General Requirements When Processing a Fannie Mae Mortgage Release

The following table provides some of the servicer’s responsibilities in connection with processing a Fannie Mae Mortgage Release for a first lien mortgage loan.

The servicer must...

Ensure that the borrower is not involved in or party to litigation other than foreclosure or bankruptcy involving the subject property or mortgage loan.

Evaluate the borrower’s eligibility and cash contribution requirements, if any, based on the status of the mortgage loan at the time of the respective evaluation.

Inform the borrower of the three exit options:

1. Immediate move.

2. A three-month transition lease with no rent payment required.

3. A twelve-month lease at market rent payment.

See Evaluating a Borrower for Fannie Mae Mortgage Release Transition Options for information on options #2 and #3.

Advise the borrower that there may be possible tax consequences if any portion of the outstanding debt is forgiven, and refer the borrower to IRS Publication 544, Sales and Other Dispositions of Assets, particularly the section captioned “Foreclosure, Repossession, or Abandonment.”

Work with the borrower to complete all requirements associated with completing and executing the Mortgage Release and ensure that there is sufficient time to complete the processing of the Mortgage Release, including sending the Mortgage Release offer to the borrower, so that an executed deed can be received no later than 30 days prior to the foreclosure sale date.

Work with the title company to resolve any issues that may delay the closing, including assisting the borrower in subordinate lien releases, and ensure that the borrower can convey clear and marketable title. The servicer must follow the procedures in Verifying Clear and Marketable Title in F-1-15, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure) for ensuring that clear and marketable title can be conveyed.

Note: While the servicer is not required to order a title insurance policy, the servicer is authorized to do so if it deems it necessary to complete the Mortgage Release. Fannie Mae will reimburse the servicer for title insurance costs in accordance with E-5-07, Other Reimbursable Default-Related Legal Expenses.

Submit the deed for recordation within five business days of the servicer’s acceptance of the executed deed from the borrower.

Ensure the property is vacant and broom swept, unless the borrower is eligible in accordance with Evaluating a Borrower for Fannie Mae Mortgage Release Transition Options.

Release the first lien mortgage loan within the time required by applicable state or local law or, if state or local law does not require release of the first lien mortgage loan within a specific time frame, within 30 business days after the occurrence of the following:

  • the acceptance of the Mortgage Release by the servicer, and

  • confirmation by the interior property inspection that the subject property is vacant and secured (unless the borrower is eligible in accordance with Evaluating a Borrower for Fannie Mae Mortgage Release Transition Options).

Appropriately manage liquidation workout options that involve the borrower’s relinquishing ownership of the property to ensure that the borrower’s rights are appropriately protected.

Provide evidence of the borrower’s indication of intent to pursue a Mortgage Release to Fannie Mae upon request.

The servicer must refer to the Property Preservation Matrix and Reference Guide for further clarification on handling delinquent and vacant or abandoned properties during the Mortgage Release process.

Evaluating a Borrower to Determine Eligibility for a Fannie Mae Mortgage Release

The following table provides the requirements for evaluating the borrower to determine eligibility for a Fannie Mae Mortgage Release based on the delinquency status of the mortgage loan at the time of the evaluation.

If the mortgage loan delinquency status at the time of evaluation is... Then the servicer must evaluate the borrower for a Fannie Mae Mortgage Release...
current or less than 90 days delinquent

based on a complete BRP (see D2-2-05, Receiving a Borrower Response Package).

Note: If the mortgage loan is current or less than 60 days delinquent, the servicer must determine that the borrower’s monthly payment is in imminent default in accordance with Evaluating a Borrower for Imminent Default for Fannie Mae Short Sale or Fannie Mae Mortgage Release Eligibility in D2-1-01, Determining if the Borrower’s Mortgage Payment is in Imminent Default.

between 90 days and 18 months delinquent

based on a complete BRP, unless one of the following conditions applies, in which case the servicer must evaluate the borrower for a Fannie Mae Mortgage Release without receiving a complete BRP:

  • the borrower received a Fannie Mae Flex Modification and became 60 days or more delinquent within the first 12 months of the effective date of the mortgage loan modification without reinstating;

  • the borrower completed three or more mortgage loan modifications; or

  • the mortgage loan is not secured by an investment property, as identified at origination and the borrower’s classic FICO credit score, which must be no more than 90 days old as of the date of evaluation, is less than or equal to 620.

