Servicing Guide

Published June 13, 2018

E-3.4-01: Suspending Foreclosure Proceedings for Workout Negotiations (06/21/2017)

When a delinquent mortgage loan is referred to a law firm, the servicer must continue to work with the borrower to bring the mortgage loan current or finalize a workout arrangement up to the date of the foreclosure sale, unless the servicer has determined that all workout options are not feasible as discussed in Chapter D2-3, Fannie Mae’s Home Retention and Liquidation Workout Options.

When a delinquent mortgage loan is referred to a law firm, the servicer must NOT suspend foreclosure proceedings pending Fannie Mae's approval of additional attorney fees.

This topic contains the following:

General Requirements for Suspending Foreclosure Proceedings

If a mortgage loan has been referred to foreclosure prior to receipt of a complete BRP, the servicer may delay the foreclosure process without requesting Fannie Mae’s prior written approval pursuant to the terms and conditions set forth below:

  • the BRP must be complete before any legal action may be postponed, except if

    • an offer for a short sale has been made based upon Streamlined Documentation; or

    • a solicitation for a Fannie Mae Flex Modification has been made and the borrower contacts the servicer within 14 days of the date of the offer to indicate an intent to accept the offer (see Soliciting the Borrower for a Fannie Mae Flex Modification in D2-3.2-09, Fannie Mae Flex Modification ). In such event, the servicer must delay the next legal action in the foreclosure proceeding until the last day of the month in which the first payment is due. If the borrower’s payment is not received by such date, the servicer must proceed with the foreclosure process;

  • in cases where a payment is required under the terms of a retention offer including a Trial Period Plan based on a complete BRP, and the borrower indicates acceptance of the offer (either verbally or in writing), the servicer must delay the next legal action in the foreclosure proceeding until the borrower fails to make the first payment under the terms of the proposed workout. Verbal or written acceptance, without payment or execution of required documents, serves only to postpone the foreclosure process. A workout plan may not be consummated without an Evaluation Notice as required by the particular workout plan;

  • if the servicer receives the first payment in a timely manner in accordance with the terms of a Trial Period Plan, repayment plan, or forbearance plan, the servicer must delay the next legal action until the borrower breaches the plan;

  • fourteen-day delay periods may be extended in order to postpone or repeat the next legal action or postpone a foreclosure sale if necessary under state or local law;

  • if Fannie Mae approves a short sale purchase offer with a complete BRP (or other acceptable documentation under the streamlined documentation requirements), the servicer must suspend the foreclosure sale to allow the short sale to close as permitted under state or local law; and

  • if a notice of trustee/sheriff sale has been recorded and the servicer is notified of borrower approval by the HFA, the servicer may postpone the foreclosure proceedings. However, if a foreclosure sale is scheduled less than seven days from the date the servicer is notified of borrower approval by the HFA, the servicer must not notify the attorney to “place on hold” or suspend the foreclosure proceedings.

When the servicer receives a complete BRP, it must delay the next legal action in the foreclosure process as required by these provisions as long as delays are permitted under applicable law. The next legal action will be the next step required by law to proceed with the foreclosure action, such as publication or service of process, but does not include administrative actions, such as title searches or document preparation.

In some states, the judge may dismiss the case for “lack of prosecution” if the workout plan is not filed with the court as part of the foreclosure proceedings. If this happens and the borrower subsequently defaults under the executed workout plan, the foreclosure proceedings will have to be restarted, which will result in extra foreclosure fees and expenses. In such cases, Fannie Mae will not reimburse the servicer for the resulting additional fees and expenses.

The servicer is not in violation of these requirements to the extent that a court or public official fails or refuses to halt some or all activities in the matter after the servicer has made reasonable efforts to move the court or request the public official for a cessation of the activity or event.

The limitations described in the remainder of this section apply only to suspensions initiated by the servicer without Fannie Mae's approval and do not apply to suspensions otherwise required by Fannie Mae.

Handling a Complete BRP Received After Foreclosure Referral But More Than 37 Days Prior to the Foreclosure Sale Date for a Principal Residence

The following table contains Fannie Mae’s requirements for suspending foreclosure proceedings on all mortgage loans secured by a principal residence when the servicer receives a complete BRP. These requirements do not apply if the borrower previously submitted a complete BRP and the mortgage loan has been delinquent at all times since the borrower submitted the prior complete BRP, as authorized by applicable law.

