Servicing Guide

Published December 12, 2018

General Requirements for Default-Related Legal Costs

Both the servicer and the law firm must make every effort to reduce default-related legal expenses in a manner consistent with Fannie Mae’s guidelines and all applicable law.

The servicer must attempt to minimize the costs incurred from vendors utilized by the law firm—such as auctioneers, process servers, title companies, posting companies, and newspapers or other publications—by ensuring that all costs are actual, reasonable, and necessary. The servicer and law firm must regularly examine the pricing offered by alternative vendors and negotiate for the best value from the vendor and other qualified service providers.

Fannie Mae will reimburse the servicer for Fannie Mae’s share of any funds it advances for foreclosure expenses related to FHA, VA, and conventional mortgage loans (whether they are whole mortgage loans, participation pool mortgage loans held in Fannie Mae's portfolio, or special servicing MBS mortgage loans) and those related to special servicing option RD mortgage loans. Specifically, Fannie Mae will reimburse the servicer for the out-of-pocket costs that it pays to third-party vendors or the courts, which are listed in Defined Expense Reimbursement Limits in F-1-05, Expense Reimbursement and provided the costs are actual, reasonable, and necessary (and are included in any applicable FHA, VA, RD, or MI claim that is filed).

To request reimbursement for these items, the servicer must follow the procedures in Requesting Reimbursement for Other Reimbursable Expenses in F-1-05, Expense Reimbursement.

Fannie Mae prior approval is required in order for Fannie Mae to reimburse the servicer for excess foreclosure title update costs and excess foreclosure sale publication costs, as further outlined in Publication Costs and Foreclosure Title Costs below. The law firm retained by the servicer must obtain the appropriate approval from Fannie Mae when required for these excess costs and provide supporting documentation and explanation to warrant the request. Lack of sufficient supporting documentation and explanation could result in an automatic denial.

Unexpected events which may require additional title updates or additional publication costs beyond what is included in a routine foreclosure action include, but are not limited to, the following:

  • a scheduled foreclosure sale is continued or rescheduled;

  • complete restart of the foreclosure action if the prior foreclosure sale was already scheduled; and

  • non-standard reasons, such as probate, non-routine litigation, or other legal actions.

Fannie Mae has a process in place for law firms to request appropriate approval for excess title and publication costs. The servicer must comply with the instructions shown in the following table to obtain reimbursement for these additional costs.

The servicer must...
Require the law firm to have a process in place to request approval for reimbursable excess title and publication costs from Fannie Mae's Single Family Servicing (see F-4-03, List of Contacts).
Verify the reason for the additional costs are necessary due to an unexpected event.

Fannie Mae will generally reimburse the servicer for excess title and publication costs if they are necessary due to unexpected events, unless they are due to

  • a breach or alleged breach of selling warranties or representations or origination or selling activities,

  • the lender’s failure or alleged failure to satisfy its duties and responsibilities as a servicer,

  • actual or alleged error or lack of diligence on the part of a law firm retained by the servicer, or

  • a servicer initiated file transfer to a new law firm.

The servicer must reimburse the law firm in a timely manner for the additional legal costs associated with the services provided in the above instances unless the excess title or publication costs are due to actual or alleged error or lack of diligence from the law firm retained by the servicer.

The servicer may access additional resources on managing default-related legal services, including title and foreclosure publication costs and the process for the law firm to request Fannie Mae approval for certain excess legal expenses, on Fannie Mae’s website.

Publication Costs

Publication costs may be reduced through more efficient use of the print media. For example, in publishing a legal advertisement, the law firm must substitute a reference to the mortgage loan for the full legal description of the property — if doing so will not affect the validity of the foreclosure sale. Similarly, in some circumstances, costs may be managed by ensuring that an advertisement is not typeset or spaced in a manner that increases the costs with no apparent additional benefit. Online or alternative publications may be used to reduce the costs of publication, if allowed by applicable state laws.

Fannie Mae will reimburse the servicer, without prior approval, for costs paid to a newspaper to publish all required documents necessary to complete a typical, uninterrupted foreclosure action. In the event a foreclosure sale is rescheduled or the foreclosure is restarted and there is a subsequent sale date scheduled during the life of the default, Fannie Mae prior approval is required for additional publication costs associated with each new sale date. See also General Requirements for Default-Related Legal Costs for further details.

The servicer must also comply with the following requirements for publication costs.

The servicer must...

Require the law firm to retain receipts from the newspaper or publication as well as any receipts from any publication vendor.

