F-2-04, Firm Minimum Requirements (10/11/2023)

1. The law firm’s practice areas must include end-to-end default-related and REO-related legal services.

A firm’s practice areas must include end-to-end default-related legal services (foreclosure, bankruptcy, loss mitigation (for example, deeds-in-lieu of foreclosure), and related litigation) and REO-related legal services (eviction, REO closing, and related litigation).

A firm must

• be familiar with industry standards in the jurisdiction in which it practices;

• understand the jurisdiction’s legal processes and requirements in foreclosure, bankruptcy, eviction, REO closing, and related litigation; and

• understand the substantive legal issues in the jurisdiction (for example, standing).

Servicers must consider a firm’s experience in the following areas:

• the Fannie Mae Servicing Guide;

• dealing with loss mitigation;

• foreclosure mediation;

• the FDCPA;

• title curative issues; and

• general housing-related issues (for example, rent control; Section 8; lead paint liability; health code violations; foreclosure redemption, confirmation and ratification; HOAs; mobile home matters; and cooperative loans).

Servicers must also give consideration to a firm’s membership in default-related and REO-related trade and industry groups, jurisdiction bar event participation, seminar and lecture participation and attendance, and any other activities relevant to mortgage default and REO law practice.

2. The law firm must have an appropriately  staffed and equipped office.

A firm must have an appropriately staffed and equipped office located in at least one of the jurisdictions in which the firm has been selected and retained for default-related legal services, or in at least one of the jurisdictions for which the servicer has submitted a Servicer Selection Form (Form 200) to Fannie Mae.

An approximately staffed and equipped office means a physical office location (brick and mortar) from which law firm employees regularly work, that is not a place of abode, and that contains the usual and sundry equipment and facilities necessary to operate a law practice.

A firm must be registered, licensed, and/or permitted, as necessary, with the appropriate jurisdictional authorities for all jurisdictions in which it practices.

3. The law firm must provide two jurisdiction-specific industry references.

A firm must provide the servicer with at least two jurisdiction-specific servicer or default-related references, or, if the firm has been in existence less than one year, the partners or shareholders of the firm must provide at least two servicer or default-related references in connection with work performed in the particular jurisdiction.

4. The law firm must have the ability to handle default-related and REO-related legal matters throughout the jurisdiction.

A firm must have the ability to handle foreclosures, bankruptcies, evictions, REO closings, and related litigation throughout the jurisdiction.

If a firm has partnerships or relationships with third parties (for example, local counsel, trustee companies, or title companies) that will perform or complete some aspect of the default-related and REO-related work, the firm must

• disclose such relationships and the extent to which third parties will be relied upon, and

• have a reasonable contingency plan for the loss of any of those relationships or operational processes.

In evaluating any such third-party relationship, the servicer must consider the length of time the relationship has existed and the adequacy of the firm’s written policies to mitigate third-party risk.

If a firm uses local counsel to handle matters within the jurisdiction, the firm must have a process to select, manage, and review the local counsel and their work product. The process must be designed to ensure that local attorneys are qualified and adequately trained and have a satisfactory history with respect to bar complaints, sanctions, and similar matters.

For a firm’s contested caseload (for example, contested foreclosures and litigated cases), the firm’s reliance on local counsel must be minimal. Any use of local counsel for these matters must be structured so that the retained firm will direct and manage the local counsel on those matters.

5. The law firm must have completed a sufficient volume of default-related and REO-related legal services to demonstrate its experience.

The firm or its managing attorney(s) must have completed a sufficient number of foreclosure, bankruptcy, loss mitigation, eviction, and REO matters within the past 24 months to demonstrate that the firm has experience in representing creditors in default-related and REO-related matters.

For the 24-month period, the servicer must review the total number of matters referred, the total number of matters completed, and the number of matters currently pending for each of the following areas: foreclosure, bankruptcy (including proof of claim and motion for relief from stay), loss mitigation, eviction, and REO closing.