If... Then the servicer must...

the borrower’s complete BRP is received after referral to foreclosure and more than 37 days prior to the foreclosure sale date

delay filing the Motion for Foreclosure Judgment or Order of Sale.

the Motion for Foreclosure Judgment or Order of Sale has already been filed

request the court to delay a hearing or ruling as permitted under state or local law, unless

an Evaluation Notice for a retention offer has been sent to the borrower in connection with the borrower’s complete BRP

  • in a judicial jurisdiction, continue to delay the Motion for Judgment (or equivalent action) for up to 14 days to permit the borrower to respond; or

  • in a non-judicial jurisdiction, delay the next legal action for up to 14 days to permit the borrower to respond.

Additional guidance related specifically to short sale and Mortgage Release transactions is provided below.

Complete Borrower Response Package Submitted Without a Short Sale Offer

The servicer must meet the requirements shown in the following table upon receipt of complete BRP without a short sale offer for a principal residence more than 37 days prior to the foreclosure sale date, when either

  • the borrower indicates in the complete BRP that he or she desires a liquidation workout option, or

  • the servicer will not be offering a mortgage loan modification to the borrower.

These requirements do not apply if the borrower previously submitted a complete BRP and the mortgage loan has been delinquent at all times since the borrower submitted the prior complete BRP, as authorized by applicable law.

The servicer must…

Send the borrower an Evaluation Notice within 5 days of an evaluation decision but no more than 30 days from the receipt of a complete BRP.

Require the borrower to

  • respond to the servicer decision within 14 days of the date of the Evaluation Notice by either

    • appealing the denial of any mortgage loan modification Trial Period Plan, if applicable; or

    • indicating the intent to accept the offer to pursue a short sale, if the Evaluation Notice includes the servicer’s approval to pursue a short sale.

  • submit a short sale offer within 45 days of the date of the Evaluation Notice or within 45 days of the servicer’s appeal decision, if applicable.

Review a short sale offer within 15 days from the date it is received if the borrower submits the offer within 45 days of the Evaluation Notice.

Delay referral to foreclosure or the next legal action in the foreclosure process during the

  • servicer evaluation of the complete BRP;

  • 14-day borrower response period;

  • appeals process, if applicable;

  • 45-day period the borrower is required to submit a short sale offer to the servicer;

  • 15-day period the servicer is reviewing a short sale offer submitted within 45 days of the date of the Evaluation Notice; and

  • 60-day period following approval of the short sale offer to facilitate the closing of an approved short sale.

Proceed with the next legal action in the foreclosure process if

  • Fannie Mae rejects the short sale offer, or

  • the borrower does not respond or comply with all requirements of the short sale.

Complete Borrower Response Package Submitted With a Short Sale Offer

The following table reflects requirements the servicer must meet when a complete BRP for a principal residence that includes a short sale offer is received more than 37 days prior to the foreclosure sale date. These requirements do not apply if the borrower previously submitted a complete BRP and the mortgage loan has been delinquent at all times since the borrower submitted the prior complete BRP, as authorized by applicable law.

The servicer must…

Send the borrower an Evaluation Notice within 5 days of an evaluation decision but no more than 30 days from the receipt of a complete BRP submitted with a short sale offer.

Require the borrower to respond to the servicer decision within 14 days of the date of the Evaluation Notice or, if applicable, appeal the denial of any mortgage loan modification Trial Period Plan.

Note: The servicer must not require the borrower to respond to a short sale counteroffer prior to the end of the time frame for the borrower’s response to the Evaluation Notice. Specifically, the servicer must request a counteroffer response from the borrower by the later of either

  • five business days for the servicer’s or Fannie Mae’s short sale counteroffer, or

  • the date by which the borrower’s response to the Evaluation Notice is due in cases where the servicer is providing an Evaluation Notice in response to a complete BRP.

Delay referral to foreclosure or the next legal action in the foreclosure process during the

  • servicer evaluation of the complete BRP and short sale offer;

  • 14-day borrower response period;

  • appeals process, if applicable; and

  • 60-day period following approval of the short sale offer to facilitate the closing of an approved short sale.

Proceed with the next legal action in the foreclosure process if

  • Fannie Mae rejects the short sale offer, or

  • the borrower does not respond or comply with all requirements of the short sale.

Mortgage Release

The servicer must meet the requirements shown in the following table when a complete BRP for a principal residence is received more than 37 days prior to the foreclosure sale date and either

  • the borrower indicates in the complete BRP that he or she desires a liquidation workout option, or

  • the servicer will not be offering a mortgage loan modification to the borrower.

These requirements do not apply if the borrower previously submitted a complete BRP and the mortgage loan has been delinquent at all times since the borrower submitted the prior complete BRP, as authorized by applicable law.

