D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure) (12/21/2022)

The following table provides some of the servicer’s responsibilities in connection with processing a Fannie Mae Mortgage Release for a first lien mortgage loan.

The servicer must refer to the Property Preservation Matrix and Reference Guide for further clarification on handling delinquent and vacant or abandoned properties during the Mortgage Release process.

The following table provides the requirements for evaluating the borrower to determine eligibility for a Fannie Mae Mortgage Release based on the delinquency status of the mortgage loan at the time of the evaluation.

Note: Fannie Mae also will agree to a deed-in-lieu of foreclosure for FHA, VA, or RD mortgage loans if they comply with all of the insurer’s or guarantor’s guidelines and do not result in a loss to Fannie Mae.

If the borrower’s debt has been discharged pursuant to Chapter 7 of the U.S. bankruptcy code, the servicer must evaluate the borrower for a Fannie Mae Mortgage Release without receiving a complete BRP regardless of the delinquency status of the mortgage loan at the time of evaluation. The servicer must obtain proof that the mortgage loan was included in the borrower’s Chapter 7 bankruptcy filing, such as notification from the court or a copy of the order of discharge showing the mortgage loan as discharged.

If the servicer determines the borrower is eligible for a Fannie Mae Mortgage Release or if the borrower has non-retirement cash reserves greater than $50,000, the servicer must follow the procedures in Requesting Approval for a Non-Delegated Mortgage Release Case in   F-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions SystemF-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval.

If the servicer evaluated the borrower without receiving a complete BRP and the borrower fully reinstated the mortgage loan after the initial Mortgage Release evaluation, the borrower is no longer eligible for a Mortgage Release based on the initial eligibility evaluation.

If the servicer determined the borrower originally qualified for a Fannie Mae short sale without a complete BRP, and the borrower subsequently transitions to a Mortgage Release, the servicer must use the borrower’s short sale qualifications for the Mortgage Release, unless the borrower fully reinstated the mortgage loan.

Once the servicer determines that the borrower is eligible for a Mortgage Release and the borrower expresses interest in a Mortgage Release transition option, the servicer must screen the borrower for eligibility for a Mortgage Release transition option (exit options #2 and #3 as described in General Requirements When Processing a Fannie Mae Mortgage Release). The servicer must refer the Mortgage Release to Fannie Mae when both the mortgage loan and borrower meet the eligibility criteria described in the following table.

The servicer must follow the procedures in Processing a Mortgage Release Transition Option in F-1-13, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure)F-1-13, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure) for processing a Mortgage Release transition option.

For all Mortgage Release cases except those in which the servicer evaluated the borrower for a Mortgage Release without receiving a complete BRP in accordance with Evaluating a Borrower to Determine Eligibility for a Fannie Mae Mortgage Release, the servicer must review each borrower’s credit report to determine

• if the borrower(s) obtained a new mortgage loan in the six months preceding the delinquency on the mortgage loan secured by the subject property; or

• in the case of a current mortgage loan, in the six months preceding the evaluation for a Mortgage Release.

If the servicer determines that the borrower obtained a new mortgage loan in the six months preceding the delinquency, or preceding the evaluation for a Mortgage Release, as applicable, the mortgage loan is only eligible if the hardship, which must be documented in accordance with the Mortgage Assistance Application (Form 710), was due to

• a distant employment transfer/relocation greater than 50 miles one way from the property securing the mortgage loan and the property securing the mortgage loan is the borrower’s principal residence,

• new employment greater than 50 miles one way from the property securing the mortgage loan and the property secuing the mortgage loan is the borrower’s principal residence, or

• PCS orders relocating a servicemember greater than 50 miles one way from the property securing the mortgage loan and the property securing the mortgage loan was or currently is the servicemember’s principal residence.

In all other instances, the servicer must submit a recommendation to Fannie Mae for review. The servicer must follow the procedures in Requesting Approval for a Non-Delegated Mortgage Release Case in  F-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions SystemF-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval.

If the servicer determines that the borrower meets the eligibility criteria stated above for a Fannie Mae Mortgage Release, it must obtain a property valuation to determine the market value of the property securing the mortgage loan. The servicer must follow the procedures in Obtaining a Property Valuation in F-1-13, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure)F-1-13, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure) for obtaining a property valuation.