What constitutes a sufficient number of completed default-related and REO-related legal services will vary depending upon the jurisdiction at issue, the volume the servicer expects to refer to the firm, and the relative size of the firm. Servicers must consider these factors when making this determination.

6. The law firm must have at least two full-time attorneys dedicated to default mortgage practice in each jurisdiction in which the law firm has been selected and retained for default-related legal services (Qualifying Attorneys), with special rules applicable to a small number of jurisdictions.

A firm must have at least two Qualifying Attorneys in each jurisdiction in which the law firm has been selected and retained for default-related legal services, one with at least eight years and a second with at least five years of jurisdiction-specific experience in foreclosure (including, where applicable, confirmation, redemption, and ratification matters), bankruptcy, loss mitigation, eviction, REO closing and related litigation (collectively, "default mortgage practice"). Each Qualifying Attorney must be an owner, partner, or a full-time employee of the firm.

The firm can meet the requirement that the Qualifying Attorneys are in each jurisdiction in one of the two ways outlined in the table below. 

The servicer must obtain a list of the names of the firm’s managing attorneys, partners and associates with the years of experience in each area (foreclosure, bankruptcy, eviction, REO closing, and related litigation).

Special rules apply to Alaska, Idaho, Montana, New Hampshire, North Dakota, Rhode Island, South Dakota, West Virginia, Wyoming, the U.S. Territories of American Samoa, Guam, Puerto Rico, the U.S. Virgin Islands, and to the District of Columbia. In these jurisdictions, the two Qualifying Attorneys must:

• be licensed and in good standing to practice law in the relevant jurisdiction; and 
• practice law on a full-time basis.

While Fannie Mae expects that servicers will give preference to firms that employ at least two Qualifying Attorneys who reside in the relevant jurisdiction and devote more than 50% of their working time to default mortgage practice in the relevant jurisdiction, servicers may use a firm that does not meet these two standards if the firm otherwise meets the firm minimum requirements.

When submitting the Servicer Selection Form (Form 200), the servicer must identify the Qualifying Attorneys for each relevant jurisdiction subject to the requirements in the following table.

7. The law firm’s attorneys must be licensed and in good standing in the jurisdiction in which the firm will be retained.

A firm’s attorneys who will handle the work in the jurisdiction must be licensed to practice and be in good standing in the jurisdiction in which the firm will be retained. Legal work must be performed by attorneys licensed in the jurisdiction.

8. The law firm’s non-attorney staff must have reasonable experience.

A firm’s non-attorney staff must have reasonable experience. In determining what constitutes reasonable experience, the servicer must consider the average years of experience, education, qualifications, and demonstrated ability of the non-attorney staff in relation to their respective levels of responsibility.

9. The law firm must have an appropriate attorney-to-staff ratio to ensure appropriate staff oversight.

A firm must have an appropriate attorney-to-staff ratio to ensure appropriate staff oversight given the size of the firm and the firm’s operational structure. In determining what constitutes an appropriate attorney-to-staff ratio, the servicer must consider whether the firm practices in a judicial or non-judicial foreclosure jurisdiction, the firm’s case management practices, the jurisdiction-specific process, the experience of the firm’s attorneys and staff, the firm’s technology, and the firm’s infrastructure.

10. The law firm must have appropriate attorney-to-file and staff-to-file ratios to ensure appropriate file oversight.

A firm must have appropriate attorney-to-file and staff-to-file ratios to ensure appropriate file oversight given the size of the firm and the firm’s operational structure. In determining what constitutes the appropriate ratios, a servicer must consider whether the firm practices in a judicial or non-judicial foreclosure jurisdiction, the firm’s case management practices, the jurisdiction-specific process, the experience of the firm’s attorneys and staff, the firm’s technology, and the firm’s infrastructure.