If the borrower… Then the servicer…

was not previously approved to pursue a short sale

  • must send the borrower an Evaluation Notice within 5 days of an evaluation decision but no more than 30 days from the receipt of a complete BRP.

  • must require the borrower to respond to the servicer decision within 14 days of the date of the Mortgage Release offer in the Evaluation Notice by either

    • accepting the offer to pursue a Mortgage Release offer, or

    • appealing the denial of any mortgage loan modification Trial Period Plan, if applicable.

  • must delay the next legal action or referral to foreclosure during the

    • servicer evaluation of the complete BRP;

    • 14-day borrower response period;

    • appeals process, if applicable; and

    • 60 days following the date of the borrower’s acceptance in order to complete the Mortgage Release transaction.

  • must proceed with the next legal action in the foreclosure process at the end of the 60-day period, but is permitted to use an additional 30 days to complete the Mortgage Release transaction if it cannot be completed within 60 days.

was previously approved to pursue a short sale and accepts a Mortgage Release offer

must not delay the next legal action in the foreclosure process and adhere to Fannie Mae’s foreclosure postponement requirements.

Handling a Complete BRP Received After Foreclosure Referral But More Than 37 Days Prior to the Foreclosure Sale Date for Other Mortgage Loans

The following table contains Fannie Mae’s requirements for suspending foreclosure proceedings on all other mortgage loans when a complete BRP is received after foreclosure referral but more than 37 days prior to the foreclosure sale date.

Complete BRP received after foreclosure referral but more than 37 days prior to the foreclosure sale date
Stage of Evaluation Requirements

A complete BRP has been received and is being evaluated

No delay in legal action is required.

A complete BRP and a short sale offer have been received

The servicer must attempt to conduct a review of the complete BRP and short sale offer in accordance with Fannie Mae’s required timelines. See D2-2-05, Receiving a Borrower Response Package containing standard review timelines.

If the servicer cannot do so, it must conduct an expedited review of the complete BRP and short sale offer prior to the foreclosure certification date.

An Evaluation Notice was sent to the borrower and a retention offer has been extended

No delay in legal action is required unless the foreclosure sale is within the borrower's 14-day response period.

In those instances, the servicer must delay the foreclosure sale for up to 14 days to allow the borrower to respond.

Handling a Complete BRP Received After Foreclosure Referral But Within 15 to 37 Days Prior to the Foreclosure Sale Date

The following table provides Fannie Mae requirements for suspending foreclosure proceedings for all mortgage loans when the complete BRP is received after foreclosure referral but within 15 to 37 days prior to the foreclosure sale date.

Complete BRP received after foreclosure referral but within 15 to 37 days prior to the foreclosure sale date
Stage of Evaluation Requirements

The complete BRP has been received and is being evaluated

No delay in legal action is required. The servicer must conduct an expedited review of the complete BRP (and short sale purchase offer, if applicable) prior to the foreclosure certification date.

An Evaluation Notice was sent to borrower and a retention offer has been extended

No delay in legal action is required unless a retention offer is made and the foreclosure sale is within the borrower's 14-day response period.

In those instances, the servicer must delay the foreclosure sale for up to 14 days to allow the borrower to respond.

Note: The servicer must not offer a Mortgage Release option during this time period.

Handling a Complete BRP Received Less Than 15 Days Prior to the Foreclosure Sale Date

The following table provides Fannie Mae requirements for suspending foreclosure proceedings for all mortgage loans when the complete BRP is received less than 15 days prior to the foreclosure sale date.

Complete BRP received less than 15 Days prior to the foreclosure sale date
Stage of Evaluation Requirements

The complete BRP has been received and is being evaluated

No delay in legal action is required. The servicer is encouraged, but not required, to conduct an expedited review of the complete BRP (and short sale purchase offer, if applicable).

A Notification and Evaluation Notice was sent to the borrower and a retention offer has been extended

The servicer must delay the foreclosure sale for up to 14 days to allow the borrower to respond.

Fannie Mae has approved a short sale purchase offer

The servicer must suspend the foreclosure sale to allow the short sale to close as permitted under state or local law.

If the servicer completed its review of the complete BRP, it must notify the borrower prior to the foreclosure sale as to the results of the review. If the servicer did not complete its review of the complete BRP, it must advise the borrower of its inability to review the package prior to the sale.

Note: The servicer must not offer a Mortgage Release option during this time period.

Related Announcements

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

Announcements Issue Date
Announcement SVC-2017-08 September 13, 2017
Announcement SVC-2017-05 June 21, 2017
Announcement SVC–2016–07 August 17, 2016
Announcement SVC-2016–04 May 11, 2016