Servicing Guide

Published December 12, 2018

E-1.2-03: Timing of the Foreclosure Referral for Second Lien Conventional Mortgage Loans Not Secured by a Principal Residence (11/12/2014)

Foreclosure proceedings for a second lien mortgage loan that is not secured by a principal residence can begin when at least two full monthly payments are past due. In addition, even if a second lien mortgage loan that is not secured by a principal residence is not two full monthly payments past due, as long as the servicer has complied with SCRA requirements and any applicable state law that restricts the right to foreclose on a second lien mortgage loan, foreclosure proceedings can begin if

  • the first lien mortgage loan is in default; and

  • the second lien mortgage instrument includes a provision that the second lien mortgage loan will be considered in default, regardless of the status of its payments, if the first lien mortgage loan is in default.

After the servicer sends the required breach letter as prescribed in D2-2-06, Sending a Breach or Acceleration Letter, its next action depends on whether the second lien mortgage loan has conventional MI. When the mortgage loan has MI, the servicer must determine if

  • both the first and second lien mortgage loans are in default; and

  • Fannie Mae has an interest in only one mortgage loan, or both the first and second lien mortgage loans.

The terms of the recourse or credit enhancement arrangement under which Fannie Mae purchased or securitized an uninsured second lien mortgage loan will determine whether foreclosure proceedings will be initiated and the type(s) of actions the servicer must take. The servicer must contact its Fannie Mae Servicing Representative (see F-4-03, List of Contacts) by submitting a case through Fannie Mae’s servicing solutions system before making a decision to foreclose on any conventional second lien mortgage loan and/or to advance the funds to bring the first lien mortgage loan current.

The servicer must refer the case to a law firm to begin foreclosure proceedings on a second lien mortgage loan that is not secured by a principal residence no later than 30 days after the date it issued the breach letter once a final determination is made to initiate foreclosure on such a mortgage loan.