E-3.4-01, Suspending Foreclosure Proceedings for Workout Negotiations (07/14/2021)

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 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.

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 the servicer’s evaluation of the borrower for a short sale without receiving a complete BRP in accordance with Evaluating a Borrower to Determine Eligibility for a Fannie Mae Short Sale in D2-3.3-01, Fannie Mae Short SaleD2-3.3-01, Fannie Mae Short Sale; 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 D2-3.2-06, Fannie Mae Flex ModificationD2-3.2-06, 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, 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 mortgage assistance fund program provider and the servicer believes the funds will reinstate the mortgage loan, the servicer is authorized to 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 mortgage assistance fund program provider, the servicer must not notify the attorney to “place on hold” or suspend the foreclosure proceedings. See  D2-3.1-05, Interacting with Mortgage Assistance Fund Program ProvidersD2-3.1-05, Interacting with Mortgage Assistance Fund Program Providers for additional information.

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.

In applicable foreclosure actions where there is no foreclosure sale and title is transferred by court order, where possible and subject to applicable law, the servicer must use the estimated court order docket date, if known, in place of the foreclosure sale date in this topic’s requirements.

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.

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.

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 they desire 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.

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.

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 they desire 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 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.

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.

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

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.

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.