E-5-07, Other Reimbursable Default-Related Legal Expenses (03/08/2023)

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.

The servicer should file required court documents and record required legal documents with the county recorder or Land records office electronically, when possible. Fannie Mae will reimburse the servicer for the costs assessed by third-party vendors to electronically file or record default-related documents and records, even if a free paper-filing option is available. However, the servicer must not request reimbursement from Fannie Mae for such vendor costs when an option to file or record electronically without vendor charges exists.

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 ReimbursementF-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 Reimbursement for Other Reimbursable Expenses in  F-1-05, Expense ReimbursementF-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.

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 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.

Fannie Mae will reimburse the servicer an allowable publication placement cost 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.

Fannie Mae will reimburse the servicer an allowable posting cost 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-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.

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.