Alert October 19, 2010

FHFA Issues Plan for Remediation of Foreclosure Process Deficiencies

The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, issued a policy framework detailing its plan for mortgage servicers to remediate any deficiencies in the execution of affidavits, verifications, and other legal documents in connection with the foreclosure process on Fannie and Freddie loans. The plan calls for servicers to review their processes and procedures and verify that all documents, including affidavits and verifications, are completed in compliance with legal requirements. In the event a servicer’s review reveals deficiencies, the plan requires the servicer to take certain corrective actions. Deficiencies must be remediated in an appropriate and timely way and be sustainable. In particular, when a servicer identifies shortcomings with foreclosure affidavits, whether due to affidavits signed without appropriate knowledge and review of the documents, or improperly notarized, the plan calls for the following steps to be taken, as appropriate to the particular mortgage:

Pre-Judgment Foreclosure Actions

Servicers must review any filed affidavits to ensure that the information contained in the affidavits was correct and that the affidavits were completed in compliance with applicable law. If the servicer’s review indicates either (1) that the information in a previously filed affidavit was not correct or (2) that the affidavit was not completed in compliance with applicable law, the servicer must work with foreclosure counsel to take appropriate remedial actions, which may include preparing and filing a properly prepared and executed replacement affidavit before proceeding to judgment.

Post-Judgment Foreclosure Actions (Prior to Foreclosure Sale)

Before a foreclosure sale can proceed, servicers must review any affidavits relied upon in the proceedings to ensure that the information contained in the affidavits was correct and that the affidavits were completed in compliance with applicable law. If the servicer’s review indicates either (1) that the information in a previously filed affidavit was not correct or (2) that the affidavit was not completed in compliance with applicable law, the servicer must work with foreclosure counsel to address the issue consistent with local procedures. Potential remedial measures could include filing an appropriate motion to substitute a properly completed replacement affidavit with the court and to ratify or amend the foreclosure judgment.

Post-Foreclosure Sale (Fannie or Freddie Owns the Property)

  • Eviction Actions:  Before an eviction can proceed, servicers with deficiencies must confirm that the information contained in any affidavits relied upon in the foreclosure proceeding was correct and that the affidavits were completed in compliance with applicable law. If the servicer’s review indicates either (a) that the information in a previously filed affidavit was not correct or (b) that the affidavit was not completed in compliance with applicable law, the servicer must work with foreclosure counsel to address the issue consistent with local procedures before the eviction proceeds. Potential remedial measures could include seeking an order to substitute a properly prepared affidavit and to ratify the foreclosure judgment and/or confirm the foreclosure sale.
  • REO:  With respect to the clearing of title for REO properties, servicers must confirm that the information contained in any affidavits relied upon in the foreclosure proceeding was correct and that the affidavits were completed in compliance with applicable law. If the servicer’s review indicates either (a) that the information in a previously filed affidavit was not correct or (b) that the affidavit was not completed in compliance with applicable law, the servicer must work with foreclosure counsel to address the issue consistent with local procedures and take actions as may be required to ensure that title insurance is available to the purchaser for the subject property in light of the facts surrounding the foreclosure actions.

Bankruptcy Cases

The plan requires servicers to review any filed affidavits in pending cases to ensure that the information contained in the affidavits was correct and that the affidavits were completed in compliance with applicable law. If the servicer’s review indicates either (1) that the information in a previously filed affidavit was not correct or (2) that the affidavit was not completed in compliance with applicable law, the servicer must work with bankruptcy counsel to take appropriate remedial actions.

Click here for the FHFA plan.