Freddie Mac Single-Family Seller/Servicer Guide 5705.6 — Legal requirements for New Cooperative Projects

This section contains requirements related to: ■ Compliance with law ■ Right of first refusal ■ Amendments to Cooperative Documents ■ Rights of Cooperative Shareholders and Sellers ■ Cooperative membership requirements ■ Cooperative Corporation’s lien position ■ Assignment of Shareholder’s Cooperative Interest ■ Cooperative Corporation responsibilities and lender rights Except for Freddie Mac-owned “no cash-out” refinance Cooperative Share Loans delivered in accordance with the requirements in Section 5705.7 for Exempt from Review, when a Seller delivers a Cooperative Share Loan secured by a Cooperative Interest in a New Cooperative Project to Freddie Mac, the Seller represents and warrants all of the following:

(a) Compliance with law The Cooperative Corporation is a validly formed Entity authorized to carry out its independent purposes and is compliant with all applicable State and local laws and ordinances.

(b) Right of first refusal If the Cooperative Corporation has retained the right to provide a substitute purchaser, the right to have the first option to purchase a Cooperative Unit, or the right to approve a purchaser, those rights will not: ■ Be exercised in a way that could be interpreted as discrimination; or ■ Impair the marketability of the Cooperative Units in the Cooperative Project

(c) Amendments to Cooperative Project Documents The Shareholders have the right to amend the Cooperative Project Documents.

(d) Rights of Cooperative Shareholders and Sellers The Cooperative Corporation is legally bound to notify the Seller of any material adverse changes including, but not limited to, the following: 1. Threatened or actual condemnation, eminent domain proceeding or acquisition or any actual loss, whether covered by insurance, that affects any portion of the Cooperative Project or Cooperative Unit 2. The inability of Shareholders to deduct their Pro Rata Share of Mortgage interest from their taxable income per the Internal Revenue Code (i.e., the Cooperative Corporation no longer qualifies as a Cooperative Housing Corporation pursuant to Section 216 of the Internal Revenue Code) 3. Any 30-day Delinquency by the Cooperative Corporation in payments due under any underlying Blanket Mortgage, whether the payments are for real estate taxes, assessments or charges imposed by a government entity or public utility or made under the terms of any ground lease 4. Any lapse, cancelation or material modification of any insurance or fidelity insurance coverage maintained by the Cooperative Project 5. Any 90-day Delinquency by the Shareholder that is related to the payment of his or her Maintenance Fees or other assessments; and 6. Any proposed action that requires the consent of a specified percentage of eligible lenders of Cooperative Share Loans

(e) Cooperative membership requirements The Cooperative Project Documents must meet all the following requirements: 1. Require that the sale or transfer of Cooperative Shares, stock or membership certificates in the Cooperative Corporation comply with federal and State security disclosure laws 2. Require the Shareholders to own Shares, stock or a membership certificate and permit the Cooperative Shares, stock or membership certificates to be pledged and registered in the Cooperative Corporation 3. Give the Shareholder a right to occupy the Cooperative Unit for a period that extends at least to the maturity date of the Cooperative Share Loan in accordance with the terms and conditions of the Proprietary Lease 4. Prohibit the Cooperative Corporation from imposing unreasonable limitations on the Shareholder’s ability to sell, transfer or convey his or her Cooperative Share

(f) Cooperative Corporation’s lien position The Cooperative Corporation has a good and marketable title to the Cooperative Project land, Cooperative Units and Common Elements, and the Cooperative Project is free and clear of liens and encumbrances except the underlying Blanket Mortgage.

(g) Assignment of Shareholder’s Cooperative Interest The Cooperative Project Documents and the Recognition Agreement must not permit the Cooperative Corporation to restrict the sale, conveyance or transfer of a Cooperative Unit owned by a lender, its successors or assigns or place any limits on the assignment of the Proprietary Lease to the lender, its successors or assigns. The Cooperative Project Documents and the Recognition Agreement must also permit the lender, its successors or assigns to: ■ Transfer the Cooperative Shares and Proprietary Lease if the Shareholder defaults on the Cooperative Share Loan; and ■ Select a non-corporate designee for any transfer of the Cooperative Shares and Proprietary Lease in the event of a foreclosure if the Cooperative Project Documents require that a Shareholder be a natural person

(h) Cooperative Corporation responsibilities and lender rights The Cooperative Project Documents or Recognition Agreement must include provisions to recognize specific rights of the lender that finances a Cooperative Share Loan and the Cooperative Corporation’s responsibilities to that lender, its successors or assigns. The Cooperative Project Documents must provide for at least the following corporation responsibilities and lender rights:

(i) Corporation responsibilities The Cooperative Project Documents, Recognition Agreement or other legal documents include, but are not limited to, the following responsibilities of the Cooperative Corporation: (i) In the event of Shareholder’s default on the Cooperative Share Loan and at the request of the lender of the Cooperative Share Loan, the Cooperative Corporation must: ■ Evict the Shareholder; and ■ Terminate the Shareholder’s Proprietary Lease at the lender’s expense (ii) In the event of the Shareholder’s default on the Cooperative Share Loan, the Cooperative Corporation must also issue Cooperative Share(s) and the Proprietary Lease in the name of the lender or its designee (ii) Lender rights The Cooperative Project Documents or Recognition Agreement must grant the lender of a Cooperative Share Loan the right to: (i) Cure the Shareholder’s default in payment of Maintenance Fees or other assessments (ii) Review and approve the following actions: ■ Any surrender, cancelation, modification, assignment or pledge of any documents evidencing ownership, possession and use of the Shareholder’s Cooperative Unit ■ Any further or additional pledge or Mortgage of any documents evidencing ownership, possession and use of the Cooperative Unit ■ Any action to change the size, existence or form of ownership of the Cooperative Project