E-2.2-02, Managing Chapter 11 Bankruptcies (05/10/2023)

When servicing a mortgage loan involved in a Chapter 11 bankruptcy, the servicer must complete the actions described in the following table.

The servicer must immediately report this as non-routine litigation to Fannie Mae’s Legal department by submitting a Non-Routine Litigation Form (Form 20). In cases in which the borrower will not receive a discharge upon confirmation of the reorganization plan, the servicer must instruct the law firm to attempt to negotiate termination of the automatic stay upon confirmation of the plan.

See also E-2.3-03, Handling Cramdowns of the Mortgage DebtE-2.3-03, Handling Cramdowns of the Mortgage Debt.

In all cases in which the borrower is contractually delinquent, the servicer must discuss with the law firm whether it is practical to file a Motion for Relief, a Motion for Adequate Protection Payments, and/or a Motion for Sequestration of Rental Income (if the property is being rented). The following table provides the servicer with additional directions for the proper management and servicing of a Chapter 11 bankruptcy that involves a delinquent mortgage loan.

When a Chapter 11 reorganization plan that modifies the original terms of a mortgage loan is confirmed, the servicer must report the modified terms (or cramdown) to Fannie Mae. The following table provides Fannie Mae’s requirements for reporting and servicing the mortgage loan post-confirmation.

With respect to special servicing option MBS mortgage loans, no changes are to be made to the terms of the mortgage loan in Fannie Mae's records until after Fannie Mae reclassifies the mortgage loan as a portfolio mortgage loan. See Removing Regular Servicing Option MBS Mortgage Loans Upon Confirmation of a Bankruptcy Plan and Reclassifying Special Servicing Option MBS Mortgage Loans Upon Confirmation of a Bankruptcy Plan in E-2.1-11, Remitting P&I for MBS Mortgage Loans That Are Part of a BankruptcyE-2.1-11, Remitting P&I for MBS Mortgage Loans That Are Part of a Bankruptcy for requirements related to reclassification or removal of MBS mortgage loans. See also Processing Pre-Petition and Post-Petition Payments in E-2.2-04, Managing Chapter 13 BankruptciesE-2.2-04, Managing Chapter 13 Bankruptcies and C-3-01, Responsibilities Related to Remitting P&I Funds to Fannie MaeC-3-01, Responsibilities Related to Remitting P&I Funds to Fannie Mae for more information on actions required when a mortgage loan becomes delinquent.

In cases in which the automatic stay remains in effect following confirmation, if the borrower becomes 60 days delinquent in making the payments required under the plan, the servicer must either refer the case to a law firm within two weeks of the 60th day of delinquency or, if the case has already been referred, advise the law firm to seek relief from the automatic stay or a dismissal of the case in accordance with local bankruptcy rules and practices. The servicer is responsible for ensuring that all previous payments have been properly applied and for verifying that the borrower is 60 days delinquent before sending the referral.

Once the automatic stay is terminated or the case is dismissed, the servicer must immediately complete all the actions described in the following table.