgage Release (Deed-in-Lieu of Foreclosure) for a Second Lien Mortgage Loan
• D2-3.4-03, Assignment of a Mortgage Loan to the Insurer or Guarantor
• D2-3.4-04, Qualifying Mortgage Assumption Workout Option
• D2-4-01, Reporting a Delinquent Mortgage Loan to Fannie Mae
• D2-4-02, Reporting a Workout Option to Fannie Mae
• D2-4-03, Reporting Certain Workout Options to Treasury
• E-1.1-01, General Requirements for Referring a Mortgage Loan to a Law Firm
• E-1.1-02, Required Referral Documents
• E-1.1-03, Required Referral Data
• E-1.2-01, Timing of the Bankruptcy Referral
• E-1.2-02, Timing of the Foreclosure Referral for Mortgage Loans Generally
• E-1.2-03, Timing of the Foreclosure Referral for Second Lien Conventional Mortgage Loans Not Secured by a Principal Residence
• E-1.2-04, Timing of the Foreclosure Referral for Government Mortgage Loans
• E-1.3-01, General Servicer Responsibilities for Non-Routine Matters
• E-1.3-02, Reporting Non-Routine Litigation to Fannie Mae
• E-1.3-03, Reporting “Legal Filings” to MERS
• E-2.1-01, General Servicing Requirements for Mortgage Loans Under Bankruptcy Protection
• E-2.1-02, Confirming Bankruptcy Information
• E-2.1-03, Suspending Debt Collection Efforts
• E-2.1-04, Expected Servicer/Attorney Interaction During Bankruptcy Proceedings
• E-2.1-05, Filing a Notice of Appearance and Sending Proper Notices
• E-2.1-06, Reviewing Bankruptcy Reorganization Plans
• E-2.1-07, Preparing and Filing a Proof of Claim
• E-2.1-08, Monitoring Borrower Payments and Critical Dates
• E-2.1-09, Identifying Workout Opportunities
• E-2.1-10, Dealing with Delays in the Bankruptcy Process
• E-2.1-11, Remitting P&I for MBS Mortgage Loans That Are Part of a Bankruptcy
• E-2.2-01, Managing Chapter 7 Bankruptcies
• E-2.2-02, Managing Chapter 11 Bankruptcies
• E-2.2-03, Managing Chapter 12 Bankruptcies
• E-2.2-04, Managing Chapter 13 Bankruptcies
• E-2.3-01, Identifying Abusive Filers
• E-2.3-02, Addressing Individuals with Fractional Interests in a Security Property
• E-2.3-03, Handling Cramdowns of the Mortgage Debt
• E-2.3-04, Bankruptcies Involving Mortgage Loans Secured by Investment Properties
• E-2.3-05, Bankruptcies Involving Multiple Fannie Mae Mortgage Loans
• E-2.3-06, Responding to Bankruptcies Identified After Foreclosure Sale
• E-2.3-07, Cross-Border Insolvency Proceedings
• E-3.1-01, General Servicing Requirements Related to Foreclosure Proceedings
• E-3.1-02, Performing Due Diligence Prior to Considering Foreclosure
• E-3.1-03, Fannie Mae Address for Instruments of Record
• E-3.1-04, Addressing a Bankruptcy Filed During Active Foreclosure
• E-3.2-01, Conducting Prereferral Review
• E-3.2-02, Initiating Foreclosure Proceedings on a First Lien Conventional Mortgage Loan
• E-3.2-03, Initiating Foreclosure Proceedings on a Second Lien Conventional Mortgage Loan
• E-3.2-04, Postponing Foreclosure Referral for Mortgage Loans Not Secured by a Principal Residence
• E-3.2-05, Expected Servicer/Attorney Interaction During Foreclosure Proceedings
• E-3.2-06, Conducting Borrower Outreach During Foreclosure
• E-3.2-07, Impact of Engagement with a Mortgage Assistance Fund Program Provider
• E-3.2-08, Processing Reinstatements During Foreclosure
• E-3.2-09, Conducting Foreclosure Proceedings
• E-3.2-10, Paying Certain Expenses During the Foreclosure Process
• E-3.2-11, Collecting Under an Assignment of Rents
• E-3.2-12, Performing Property Preservation During Foreclosure Proceedings
• E-3.2-13, Addressing Title Defects Generally
• E-3.2-14, Addressing Title Defects for Bifurcated Mortgage Loans
• E-3.2-15, Allowable Time Frames for Completing Foreclosure
• E-3.3-01, Completing Preforeclosure Sale Review
• E-3.3-02, Certifying the Status of Workout Negotiations Prior to Foreclosure Sale
• E-3.3-03, Inspecting Properties Prior to Foreclosure Sale
• E-3.3-04, Marketing the Foreclosure Sale and Using Foreclosure Auction Services
• E-3.3-05, Issuing Bidding Instructions
• E-3.3-06, Handling a Suspension or Reduction of the Redemption Period
• E-3.3-07, Pursuing a Deficiency Judgment
• E-3.4-01, Suspending Foreclosure Proceedings for Workout Negotiations
• E-3.4-02, Canceling the Foreclosure Sale for a Completed Workout