11. The law firm must have the ability to grow and contract based on market conditions.

As of the date of the submission of the Servicer Selection Form (Form 200), the firm must have the ability to accept additional referrals. The firm must not be operating at full capacity given the existing facilities, personnel, and technology or, alternatively, the firm must outline to the servicer’s satisfaction the steps and time frame necessary to be in a position to handle additional referrals while still maintaining appropriate attorney-to-file and staff-to-file ratios. A firm must also have contingency plans to deal with a contraction in the market.

12. The law firm must demonstrate high professional standards.

A firm must demonstrate a history of legal practice that comports with applicable legal and ethical standards, reflecting high professional standards. The servicer must conclude that the firm does not, considering the totality of the circumstances, pose a legal or reputational risk or exhibit systematic issues that may lead to legal or reputational risk.

A servicer must obtain the following information from the firm in order to evaluate the sufficiency of the firm’s professional standards:

• any sanctions against the firm or any of its present or former attorneys in the past 5 years, including the nature of the sanctions and, if they relate to a loan-level matter or systemic firm practice, any corrective actions taken by the firm;

• any bar complaints/reprimands against present or former firm attorneys in the past 10 years and whether the complaints were closed, are pending, or resulted in some form of adverse action;

• any government investigations involving the firm in the past 10 years and whether the investigations involved firm practices or were related to investigations of the firm’s client;

• any damages or settlement of claims as result of an allegation of professional negligence against the firm or its attorneys in the past 5 years

  • in excess of $20,000 in any single occurrence or $50,000 in the aggregate, or

  • that reflect a possible pattern of professional negligence, regardless of amount; and

• any significant litigation asserting systemic issues with firm processes or legal work, such as any class action against the firm.

If the servicer is aware of any of the above items that involve the firm’s professional standards but which were not disclosed by the firm, the servicer must disclose them to Fannie Mae in Form 200.

The servicer must obtain disclosure from the firm regarding whether the firm (or any of its partners, shareholders, or employees while acting as a partner, shareholder, or principal at another firm) has previously been terminated by Fannie Mae or Freddie Mac or had referrals by Fannie Mae or Freddie Mac suspended.

The servicer must obtain a certification from the firm that, to the best of the firm’s knowledge, the firm’s documents have been and continue to be prepared, executed, and notarized in compliance with applicable law. If the firm reports that the firm, its attorneys, notaries, or third parties that the firm relies on to perform any aspect of default-related or REO-related services have previously prepared, executed, or notarized documents that have not been in compliance with applicable law, the servicer must conclude that the firm has instituted controls, procedures, and processes to address the contributing cause(s) of the firm’s failure to comply with applicable law in order to execute Form 200.

Fannie Mae expects servicers to exercise sound judgment and consider the totality of the circumstances in evaluating the potential legal and reputational risks posed by a firm. The items for consideration outlined above are not intended to be exhaustive or to disqualify a firm from retention if the servicer concludes that the firm is acceptable considering the totality of the circumstances.

13. The law firm must be able to track, monitor and complete matters within defined timelines.

The servicer must confirm that the firm is able to track, monitor, and complete foreclosure and bankruptcy matters in compliance with applicable law and Fannie Mae timeline requirements, taking into consideration outside factors that impact compliance with Fannie Mae timelines such as new foreclosure requirements and court delays. The servicer must review the firm’s completion timelines.

14. The law firm must have the ability to report key data to Fannie Mae.

A firm must have the capability to provide daily reporting to Fannie Mae, including via a web-based attorney reporting system, regarding key metrics (that is, volume, timelines, delays, loss mitigation successes, etc.). The firm must have staff responsible for reporting.