Prior to the borrower executing a Fannie Mae Mortgage Release, the servicer must schedule property inspections to ensure that the property is free of environmental contamination and does not pose potential legal risks. See the Property Preservation Matrix and Reference Guide for additional information. The servicer’s action will depend on whether the servicer previously ordered an interior BPO, as described in the following table.

See  E-3.3-03, Inspecting Properties Prior to Foreclosure SaleE-3.3-03, Inspecting Properties Prior to Foreclosure Sale and  D2-2-10, Requirements for Performing Property InspectionsD2-2-10, Requirements for Performing Property Inspections for the requirements related to performing property inspections.

If the property inspection or property valuation reveals that the subject property has been poorly maintained, needs major repairs, or has structural or foundation problems, see  B-5-01, Insured Loss EventsB-5-01, Insured Loss Events for additional information.

The servicer must submit the Mortgage Release request to Fannie Mae to receive prior written approval if the property inspection or property valuation reveals that the subject property contains environmental contamination or poses potential legal risks and the servicer determines that a Mortgage Release is the appropriate workout option. The servicer must follow the procedures in Requesting Approval for a Non-Delegated Mortgage Release Case in  F-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions SystemF-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval.

The following table provides the requirements that apply to allowable payments to subordinate lienholders for a Mortgage Release.

Prior to releasing any funds to a subordinate lienholder, the servicer must obtain written commitment from the subordinate lienholder that it will

• release the borrower from all claims and liability relating to the subordinate lien in exchange for receiving the agreed-upon payoff amount,

• waive all rights to seek a deficiency judgment against the borrower, and

• not require a cash contribution in addition to any funds provided by Fannie Mae as a condition for releasing its lien and releasing the borrower from personal liability.

If a subordinate a lienholder chooses to release its lien to allow the Mortgage Release to close, but does not agree to release the borrower from liability on the note, it cannot receive a payment from Fannie Mae. Regardless of whether payment is made to a subordinate lienholder, the servicer must obtain written commitment from the subordinate lienholder(s) to release the lien(s).

If the property securing the mortgage loan is the borrower’s principal residence at the time of the Evaluation Notice, the borrower is entitled to an incentive payment of $7,500 from Fannie Mae to assist with relocation expenses following the successful completion of a Fannie Mae Mortgage Release unless one of the following apply:

• the borrower is required to contribute cash, even if the borrower fails to contribute; or

  Note: If the servicer believes relocation assistance is warranted despite the borrower’s failure to contribute, the servicer must submit its relocation assistance recommendation to Fannie Mae for prior written approval.

• the borrower has PCS orders and receives a DLA or other government relocation assistance.

  Note: If government relocation assistance is not provided to a borrower with PCS orders, the servicer must submit its relocation assistance recommendation to Fannie Mae for prior written approval.

The servicer must adjust the amount of Fannie Mae’s relocation assistance in accordance with the following table.

The servicer must adhere to the requirements in the following table related to the payment of the borrower’s relocation incentive payment.

The timing and distribution for the payment of the borrower incentive is outlined in the following table.

The servicer must evaluate the borrower’s ability to make a cash contribution based on the status of the mortgage loan at the time the servicer evaluated the borrower for eligibility for a Mortgage Release.

The servicer must not evaluate the borrower for a cash contribution if

• prohibited by applicable law;

• the servicer evaluated the borrower for a Fannie Mae Mortgage Release without receiving a complete BRP in accordance with Evaluating a Borrower to Determine Eligibility for a Fannie Mae Mortgage Release; or

• they are a servicemember with PCS orders relocating them greater than 50 miles one way from the property securing the mortgage loan and the property securing the mortgage loan was or currently is the servicemember’s principal residence.

In all other instances, the servicer must evaluate the borrower for a cash contribution and request a cash contribution, if

• the borrower’s non-retirement cash reserves, as stated on the Mortgage Assistance Application (Form 710) are in excess of $10,000; or

  Note: The servicer must verbally verify the assets stated on Form 710 and obtain documentation to reconcile any inconsistencies. See Determining Whether a Borrower Response Package is Complete in D2-2-05, Receiving a Borrower Response Package for additional information.