Note: The FICO credit score must be no more than 90 days old as of the date of evaluation. If the servicer obtains multiple credit scores for a single borrower, it must select a representative credit score using the lower of two or the middle of three credit scores. If there are multiple borrowers, the servicer must determine the representative score for each borrower and use the lowest representative score as the credit score for the evaluation.

greater than 18 months delinquent without receiving a complete BRP.

Note: Fannie Mae also will agree to a deed-in-lieu of foreclosure for FHA, VA, or RD mortgage loans if they comply with all of the insurer’s or guarantor’s guidelines and do not result in a loss to Fannie Mae.

If the borrower’s debt has been discharged pursuant to Chapter 7 of the U.S. bankruptcy code, the servicer must evaluate the borrower for a Fannie Mae Mortgage Release without receiving a complete BRP regardless of the delinquency status of the mortgage loan at the time of evaluation. The servicer must obtain proof that the mortgage loan was included in the borrower’s Chapter 7 bankruptcy filing, such as notification from the court or a copy of the order of discharge showing the mortgage loan as discharged.

If the servicer determines the borrower is eligible for a Fannie Mae Mortgage Release or if the borrower has non-retirement cash reserves greater than $50,000, the servicer must follow the procedures in Requesting Approval for a Non-Delegated Mortgage Release Case in F-1-27, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval.

If the servicer evaluated the borrower without receiving a complete BRP and the borrower fully reinstated the mortgage loan after the initial Mortgage Release evaluation, the borrower is no longer eligible for a Mortgage Release based on the initial eligibility evaluation.

If the servicer determined the borrower originally qualified for a Fannie Mae short sale without a complete BRP, and the borrower subsequently transitions to a Mortgage Release, the servicer must use the borrower’s short sale qualifications for the Mortgage Release, unless the borrower fully reinstated the mortgage loan.

Evaluating a Borrower for Fannie Mae Mortgage Release Transition Options

Once the servicer determines that the borrower is eligible for a Mortgage Release and the borrower expresses interest in a Mortgage Release transition option, the servicer must screen the borrower for eligibility for a Mortgage Release transition option (exit options #2 and #3 as described in General Requirements When Processing a Fannie Mae Mortgage Release). The servicer must refer the Mortgage Release to Fannie Mae when both the mortgage loan and borrower meet the eligibility criteria described in the following table.

Mortgage loan and borrower eligibility criteria for Mortgage Release transition options

The mortgage loan must be a first lien mortgage loan secured by a single-family property.

The mortgage loan must not be guaranteed, insured, or held by FHA, HUD, VA, or the RD.

The subject property must be

  • the borrower’s principal residence, or

  • an investment property which has been leased to a tenant(s) who uses the property as a principal residence.

Note: For the Mortgage Release transition option that allows the borrower to execute a three-month use and occupancy agreement with no rent payment required, the subject property must be the borrower’s principal residence.

At least three monthly payments must have been made since origination or since the last mortgage loan modification, if applicable.

Note: This is only applicable for the Mortgage Release transition option that allows the borrower to execute a twelve-month lease agreement with a market rent payment.

The mortgage loan must not have 12 or more payments past due when referred to Fannie Mae for consideration for a Mortgage Release transition option.

Note: This is only applicable for the Mortgage Release transition option that allows the borrower to execute a twelve-month lease agreement with a market rent payment.

The borrower must not be involved in an active bankruptcy proceeding or party to litigation involving the subject property or mortgage loan.

Note: For the Mortgage Release transition option that allows the borrower to execute a three-month use and occupancy agreement with no rent payment required, the borrower may be involved in an active bankruptcy proceeding.

Clear and marketable title must be able to be conveyed.

Subordinate lien releases must be able to be obtained, if applicable.

The occupant must have verifiable income.

Note: Unemployed occupants with no source of income are not eligible. For the Mortgage Release transition option that allows the borrower to execute a three-month use and occupancy agreement with no rent payment required, the occupant is not required to have verifiable income.

The servicer must follow the procedures in Processing a Mortgage Release Transition Option in F-1-15, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure) for processing a Mortgage Release transition option.

Evaluating the Credit Report for New Mortgage Loans Obtained

For all Mortgage Release cases except those in which the servicer evaluated the borrower for a Mortgage Release without receiving a complete BRP in accordance with Evaluating a Borrower to Determine Eligibility for a Fannie Mae Mortgage Release, the servicer must review each borrower’s credit report to determine

  • if the borrower(s) obtained a new mortgage loan in the six months preceding the delinquency on the mortgage loan secured by the subject property; or

  • in the case of a current mortgage loan, in the six months preceding the evaluation for a Mortgage Release.