• E-3.5-01, Foreclosure of a Property Securing an MBS Mortgage Loan
• E-3.5-02, Handling Third-Party Sales
• E-3.5-03, Providing Evidence of Title
• E-4.1-01, Notifying Fannie Mae of an Acquired Property
• E-4.1-02, Eliminations and Rescissions of Foreclosure Sales
• E-4.2-01, Completing Conveyance Documents
• E-4.2-02, Handling Reconveyance to the Insurer or Guarantor
• E-4.3-01, Managing the Property Post-Foreclosure Sale
• E-4.3-02, Inspecting Properties Post-Foreclosure Sale
• E-4.3-03, The Broker's, Agent's, or Property Management Company's Responsibilities
• E-4.3-04, Handling Eviction Proceedings
• E-4.4-01, Continuing or Canceling Property Insurance Coverage
• E-4.4-02, Remitting Property Insurance Settlement Proceeds or Unearned Premium Refunds
• E-4.4-03, Canceling Flood Insurance Coverage for Acquired Properties
• E-4.4-04, Remitting Flood Insurance Settlement Proceeds or Unearned Premium Refunds
• E-4.5-01, Filing MI Claims for Conventional Mortgage Loans or for Other Mortgage Loans for which Fannie Mae Bears the Risk of Loss
• E-4.5-02, Filing MI Claims for FHA Mortgage Loans
• E-4.5-03, Filing MI Claims for FHA Coinsured Mortgage Loans
• E-4.5-04, Filing MI Claims for FHA Title I Loans
• E-4.5-05, Filing MI Claims for HUD Section 184 Mortgage Loans
• E-4.5-06, Filing MI Claims for VA Mortgage Loans
• E-4.5-07, Filing MI Claims for RD Mortgage Loans
• E-5-01, Requesting Reimbursement for Expenses
• E-5-02, Servicer Responsibilities Prior to Requesting Reimbursement of Attorney Fees and Costs
• E-5-03, Allowable Bankruptcy Fees
• E-5-04, Allowable Foreclosure Fees
• E-5-05, Reimbursing Law Firms/Reimbursement of Uncollected Fees, Costs or Advances
• E-5-06, Technology Fees and Electronic Invoicing
• E-5-07, Other Reimbursable Default-Related Legal Expenses
• F-1-01, Servicing ARM Loans
• F-1-02, Escrow, Taxes, Assessments, and Insurance
• F-1-03, Establishing and Implementing Custodial Accounts
• F-1-04, Evaluating a Request for the Release, or Partial Release, of Property Securing a Mortgage Loan
• F-1-05, Expense Reimbursement
• F-1-06, Filing an MI Claim for a Liquidated Mortgage Loan or Acquired Property
• F-1-07, Handling Property Forfeitures and Seizures
• F-1-08, Managing Foreclosure Proceedings
• F-1-09, Processing Mortgage Loan Payments and Payoffs
• F-1-10, Obtaining and Executing Legal Documents
• F-1-11, Post-Delivery Servicing Transfers
• F-1-12, Preparing to Implement a Workout Option
• F-1-13, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure)
• F-1-14, Processing a Fannie Mae Short Sale
• F-1-15, Processing a Government Mortgage Loan Modification
• F-1-16, Processing a Repayment Plan
• F-1-17, Processing a Transfer of Ownership
• F-1-18, Processing a Workout Incentive Fee
• F-1-19, Processing a Military Indulgence
• F-1-20, Remitting and Accounting to Fannie Mae
• F-1-21, Reporting a Delinquent Mortgage Loan via Fannie Mae’s Servicing Solutions System
• F-1-22, Reporting a Workout Option via Fannie Mae’s Servicing Solutions System
• F-1-23, Reporting to Third Parties
• F-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System
• F-1-25, Reclassifying or Voluntary Repurchasing an MBS Mortgage Loan
• F-1-26, Servicing eMortgages
• F-1-27, Processing a Fannie Mae Flex Modification
• F-1-28, Reviewing a Transfer of Ownership for Credit and Financial Capacity
• F-2-01, Bankruptcy Referral and Completion Timelines
• F-2-02, Incentive Fees for Workout Options
• F-2-03, Compensatory Fee Calculation Examples
• F-2-04, Firm Minimum Requirements
• F-2-05, Historical Yield Differential Adjustment Provisions
• F-2-06, Mortgage Insurer Delegations for Workout Options
• F-2-07, Reporting the Principal Amount for Mortgage Loans with Principal Forbearance
• F-2-08, Servicing Fees for MBS Mortgage Loans
• F-2-09, Servicing Fees for Portfolio Mortgage Loans
• F-2-10, Fannie Mae’s Workout Hierarchy
• F-3-01, Acronyms and Glossary of Defined Terms: A
• F-3-02, Acronyms and Glossary of Defined Terms: B
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• F-4-01, References to Fannie Mae's Website
• F-4-02, List of Contacts
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Assignment: Definition in Finance, How It Works, and Examples

