Broadened Servicer Authority to Grant Deeds-in-Lieu and Postpone Foreclosures Coming March 1

by devteam January 29th, 2013 | Share

Freddie Mac and Fannie Mae have written a new escapernclause into servicing regulations for homeowners who are both underwater andrnstruggling to meet their mortgage payments.  rnThe new rule, which will go into effect on March 1, delegates authorityrnto servicers to approve a deed-in-lieu of foreclosure for borrowers for whomrnneither a loan modification nor a short sale is a workable solution.  </p

The program is available to all borrowers regardless ofrntheir delinquency status, but appears specifically targeted at those who, byrnvirtue of being current or less than 90 days late on their mortgage, do notrnqualify for the existing deed-in-lieu option available under the HomernAffordable Foreclosure Alternative (HAFA) program.   </p

Freddie Mac also announced it hasrnrevised its foreclosure salernpostponement requirements</bso that servicers no longer have to obtain written approval to postponerna foreclosure sale for mortgages that are morernthan 12 months delinquent.  Servicersrnnow have delegated authority to postpone any foreclosure sale if they have determinedrnthat doing sornwill protect Freddie Mac's interests.</p

Under the new rules a servicer can approve a deed-in-lieurnif they have completed the evaluation required for all foreclosurernalternatives.  The servicer must offerrnthe borrower a home retention option such as a loan modification or forbearancernand must encourage a short sale prior to offering the deed-in-lieurnalternative.  </p

The borrower must be able to document an acceptablernfinancial hardship, and convey a clear and marketable title to thernproperty.  A servicer is not permitted tornapprove a deed-in-lieu from a borrower who is less than 90 days delinquentrnunless the documented hardship is either the death of a borrower or death of the primary or secondary wagernearner or long-term or permanent disability; serious illnessrnof arnborrower or co-borrower or dependentrnfamilyrnmember. rnServicers can also approve a deed-in-lieu if the borrower was previously dischargedrnfrom a Chapter 7 bankruptcy. rnIf these qualifications are not met and the servicer still feels arndeed-in-lieu is the best alternative they can submit a recommendation to thernGSE for approval.</p

If the borrower is current or less than 31rndays delinquentrnthen at least one of the borrowers must occupy the mortgaged premises as arnprincipal residence and must have a debt payment to income ratio greater thanrn55 percent. </p

Thernservicer is now required to conduct an interior property inspection no morernthan 48 hours before final execution of the deed to make sure the property isrnvacant, undamaged, and left in broom clean condition and all personal propertyrnis removed.  </p

Servicers canrnoffer up to $3,000 in relocation assistance to the borrower and may at its discretionrnoffer additional assistance from its own funds. rnIf the interior inspection reveals that the property is damaged,rnunclean, or personal property is left behind, the costs of cleaning or repairrnmust be deducted from any relocation assistance.    </p

If a mortgage is already in foreclosure prior to initiation of arndeed-in-lieu, the servicer is required to continue with the foreclosurernproceedings and must ensure there is sufficient time to complete the processingrnof the deed-in-lieu so that an executed deed can be received no later than 30rndays before the scheduled foreclosure sale. rn</p

The incentive for servicers to complete a deed-in-lieu has been increasedrnwith this notice from $275 to $1,500. 

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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