If the servicer determines that the borrower obtained a new mortgage loan in the six months preceding the delinquency, or preceding the evaluation for a Mortgage Release, as applicable, the mortgage loan is only eligible if the hardship, which must be documented in accordance with the Mortgage Assistance Application(Form 710), was due to

  • a distant employment transfer/relocation greater than 50 miles one way from the property securing the mortgage loan and the property securing the mortgage loan is the borrower’s principal residence,

  • new employment greater than 50 miles one way from the property securing the mortgage loan and the property secuing the mortgage loan is the borrower’s principal residence, or

  • PCS orders relocating a servicemember greater than 50 miles one way from the property securing the mortgage loan and the property securing the mortgage loan was or currently is the servicemember’s principal residence.

In all other instances, the servicer must submit a recommendation to Fannie Mae for review. The servicer must follow the procedures in Requesting Approval for a Non-Delegated Mortgage Release Casein F-1-27, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval.

Obtaining a Property Valuation and Evaluating the Condition of the Property

If the servicer determines that the borrower meets the eligibility criteria stated above for a Fannie Mae Mortgage Release, it must obtain a property valuation to determine the market value of the property securing the mortgage loan. The servicer must follow the procedures in Obtaining a Property Valuation in F-1-15, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure) for obtaining a property valuation.

Prior to the borrower executing a Fannie Mae Mortgage Release, the servicer must schedule property inspections to ensure that the property is free of environmental contamination and does not pose potential legal risks. See the Property Preservation Matrix and Reference Guide for additional information. The servicer’s action will depend on whether the servicer previously ordered an interior BPO, as described in the following table.

If the servicer has… Then the servicer…

previously ordered an interior BPO

is authorized to use the interior BPO to determine whether the property condition is acceptable prior to final execution of the Mortgage Release, as long as the BPO is dated within 90 days of the borrower’s approval for a Mortgage Release.

not previously ordered an interior BPO

must order an interior inspection of the property and verify the property is in acceptable condition within 60 days of the borrower’s acceptance of the Mortgage Release.

See E-3.3-03, Inspecting Properties Prior to Foreclosure Saleand D2-2-10, Requirements for Performing Property Inspections for the requirements related to performing property inspections.

If the property inspection or property valuation reveals that the subject property has been poorly maintained, needs major repairs, or has structural or foundation problems, see B-5-01, Insured Loss Events for additional information.

The servicer must submit the Mortgage Release request to Fannie Mae to receive prior written approval if the property inspection or property valuation reveals that the subject property contains environmental contamination or poses potential legal risks and the servicer determines that a Mortgage Release is the appropriate workout option. The servicer must follow the procedures in Requesting Approval for a Non-Delegated Mortgage Release Case in F-1-27, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval.

Allowable Payments to Subordinate Lienholders

The following table provides the requirements that apply to allowable payments to subordinate lienholders for a Mortgage Release.

Requirements for payment to subordinate lienholders

Payments to subordinate lienholders must be in exchange for

  • a lien release,

  • a full release of liability for the borrower, and

  • extinguishment of the indebtedness secured by the subject property.

Payments to all subordinate lienholders to facilitate lien releases must not exceed $6,000 in aggregate. If an individual subordinate lien or total subordinate liens are less than $6,000, the payoff must not exceed the subordinate lien amount owed. If there are multiple subordinate lienholders, the servicer has discretion to divide the subordinate lien payments among the subordinate lienholders.

Funds must only be used for subordinate mortgage liens or deeds of trust recorded in the land records that constitute a valid lien against the subject property.

Examples of other types of liens which funds must not be used for include, but are not limited to, the following:

  • HOA liens,

  • judgments,

  • mechanic’s liens, and

  • materialmen’s liens.

Note: If other liens impede the closing of a Mortgage Release, the servicer must submit the case to Fannie Mae for prior written approval.

Prior to releasing any funds to a subordinate lienholder, the servicer must obtain written commitment from the subordinate lienholder that it will

  • release the borrower from all claims and liability relating to the subordinate lien in exchange for receiving the agreed-upon payoff amount,

  • waive all rights to seek a deficiency judgment against the borrower, and

  • not require a cash contribution in addition to any funds provided by Fannie Mae as a condition for releasing its lien and releasing the borrower from personal liability.

If a subordinate a lienholder chooses to release its lien to allow the Mortgage Release to close, but does not agree to release the borrower from liability on the note, it cannot receive a payment from Fannie Mae. Regardless of whether payment is made to a subordinate lienholder, the servicer must obtain written commitment from the subordinate lienholder(s) to release the lien(s).

