Servicing Guide

Published December 12, 2018

E-5-05: Prorated Attorney Fees / Reimbursement of Uncollected Fees, Costs or Advances (09/13/2017)

In the event the foreclosure law firm retained by the servicer completes the applicable milestone and submits an invoice to the servicer, the servicer must reimburse the law firm according to Fannie Mae’s established proration foreclosure fee schedule for the applicable state. The servicer may access resources on managing default-related legal services, including prorated foreclosure fee schedules, on Fannie Mae’s website.

If foreclosure proceedings are stopped (e.g., because the borrower files for bankruptcy, the mortgage loan is reinstated, or a workout agreement is executed) and foreclosure proceedings are subsequently recommenced, the fee paid to the law firm for the subsequent foreclosure proceedings will vary depending on whether the earlier proceedings can be resumed or must be started over. If earlier proceedings can be resumed, the fee for the completion of the foreclosure must be in accordance with the applicable Fannie Mae proration schedule. If the proceedings have to be started over, the law firm will be entitled to the full amount of Fannie Mae’s allowable fee once the foreclosure is completed.

The servicer and the law firm may charge the borrower only those default-related legal expenses, including foreclosure and bankruptcy-related fees and costs, that are permitted under the terms of the note, security instrument, and applicable laws. The servicer must include the applicable attorney fees as part of the amount required to reinstate or pay off the mortgage loan. All out-of-pocket costs that the law firm incurred prior to the cessation of foreclosure, bankruptcy, or related proceedings must be collected from the borrower as a condition of the reinstatement, workout agreement, or payoff. These out-of-pocket expenses may include such things as:

  • foreclosure title searches,

  • court filing costs,

  • service of process costs, and

  • publication costs.

The servicer must include as part of the amount required to reinstate or pay off the mortgage loan all legal fees and costs that were incurred in connection with the foreclosure, bankruptcy or related proceedings, and all escrow or corporate advances required to protect Fannie Mae’s lien and the property securing the mortgage loan, to the extent permitted by the terms of the note, security instrument, and applicable laws. If the bankruptcy referral is closed (e.g., bankruptcy case is closed or dismissed) prior to the law firm completing all the services covered by the bankruptcy legal service referral, the servicer should reimburse the law firm for attorney fees that have been prorated to reasonably relate to the amount of legal work actually performed by the law firm and actual, reasonable, and necessary costs incurred by the law firm. In addition, the servicer must pay the law firm for the fees and costs incurred by the law firm even if sufficient funds were not collected from the borrower.

The servicer cannot request that Fannie Mae reimburse it for any legal fees, costs, or escrow or corporate advances that it failed to include as part of the amount required to reinstate or pay off the loan, unless it was not legally permissible to collect the fees, costs, or escrow or corporate advances from the borrower. If it was not legally permissible to collect fees, costs or escrow or corporate advances from the borrower, Fannie Mae will reimburse the servicer for such items to the extent that

  • services were performed to protect Fannie Mae’s interests;

  • services were actually rendered; and

  • the fees, costs, and corporate and escrow advances were actual, reasonable, and necessary and complied with Fannie Mae's guidelines.

The servicer must take all legally permissible steps to minimize the amount of uncollected fees, costs, and escrow and corporate advances, such as shortening the time period for which a reinstatement or payoff quote is valid or instructing the borrower to contact the servicer for updated figures.

When the servicer requests reimbursement from Fannie Mae for fees, costs or advances that it determines were not legally permissible to collect from the borrower, the servicer must retain all records justifying this determination, including the date the payoff or reinstatement quote was issued, the “good through” date for the payoff or reinstatement quote, and the date the fee, cost or advance was actually incurred. The servicer must follow the procedures in Requesting Reimbursement for Prorated Attorney Fees in F-1-05, Expense Reimbursement, to request reimbursement for prorated attorney fees, costs and/or escrow or corporate advances.

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-2016–09 October 19, 2016
Announcement SVC–2016–04 May 11, 2016