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5103.5: Living Trust (11/09/16)

5103.5: Living Trust (11/09/16)

Owned by Marsha Freeman
Last updated: Nov 20, 2018

Ā© Freddie Mac Single-Family Seller Servicer Guide

The Seller warrants and represents that the Living Trust meets Freddie Mac's revocability and all other eligibility requirements as of the Delivery Date and the Funding Date.

A Living Trust is an eligible Borrower for a Home Mortgage if it meets all of the following conditions:
1.Ā Special underwriting requirement

The Mortgage applicants must include an Underwritten Settlor (or at least one Underwritten Settlor if there is more than one Settlor)

2.Ā Trust requirements

  • The Settlor (or each Settlor, if there is more than one) is the primary beneficiary of the trust
  • The trustee(s) must be the Settlor (or at least one Settlor if there is more than one), or a Settlor and one or more co-trustees. A financial institution customarily engaged in trust functions in the applicable jurisdiction may serve as a co-trustee.
  • The trustee(s) must be specifically authorized to:
    • Borrow money for the benefit of an Underwritten Settlor
    • Purchase, construct or encumber realty to secure a loan to an Underwritten Settlor

3.Ā Property type, occupancyĀ and ownershipĀ requirements

  • The Mortgage is secured by:
    • A 1- to 4-unit Primary Residence occupied by an Underwritten Settlor, or
    • A second home occupied for some portion of the year by an Underwritten Settlor, or
    • A 1- to 4-unit Investment Property
  • If a Living Trust is a Borrower, then:
    • The occupancy of the property/Mortgaged Premises by an Underwritten Settlor of that Living Trust will be considered to be occupancy by the Borrower of the property/Mortgaged Premises
    • The Underwritten Settlor is an individual who is deemed to be the owner of the property/Mortgaged Premises

4.Ā Title and title insurance

  • TitleThe title to the property is vested in the trustee(s) on behalf of the trust (or in such other manner as is customary in the jurisdiction for Living Trusts)
  • The title insurance policy
    • States that title to the Mortgaged Premises is vested in the trustee(s) on behalf of the Living Trust (or in such other manner as is customary in the jurisdiction for Living Trusts)
    • Does not list any exceptions arising from the trust ownership of the property
  • The Seller must verify that:
    • Title vested in the trustee(s) on behalf of the trust (or in such other manner as is customary in the jurisdiction for Living Trusts) does not lessen in any way Freddie Mac's interest in the Mortgage, such as Freddie Mac's ability to obtain clear and marketable title to the Mortgaged Premises in the event of a foreclosure of the Mortgage
    • The title insurance policy provides full title insurance protection to Freddie Mac

5.Ā Signatures required; forms of signatureSet forth below are the required forms of signatures (Note) and required forms of signatures and acknowledgment (Security Instrument). If the Seller elects to use the Note with signature addendum to the Note ("Signature Addendum") alternative:
(i)Ā The form of Signature Addendum, and its use, must comply with all applicable laws
(ii)Ā The use of the Signature Addendum must result in a properly signed and legally enforceable Note
(iii)Ā The Signature Addendum must not impair Freddie Mac's status as a "holder in due course" or any of Freddie Mac's rights under the Purchase Documents
(iv)Ā The Seller indemnifies Freddie Mac from any loss or damage Freddie Mac may incur as a result of the use of the Signature Addendum

NOTE
Loan documentsRequired forms of signatures

(SeeĀ Exhibit 9A, Note Signature Forms for Living Trusts)
Note


  • Each Underwritten Settlor individually; and
  • One or more trustees on behalf of the trust, indicating the complete legal name of the trust, using the form prescribed inĀ Exhibit 9A. An Underwritten Settlor executing the Note both individually and as a trustee must use one of the methods prescribed inĀ Exhibit 9A.


Note with Signature Addendum alternative


  • May be used if there is not enough space on the Note for the signatures of the trustee(s). The Note must clearly reference the existence of the Signature Addendum.
  • Each Underwritten Settlor (regardless of whether the Underwritten Settlor also is signing as a trustee) must sign individually in the Borrower's signature lines on the Note itself; only the signature(s) of the trustee(s) may be included on the Signature Addendum


Signature Addendum requirements
  • The Signature Addendum must:
    • Be permanently affixed to the Note
    • Clearly identify the Note by referencing the following:
      • Name(s) of the Borrower(s)
      • Note Date
      • Property address
      • Original Principal Balance of the Note


SECURITY INSTRUMENT
Loan documentsRequired forms of signatures and acknowledgment

(SeeĀ Exhibit 9B, Security Instrument Signature and Acknowledgement Forms for Living Trusts)
Security Instrument


  • Executed by the trustee(s) on behalf of the trust, indicating the complete legal name of the trust, using the form prescribed inĀ Exhibit 9B
  • Acknowledged by each Underwritten Settlor on the Security Instrument in the form prescribed byĀ Exhibit 9B


Security Instrument with Rider as alternative form of Underwritten Settlor acknowledgment
  • The Security Instrument is executed by the trustee(s) on behalf of the trust, indicating the complete legal name of the trust
  • The Seller may use a rider to the Security Instrument that meets all of the requirements inĀ Exhibit 9BĀ including that the rider:
    • Is signed by the trustee(s) of the Living Trust; and
    • Is acknowledged by each Underwritten Settlor of the Living Trust

Note:

The Seller may exclude any institutional trustee and any individual trustee who is not an Underwritten Settlor from personal liability under the Note and the Security Instrument provided that:

  • The Seller verifies that such exclusion applies specifically to that trustee, and the Seller excludes only that trustee from liability; and
  • Such exclusion does not impair the exercise of any rights and remedies under the Note and/or the Security Instrument


6.Ā Seller reviewThe Seller must review:

  • Either (a) the trust agreement for the Living Trust or, (b) an abstract, certification or other summary of the trust agreement if and to the extent the laws of the applicable jurisdiction require or permit a third-party dealing with a trustee to rely on such abstract, certification or other summary. Based on such review, the Seller must determine that:
    • The Settlor (or each Settlor, if there is more than one) has retained the power to revoke or amend the trust
    • There is specific authorization for the trustee(s) to borrow money and to purchase, construct, or encumber realty as more fully described in Section 5103.5(2) above
    • There is no unusual risk or impairment of lenders' rights (such as distributions required to be made in specified amounts from other than net income)
    • The beneficiary need not grant written consent for the trust to borrow money or, if such consent is required, it has been granted in writing for purposes of the Mortgage
    • If the trust agreement requires more than one trustee to borrow money or to purchase, construct or encumber realty, that the requisite number of trustees have signed the loan documents
  • The deed conveying the Mortgaged Premises to the trustee or trust to verify that title is vested in the trustee(s) on behalf of the Living Trust (or is vested in such other manner as is customary in the jurisdiction for Living Trusts)

7.Ā The Mortgage file

  • In addition to other requirements in the Purchase Documents, when the Borrower is a Living Trust,Ā the Mortgage file also must contain either:
    • A complete copy of the trust agreement
    • An abstract, certification or other summary of the trust agreement if and to the extent the laws of the applicable jurisdiction require or permit a third-party dealing with a trustee to rely on such abstract, certification or other summary