Incentive Payments to Assist a Borrower with Relocation Expenses

If the property securing the mortgage loan is the borrower’s principal residence at the time of the Evaluation Notice, the borrower is entitled to an incentive payment of $3,000 from Fannie Mae to assist with relocation expenses following the successful completion of a Fannie Mae Mortgage Release unless one of the following apply:

  • the borrower is required to contribute cash, even if the borrower fails to contribute; or

    Note: If the servicer believes relocation assistance is warranted despute the borrower’s failure to contribute, the servicer must submit its relocation assistance recommendation to Fannie Mae for prior written approval.

  • the borrower has PCS orders and receives a DLA or other government relocation assistance.

Note: If government relocation assistance is not provided to a borrower with PCS orders, the servicer determines an incentive payment is warranted as an exception to these exclusions, the servicer must submit its relocation assistance recommendation to Fannie Mae for prior written approval.

The servicer must adjust the amount of Fannie Mae’s relocation assistance in accordance with the following table.

If... Then the servicer must...
the servicer elects to provide an additional incentive payment from its own funds not deduct that amount from Fannie Mae’s incentive payment amount.
another source provides assistance deduct that amount from Fannie Mae’s incentive payment amount.
the property inspection report indicates that the subject property is vacant, but that there is damage to the subject property caused by the borrower or that the subject property was not left in broom swept condition reduce Fannie Mae’s incentive payment by the estimate or actual, if known, cost of remediating the issues.

The servicer must adhere to the requirements in the following table related to the payment of the borrower’s relocation incentive payment.

The servicer must...
Not attempt to renegotiate the relocation incentive payment amount to a lesser amount
Not require the borrower to apply the relocation incentive payment to obtain the release of other liens or non-real estate title impediments.

The timing and distribution for the payment of the borrower incentive is outlined in the following table.

If the borrower... Then...

is not participating in a Mortgage Release transition option

the servicer must distribute the incentive payment to the borrower within 30 days after the servicer’s acceptance of the executed deed from the borrower.

is participating in either a 3- or 12-month Mortgage Release transition option

Fannie Mae’s property management company must distribute the incentive payment to the borrower within 30 days after the property becomes vacant.

Evaluating a Borrower’s Ability to Make a Cash Contribution

The servicer must evaluate the borrower’s ability to make a cash contribution based on the status of the mortgage loan at the time the servicer evaluated the borrower for eligibility for a Mortgage Release.

The servicer must not evaluate the borrower for a cash contribution if

  • prohibited by applicable law;

  • the servicer evaluated the borrower for a Fannie Mae Mortgage Release without receiving a complete BRP in accordance with Evaluating a Borrower to Determine Eligibility for a Fannie Mae Mortgage Release; or

  • he or she is a servicemember with PCS orders relocating him or her greater than 50 miles one way from the property securing the mortgage loan and the property securing the mortgage loan was or currently is the servicemember’s principal residence.

In all other instances, the servicer must evaluate the borrower for a cash contribution and request a cash contribution, if

  • the borrower’s non-retirement cash reserves, as stated on the Mortgage Assistance Application (Form 710) are in excess of $10,000; or

    Note: The servicer must verbally verify the assets stated on Form 710 and obtain documentation to reconcile any inconsistencies.

The servicer must initially request a cash contribution of the greater of the following, rounded to the nearest $100 and not to exceed the amount of the deficiency:

  • 20% of the borrower’s non-retirement cash reserves, or

  • four times the contractual monthly mortgage loan payment including PITI. If the servicer does not escrow for T&I, it must estimate the borrower’s monthly tax and insurance premium amounts.

If the servicer determines it is warranted based on its assessment of the borrower’s individual situation and circumstances and ability to contribute, it is authorized to

  • request a lower initial cash contribution amount,

  • negotiate a lower cash contribution amount, or

  • agree to no cash contribution.

Note: If the mortgage loan is current or less than 60 days delinquent, the borrower must contribute a minimum of 20%of his or her non-retirement cash reserves.

The servicer must follow the procedures in Requesting Approval for a Non-Delegated Mortgage Release Case in F-1-27, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval if

  • the borrower refuses to make a cash contribution in an amount the servicer determines is reasonable, or

  • the mortgage loan is current or less than 60 days delinquent and the borrower refuses to contribute a minimum of 20% of his or her non-retirement cash reserves.

The requirement for a cash contribution is waived if the contribution amount is less than $500.

Note: The servicer must not request updated documentation from the borrower when evaluating the borrower’s ability to make a cash contribution and the complete BRP is greater than 90 days old. However, if the borrower’s credit report is greater than 90 days when the servicer evaluates the borrower’s ability to make a cash contribution, the servicer must obtain a new credit report.

