Servicing Guide

Published June 13, 2018

E-2.2-01: Managing Chapter 7 Bankruptcies (11/12/2014)

Case completion for a Chapter 7 bankruptcy proceeding is defined as

  • the termination of the automatic stay,

  • the case being dismissed or closed, or

  • when the borrower receives a discharge and the trustee abandons all interest in the secured property.

This topic contains the following:

Managing Chapter 7 Bankruptcies for Current Mortgage Loans

The servicer must closely monitor the payment status of the mortgage loan and, if it becomes 60 days delinquent, refer it to a law firm within two weeks of the 60th day of delinquency. The servicer must also closely monitor the case and take appropriate actions to ensure that no pleadings are filed or other actions taken that would adversely affect Fannie Mae’s security interest in the property. The time frame for completing a Chapter 7 bankruptcy case for a mortgage loan that was current (or less than 60 days delinquent) when the borrower filed bankruptcy is two months and two weeks from the 60th day of delinquency.

Managing Chapter 7 Bankruptcies for Delinquent Mortgage Loans

The servicer must abide by the requirements shown in the following table when servicing a delinquent mortgage loan involved in a Chapter 7 bankruptcy proceeding.

The servicer must…

Determine the borrower’s intentions for the security property as soon as possible.

Obtain either payments or relief from the bankruptcy stay in a timely manner.

If the borrower intends to surrender the security property, the servicer must attempt to obtain relief from the automatic stay by requesting a court order as expeditiously as possible. If the borrower intends to retain possession of the security property, the servicer must pursue a workout option.

Once the automatic stay is terminated, or the case is dismissed or discharged with a trustee abandonment of the property, the servicer must immediately complete all of the actions described in the following table.

The servicer must…

Send any required breach letter to the borrower.

Refer the mortgage loan to a law firm to initiate (or resume) foreclosure.

Consider the possibility of arranging a workout option.

The time frame for completing a Chapter 7 bankruptcy case for a mortgage loan that was 60 or more days delinquent (or in foreclosure) when the borrower filed bankruptcy is two months and two weeks from the date of the bankruptcy filing.