15. The law firm must have the ability to report diversity data.

A firm must have the capability to report diversity data to the servicer and Fannie Mae, if necessary, in accordance with the HERA. Pursuant to Selling Guide A3-2-01, Compliance with Laws, the servicer must provide Fannie Mae with data regarding the diversity status of the servicer, its agents, subcontractors, and vendors, including: appropriate certifications of minority-, women-, and disabled-owned status; reports, as requested, on the number of minorities, women, and individuals with disabilities utilized; and any other information Fannie Mae requests for purposes of complying with HERA or any other diversity and inclusion requirements.

16. The law firm must have adequate technology.

A firm must have technology to provide reporting, communication, and tracking of key events and milestones. A firm must have access to PACER/ECF or other similar systems to obtain case and docket information from federal appellate, district, and bankruptcy court records. The firm must be able to provide status reports and track significant dates and events for foreclosure, bankruptcy, evictions, and REO closings. The firm must have the capability to measure duration between various process stages, to identify process impediments (for example, holds), and to parse holds into different categories.

If a firm has partnerships or relationships with third parties (for example, local counsel, trustee companies, or title companies) that will perform or complete some aspect of the default-related or REO-related work or if the firm relies on other offices to perform some aspect of the work or provide operational support, the firm must maintain a reliable and secure means of exchanging matter information between each office and any third party the firm relies upon.

The servicer must require a firm to describe whether the firm currently uses a universal translation technology to communicate information between its technological system and the various servicers’ systems or explain its method for transmitting information efficiently, accurately, and securely to servicers.

17. The law firm must have adequate technical support.

A firm must have in-house technical expertise or readily available vendor technical support.

18. The law firm must have an appropriate amount of errors and omissions insurance coverage.

A firm must have an appropriate amount of errors and omissions insurance coverage. The amount of required insurance coverage depends upon the amount of foreclosure matters the firm is handling or expects to handle for Fannie Mae and Freddie Mac when it is being evaluated by the servicer. A firm retained to handle Fannie Mae matters must have or be able to obtain the following coverage prior to receiving referrals under the new requirements:

• Tier I: volume of 0 to 4,499 foreclosure matters, coverage of not less than $1 million per occurrence with an aggregate of not less than $3 million;

• Tier II: volume of 4,500 to 19,999 foreclosure matters, coverage of not less than $5 million per occurrence with an aggregate of not less than $5 million; and

• Tier III: volume of 20,000 or more foreclosure matters, coverage of not less than $8 million per occurrence with an aggregate of not less than $8 million.

The required level of insurance is determined by the higher of the Fannie Mae or Freddie Mac pending foreclosure volume. By way of example, if a law firm had 2,000 Fannie Mae foreclosure matters and 4,501 Freddie Mac foreclosure matters, the firm would fall within Tier II and the required coverage would be not less than $5 million per occurrence with an aggregate of not less than $5 million.

Beginning in 2014, servicers must conduct an updated coverage analysis annually, with the appropriate level of insurance to be determined by the number of matters being handled as of June 1 of each year. When an annual review reveals a need to increase a law firm’s coverage, law firms will have until December 31 of each year to obtain any required increased coverage. Servicers may grant firms additional time to obtain increased coverage if necessary to reach the routine renewal date for the firm’s policy, but may not grant extensions beyond June 1 of the following year.

19. The law firm must have adequate financial resources.

A firm must have the financial ability to make required advances in connection with filing fees and costs necessary to process default-related and REO-related matters. The servicer must review the firm’s financial statements or other financial documents in order to confirm that the firm has sufficient reserves or credit lines to manage operating expenses.

20. The law firm must have business continuity and/or disaster recovery plans in place.

A firm must have business continuity and/or disaster recovery plans in place to recover critical business functions. A firm must have a documented succession/continuity plan in the event of loss of the firm owner/partners.

21. The law firm must have adequate QC, supervision of staff, and review of documents.

A firm must have written policies, procedures, and/or processes in place by the date of the submission of Form 200 to ensure the proper management and supervision of staff and the proper preparation, review, execution, and notarization of default-related and REO-related documents. The firm must also have an escalation process for employees to raise document execution and other QC issues to firm management. The servicer must require the firm to provide information related to the firm’s process for ensuring compliance with its policies, procedures, processes, and training, such as an internal compliance program and/or QC reviews.