Ensure that no costs for publication placement services, such as costs related to publication price negotiation, placement, typesetting, follow-up, or advertisement tracking, are passed through to the borrower, the servicer, or Fannie Mae.

Note: See Publication Placement Costs for Certain States for reimbursement of certain publication placement costs for specific states.

Ensure that only the actual cost of the newspaper or publication reduced by all discounts, rebates, refunds, commissions, and other similar items of any kind is passed through to the borrower, the servicer, or Fannie Mae.

Ensure that the law firm and any publication vendor used by the law firm are

  • passing along for the benefit of the borrower, the servicer, and Fannie Mae any available discounts, rebates, refunds, commissions, or other similar items of any kind; and

  • utilizing the lowest cost newspaper or other publication that meets the requirements of applicable law, taking into account the frequency of publication.

Reimburse the law firm in a timely manner for excess publication costs related to postponed or restarted foreclosure sales regardless of whether Fannie Mae prior approval is provided unless the reason for the restart or the postponement is due to actual or alleged error or lack of diligence on the part of a law firm by the servicer.

Publication Placement Costs for Certain States

Fannie Mae will reimburse the servicer an allowable publication placement cost in an amount as identified in Defined Expense Reimbursement Limits in F-1-05, Expense Reimbursement to compensate the law firm for the negotiation of pricing (including any available discounts, rebates, refunds, commissions, or other similar items of any kind), placement, typesetting, follow-up, advertisement tracking, and all other related publication placement services for foreclosure referrals in the following states:

  • Alaska

  • Arizona

  • California

  • Nevada

  • Oregon

  • Washington

Fannie Mae will reimburse the allowable cost once for each foreclosure referral in the applicable jurisdictions regardless of the number of advertisements. Fannie Mae will not pay excess publication placement costs in the event a sale is continued or restarted and these costs are not eligible for submission to Fannie Mae for excess cost review. The following table provides a list of servicer requirements related to publication placement costs for these states.

The servicer must...

Compensate the law firm $35.00 for performing the publication placement services even if the law firm does not use a third-party publication vendor.

Ensure that the publication placement cost is coded as non-recoverable from the borrower and that no additional publication vendor costs are passed through to the borrower, the servicer, or Fannie Mae.

Request reimbursement for the publication placement cost as a separate item from the costs paid to the newspaper (or alternative publication) for publishing the advertisement.

Require the law firm to notify the publication vendor that the publication relates to a Fannie Mae mortgage loan.

Posting Costs for California

Fannie Mae will reimburse the servicer in an amount identified in Defined Expense Reimbursement Limits in F-1-05, Expense Reimbursement per foreclosure referral for out of pocket costs paid to a third-party vendor to post the notice of foreclosure sale in California.  This cost only covers the actual, reasonable, and necessary third-party vendor costs for posting the notice of foreclosure sale at the property and public place as required by applicable law.

Foreclosure Title Costs

Foreclosure-related title costs must be kept at a minimum and in compliance with Fannie Mae maximum allowable title costs. The maximum allowable title cost is the amount that Fannie Mae will reimburse the servicer for title costs incurred by the law firm retained by the servicer to handle Fannie Mae foreclosure matters.

The following table provides the servicer with additional information regarding the requirements of a title search and related updates.

Title Search and Update Requirements

The maximum allowable foreclosure-related title cost includes:

  • an initial two-owner title search dating back to the deed prior to the mortgagor’s deed,

  • up to three title updates to the initial title search that are required and necessary to complete the foreclosure sale, and

  • complete copies of all documents and a summary page.

Unless specified by Fannie Mae, the initial title search must be an uninsured title search without additional charges for insurance or guarantees.

The title search and any required updates must confirm title to the property and identify all recorded liens and documents affecting title and all parties that must receive notice of the foreclosure sale.

Review of the title report is included in the Fannie Mae maximum allowable foreclosure attorney fee and should not be added to the title cost. Fannie Mae will not reimburse the servicer for title searches in excess of a two-owner search or for costs to correct title defects that are covered by selling representations or warranties.

The servicer must reimburse the law firm for foreclosure-related title costs associated with:

  • additional title work the servicer requires the law firm to run for a more detailed title search in excess of two-owner, and

  • fees and costs to correct title defects that are covered by selling representations or warranties.

Related Announcements

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

Announcements Issue Date
Announcement SVC-2017-09 October 11, 2017
Announcement SVC–2016–05 June 8, 2016
Announcement SVC-2016–04 May 11, 2016
Announcement SVC–2016–03 April 13, 2016
Announcement SVC–2015–14 November 25, 2015