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

What Is an Assignment?

Assignment most often refers to one of two definitions in the financial world:

• The transfer of an individual's rights or property to another person or business. This concept exists in a variety of business transactions and is often spelled out contractually.
• In trading, assignment occurs when an option contract is exercised. The owner of the contract exercises the contract and assigns the option writer to an obligation to complete the requirements of the contract.

Key Takeaways

• Assignment is a transfer of rights or property from one party to another.
• Options assignments occur when option buyers exercise their rights to a position in a security.
• Other examples of assignments can be found in wages, mortgages, and leases.

Uses For Assignments

Assignment refers to the transfer of some or all property rights and obligations associated with an asset, property, contract, or other asset of value. to another entity through a written agreement.

Assignment rights happen every day in many different situations. A payee, like a utility or a merchant, assigns the right to collect payment from a written check to a bank. A merchant can assign the funds from a line of credit to a manufacturing third party that makes a product that the merchant will eventually sell. A trademark owner can transfer, sell, or give another person interest in the trademark or logo. A homeowner who sells their house assigns the deed to the new buyer.

To be effective, an assignment must involve parties with legal capacity, consideration, consent, and legality of the object.

A wage assignment is a forced payment of an obligation by automatic withholding from an employee’s pay. Courts issue wage assignments for people late with child or spousal support, taxes, loans, or other obligations. Money is automatically subtracted from a worker's paycheck without consent if they have a history of nonpayment. For example, a person delinquent on $100 monthly loan payments has a wage assignment deducting the money from their paycheck and sent to the lender. Wage assignments are helpful in paying back long-term debts.

Another instance can be found in a mortgage assignment. This is where a mortgage deed gives a lender interest in a mortgaged property in return for payments received. Lenders often sell mortgages to third parties, such as other lenders. A mortgage assignment document clarifies the assignment of contract and instructs the borrower in making future mortgage payments, and potentially modifies the mortgage terms.

A final example involves a lease assignment. This benefits a relocating tenant wanting to end a lease early or a landlord looking for rent payments to pay creditors. Once the new tenant signs the lease, taking over responsibility for rent payments and other obligations, the previous tenant is released from those responsibilities. In a separate lease assignment, a landlord agrees to pay a creditor through an assignment of rent due under rental property leases. The agreement is used to pay a mortgage lender if the landlord defaults on the loan or files for bankruptcy . Any rental income would then be paid directly to the lender.

Options Assignment

Options can be assigned when a buyer decides to exercise their right to buy (or sell) stock at a particular strike price . The corresponding seller of the option is not determined when a buyer opens an option trade, but only at the time that an option holder decides to exercise their right to buy stock. So an option seller with open positions is matched with the exercising buyer via automated lottery. The randomly selected seller is then assigned to fulfill the buyer's rights. This is known as an option assignment.

Once assigned, the writer (seller) of the option will have the obligation to sell (if a call option ) or buy (if a put option ) the designated number of shares of stock at the agreed-upon price (the strike price). For instance, if the writer sold calls they would be obligated to sell the stock, and the process is often referred to as having the stock called away . For puts, the buyer of the option sells stock (puts stock shares) to the writer in the form of a short-sold position.

Suppose a trader owns 100 call options on company ABC's stock with a strike price of $10 per share. The stock is now trading at $30 and ABC is due to pay a dividend shortly. As a result, the trader exercises the options early and receives 10,000 shares of ABC paid at $10. At the same time, the other side of the long call (the short call) is assigned the contract and must deliver the shares to the long.

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