22. The law firm must provide adequate employee training.

A firm must have written policies for employee training, including privacy training. In determining whether a firm’s employee training is adequate, the servicer must consider the frequency of training, the presence of policies and procedures, and firm handbooks, manuals, or job aids.

23. The law firm must have adequate controls over information security, data management, and fraud prevention.

A firm must maintain physical, technical, and procedural controls and effective information security and data management to

• ensure the security and confidentiality of personally identifiable information (PII) and confidential information, whether in paper, electronic or other form;

• protect against any threats or hazards to the security or integrity of such information; and

• protect against unauthorized access to or use of such information. The firm must implement controls meeting or exceeding industry standards, including, as applicable, standards promulgated by the ISO or NIST.

A firm must ensure that PII that is stored on its systems and workstations is encrypted at rest at all times. A firm must have secured storage for promissory notes and other original documents to prevent theft and to ensure protection against fire, flood or other damage. A firm may not perform, outsource, or send to any affiliate outside of the United States or its territories, any legal work on GSE mortgage loans, including any storage of GSE data. A firm may not send any PII underlying GSE mortgage loans outside the United States. A firm must have written policies, procedures, and processes in place by the date of the submission of Form 200 related to protection of PII and fraud prevention, including policies, procedures, and processes related to: background checks of all employees; protection of PII; fraud prevention and identification; and incident response and notification protocols for data breaches and other security incidents. The servicer must review and confirm that the firm meets these requirements for information security, data management, protection of PII, and fraud prevention.

24. No substantial part of the law firm’s practice may include matters that are adverse to financial institutions, including Fannie Mae or Freddie Mac.

No substantial part of a firm’s practice may include matters that are adverse to financial institutions, including Fannie Mae or Freddie Mac. Matters adverse to financial institutions include HOA foreclosures, consumer debtor or mortgagor representations, and bankruptcy trustee representations.

25. The servicer must disclose to Fannie Mae any relationships between the servicer and the firm and any relationships between the firm and any outsourcing company utilized by the servicer.

Attorneys handling Fannie Mae matters must not be affected by a conflict of interest. A servicer must retain the most qualified attorneys to handle Fannie Mae matters without regard to arrangements that could provide a financial or personal benefit directly or indirectly to the servicer, its employees, or any outsourcing companies or other third-party vendors utilized by the servicer to assist in servicing defaulted mortgage loans.

In Form 200, the servicer must disclose to Fannie Mae any current, past (within the last five years), or pending personal and/or financial relationships between

• the servicer and the law firm, including its partners and shareholders (as applicable) and

• the law firm, including its partners and shareholders (as applicable); and any outsourcing company or other third-party vendor utilized by the servicer to assist in servicing defaulted mortgage loans.

26. The law firm must disclose any interest in providers of related services.

The servicer must require a firm to disclose the identity of, and any relationship with, any entities providing third-party support functions, including, but not limited to, title searches, title insurance, posting, publication, and service of process. The servicer must require the firm to disclose whether the firm has a process to select and regularly review costs and performance of vendors to ensure competitive pricing and high quality.

27. The law firm must adhere to Fannie Mae guidelines regarding outsourcing fees, referral fees, technology and electronic invoice fees, and vendor selection.

For additional information on these requirements, see A4-2.2-03, Prohibition Against Servicer-Specified Vendors for Fannie Mae Referrals, Use of Vendors, and Outsourcing CompaniesA4-2.2-03, Prohibition Against Servicer-Specified Vendors for Fannie Mae Referrals, Use of Vendors, and Outsourcing Companies. The servicer must follow the procedures in F-1-05, Expense ReimbursementF-1-05, Expense Reimbursement to request reimbursement from Fannie Mae.