Requirements for Accepting a Fannie Mae Mortgage Release

The servicer must obtain all of the items listed in the following table within 60 days of the borrower’s acceptance of the offer for a Fannie Mae Mortgage Release.

Documentation that must be obtained within 60 days of the borrower’s acceptance of a Mortgage Release

The deed and a personal property release executed by the borrower.

Note: While use of the Personal Property Release Form (Form 192) is optional, it reflects a minimum level of information that the servicer must include.

The mortgage insurer’s approval, if applicable, if Fannie Mae has not obtained a delegation of authority.

Agreement(s) that the subordinate lienholder(s) will release

  • the subordinate lien, and

  • the borrower from liability if accepting payment from Fannie Mae.

Clear and marketable title.

The cash contribution, if applicable.

The final interior property inspection report indicating that there are no environmental hazards or potential legal risks, and that the property is vacant, secure, and in broom swept condition, unless the borrower is eligible in accordance with Evaluating a Borrower for Fannie Mae Mortgage ReleaseTransition Options.

Note: The servicer must conduct the final interior property inspection no more than five business days following the receipt of the executed deed and all related documents.

Note: For a Mortgage Release transition option, the servicer is not required to complete an interior property inspection prior to execution of the deed of conveyance. However, the servicer must review the interior property valuation to ensure the subject property’s habitability (see Obtaining a Property Valuation and Evaluating the Condition of the Property).

If the servicer is unable to resolve all issues within 60 days, an extension of 30 days is permitted as long as the servicer provides the borrower with written or verbal weekly status updates indicating the reason that the Mortgage Release is still pending.

The servicer must request Fannie Mae’s approval to accept the deed if it receives the executed deed less than 30 days prior to the foreclosure sale date. The servicer is responsible for any costs incurred due to the acceptance of a Mortgage Release that results in a delay in acquisition of the property.

The servicer must take the action described in the following table if it determines that the borrower has left personal property in the subject property.

If, at the time of the final property inspection, the servicer determines that the personal property left by the borrower has… Then the servicer…

an actual cash value less than $500

is authorized to proceed with the Mortgage Release.

an actual cash value equal to or greater than $500

must get Fannie Mae’s prior written approval before completing a Mortgage Release.

The servicer must follow the procedures in Requesting Reimbursement for Expenses Associated with Workout Options in F-1-05, Expense Reimbursement for requesting reimbursement of allowable fees.

Providing a Deficiency Waiver for Certain Mortgage Loans

The servicer must release the borrower from liability for any deficiency associated with the Fannie Mae mortgage loan upon successful completion of a Fannie Mae Mortgage Release for the following mortgage loans:

  • mortgage loans that do not have MI, and

  • mortgage loans that have MI, but the mortgage insurer has granted Fannie Mae delegation of authority (see Processing a Fannie Mae Mortgage Release for a Mortgage Loan With Mortgage Insurance).

The servicer must provide a deficiency waiver to the borrower after the servicer’s acceptance of the executed deed from the borrower, if applicable.

While use of the Deficiency Waiver Agreement (Form 189) is optional, it reflects a minimum level of information that the servicer must include.

Processing a Fannie Mae Mortgage Release for a Mortgage Loan with Mortgage Insurance

The servicer must see F-2-06, Mortgage Insurer Delegations for Workout Options for the list of mortgage insurers from which Fannie Mae has obtained delegation of authority on behalf of all servicers, which allows the servicer to process a Fannie Mae Mortgage Release in accordance with this Guide without obtaining separate mortgage insurer approval at the company or loan level.

For mortgage insurers from which Fannie Mae has not obtained delegation of authority, the servicer must not agree to a Fannie Mae Mortgage Release unless the mortgage insurer agrees in writing to the following:

  • to waive its property acquisition rights before the claim is filed, and

  • to settle the claim by paying the lesser of the full percentage option under the terms of the master policy or the amount required to make Fannie Mae whole.

Related Announcements

The following table provides references to Announcements that are related to this topic.

Announcements Issue Date
Announcement SVC-2018-08 November 14, 2018
Announcement SVC–2017-06 July 12, 2017
Announcement SVC-2017–01 January 18, 2017
Announcement SVC–2016–05 June 8, 2016
Announcement SVC–2015–15 December 16, 2015
Announcement SVC–2015–12 September 9, 2015
Announcement SVC–2015–11 August 12, 2015
Announcement SVC–2015–05 April 8, 2015
Announcement SVC–2014–21 December 10, 2014