• the borrower’s housing expense-to-income ratio is less than or equal to 40% as calculated in accordance with Calculating the Borrower’s Housing Expense-to-Income Ratio in  F-1-13, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure)F-1-13, Processing a Fannie Mae Mortgage Release (Deed-In-Lieu of Foreclosure)

The servicer must initially request a cash contribution of the greater of the following, rounded to the nearest $100 and not to exceed the amount of the deficiency:

• 20% of the borrower’s non-retirement cash reserves, or

• four times the contractual monthly mortgage loan payment including PITI. If the servicer does not escrow for T&I, it must estimate the borrower’s monthly tax and insurance premium amounts.

If the servicer determines it is warranted based on its assessment of the borrower’s individual situation and circumstances and ability to contribute, it is authorized to

• request a lower initial cash contribution amount,

• negotiate a lower cash contribution amount, or

• agree to no cash contribution.

Note: If the mortgage loan is current or less than 60 days delinquent, the borrower must contribute a minimum of 20%of their non-retirement cash reserves.

The servicer must follow the procedures inRequesting Approval for a Non-Delegated Mortgage Release Case in F-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions SystemF-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval if

• the borrower refuses to make a cash contribution in an amount the servicer determines is reasonable, or

• the mortgage loan is current or less than 60 days delinquent and the borrower refuses to contribute a minimum of 20% of their non-retirement cash reserves.

The requirement for a cash contribution is waived if the contribution amount is less than $500.

Note: The servicer must not request updated documentation from the borrower when evaluating the borrower’s ability to make a cash contribution and the complete BRP is greater than 90 days old. However, if the borrower’s credit report is greater than 90 days when the servicer evaluates the borrower’s ability to make a cash contribution, the servicer must obtain a new credit report.

The servicer must obtain all of the items listed in the following table within 60 days of the borrower’s acceptance of the offer for a Fannie Mae Mortgage Release.

If the servicer is unable to resolve all issues within 60 days, an extension of 30 days is permitted as long as the servicer provides the borrower with written or verbal weekly status updates indicating the reason that the Mortgage Release is still pending.

The servicer must request Fannie Mae’s approval to accept the deed if it receives the executed deed less than 30 days prior to the foreclosure sale date, or in applicable foreclosure actions where there is no foreclosure sale and title is transferred by court order, the estimated court order docket date (if known). The servicer is responsible for any costs incurred due to the acceptance of a Mortgage Release that results in a delay in acquisition of the property.

The servicer must take the action described in the following table if it determines that the borrower has left personal property in the subject property.

The servicer must follow the procedures in Reimbursement for Expenses Associated with Workout Options in  F-1-05, Expense ReimbursementF-1-05, Expense Reimbursement for requesting reimbursement of allowable fees.

The servicer must release the borrower from liability for any deficiency associated with the Fannie Mae mortgage loan upon successful completion of a Fannie Mae Mortgage Release for the following mortgage loans:

• mortgage loans that do not have MI, and

• mortgage loans that have MI, but the mortgage insurer has granted Fannie Mae delegation of authority (see Processing a Fannie Mae Mortgage Release for a Mortgage Loan With Mortgage Insurance).

The servicer must provide a deficiency waiver to the borrower after the servicer’s acceptance of the executed deed from the borrower, if applicable.

While use of the Deficiency Waiver Agreement (Form 189) is optional, it reflects a minimum level of information that the servicer must include.

The servicer must see  F-2-06, Mortgage Insurer Delegations for Workout OptionsF-2-06, Mortgage Insurer Delegations for Workout Options for the list of mortgage insurers from which Fannie Mae has obtained delegation of authority on behalf of all servicers, which allows the servicer to process a Fannie Mae Mortgage Release in accordance with this Guide without obtaining separate mortgage insurer approval at the company or loan level.

For mortgage insurers from which Fannie Mae has not obtained delegation of authority, the servicer must not agree to a Fannie Mae Mortgage Release unless the mortgage insurer agrees in writing to the following:

• to waive its property acquisition rights before the claim is filed, and

• to settle the claim by paying the lesser of the full percentage option under the terms of the master policy or the amount required to make Fannie Mae whole.