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E-2.2-04, Managing Chapter 13 Bankruptcies (11/12/2014)

Introduction
This topic contains the following:

General Servicer Responsibilities

If the terms of the Chapter 13 plan are unacceptable, and the borrower is not willing to amend the plan to adequately address the unacceptable provisions, the servicer must ensure that the law firm files an Objection to Confirmation of the plan and/or a Motion to Dismiss the case, as appropriate.

The timelines for completing a Chapter 13 bankruptcy are described in the following table.

If the mortgage loan... Then the time frame for completing a Chapter 13 bankruptcy is...

was less than 60 days delinquent when the borrower filed bankruptcy

five months and two weeks from the 60th day of delinquency, or from the date of referral to a law firm, whichever occurs first.

was greater than or equal to 60 days delinquent or in foreclosure when the borrower filed bankruptcy

five months and two weeks from the date of the bankruptcy filing.

becomes 60 days delinquent pursuant to the plan, post-confirmation

two months and two weeks from the 60th day of delinquency.

Case completion for a Chapter 13 bankruptcy proceeding is defined as any of the following:

  • the termination of the automatic stay,

  • the case being dismissed or closed,

  • when the trustee abandons all interest in the secured property, or

  • when the Chapter 13 plan is confirmed.

Processing Pre-Petition and Post-Petition Payments

The servicer must monitor and separately account for all pre-petition and post-petition payments. If the payments are sent to the trustee, the servicer must access the trustee’s website or contact the trustee’s office to verify the receipt of specific payments.

The following table outlines the specific information the servicer must maintain related to any payments it receives during the confirmation process.

✓ Details to be noted with the receipt of all payments pre-confirmation
 

Type of payment (pre-petition or post-petition).
 

Amount received.
 

Date received.
 

Source of the payment.
 

Allocation of the payment (principal, interest, late charges, etc.).

Unless the court requires the payments to be applied under the terms of the repayment plan, the servicer should generally hold any pre-petition payments it receives as “unapplied” funds until an amount equal to the contractual monthly or biweekly payment due is available for application.

During the confirmation process, the servicer must satisfy Fannie Mae’s standard remittance requirements for the remittance type of the mortgage loan, advancing funds when required for scheduled interest and scheduled principal, if applicable. See 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 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 additional information. In addition, the servicer must comply with all policies and procedures in Fannie Mae’s Investor Reporting Manual.

Servicing the Mortgage Loan After Confirmation of a Chapter 13 Plan

Once a Chapter 13 bankruptcy plan has been confirmed, the servicer must service the mortgage loan in accordance with the requirements listed in the following table.

✓ The servicer must…
 

Continue to monitor the timely receipt of all payments for the pre-petition arrearages and any post-petition payments that come due.
 

Satisfy Fannie Mae’s standard remittance requirements based on the applicable remittance type for the mortgage loan throughout the term of the reorganization plan.

See 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 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 additional information.
 

Maintain several sets of records during the term of the reorganization plan:

  • one that reflects application of the payments under the terms of the reorganization plan,

  • one that reflects application of the payments under the original terms of the mortgage loan, and

  • one that reflects application of any scheduled interest that must be remitted to Fannie Mae if the mortgage loan has a scheduled/actual remittance type.
 

Confirm the plan payment status with the trustee in jurisdictions in which the post-petition monthly payments are made through the Chapter 13 trustee when the servicer believes that the borrower is 60 days delinquent in their payments.
 

Refer the case to a law firm to seek relief from the automatic stay or a dismissal of the case in accordance with local bankruptcy rules and practices within two weeks of the borrower becoming 60 days delinquent on either contractual post-petition payments or pre-petition payments pursuant to the plan.
 

Send any required breach letter immediately to the borrower and refer the mortgage loan to a law firm to initiate or resume foreclosure proceedings (as applicable) when the automatic stay is lifted or the case is dismissed. Additionally, the servicer must always consider the possibility of arranging a workout option.
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