Servicing Guide

Published October 14, 2020

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How should the servicer distribute compensation awards when a property is being taken by condemnation or eminent domain?

The servicer must refer to the terms of the security instrument to determine how compensation awards are to be distributed in the event of either a partial taking or total taking of a property securing a mortgage loan. However, the terms of the security instrument permit some flexibility in determining how the proceeds should be applied if the borrower has abandoned the property or does not acknowledge a specific offer to award compensation or settle a claim.

The servicer is authorized to agree to Form 236 related to a partial or full taking of the property if

  • all required documentation has been received,

  • the compensation award is sufficient to fully satisfy the mortgage debt, and

  • the compensation award is determined to be an accurate representation of the property’s value based on the servicer’s assessment of the provided property valuation.

If the amount of the compensation award applied to the mortgage loan balance will not be sufficient to fully satisfy the mortgage debt, the servicer is authorized to agree for Form 236 if

  • the provided valuation document indicates the current value of the property prior to the seizure, the value of the property to be seized, and the value of the remaining property;

  • the provided valuation document was produced within six months of the date of the request;

  • the compensation offer is determined to be an accurate representation of the property’s value based on the servicer’s assessment of the provided property valuation; and

  • the LTV is less than or equal to the LTV ratio of the loan immediately prior to the eminent domain action.

If the value was not produced within six months of the date of the request, is determined to be inaccurate, or is missing one or more of the required values (current value of the property prior to the seizure, the value of the property to be seized, and the value of the remaining property) but all of the other conditions have been met, the servicer may evaluate the accuracy of the value or establish a value for the property for the purpose of assessing the compensation award by obtaining a value from one of the following sources:

  • Fannie Mae’s APSTM;

  • Freddie Mac’s AVM;

  • a third-party AVM; or

  • the servicer’s own internal AVM, provided that

    • the servicer is subject to supervision by a federal regulatory agency, and

    • other servicer’s primary federal regulatory agency has reviewed the model.

If Fannie Mae’s APSTM, Freddie Mac’s AVM, the third-party AVM, or the servicer’s internal AVM does not render a reliable confidence score, or if the value provided by the government agency lies outside of a 10% threshold in comparison to the value provided by an approved valuation model, the servicer must submit the application to Fannie Mae for review.

If the servicer disagrees that the compensation award is an accurate representation of the property’s value, the documentation provided is incomplete, or the provided value is missing one of more of the required values and cannot be confirmed via an alternative value, the servicer should contact Fannie Mae’s SF CPM division (see F-4-03, List of Contacts) to determine the action Fannie Maw wants it to take.

If the borrower has abandoned the property or fails to respond within 30 days to the servicer’s notification that the government has offered to pay a compensation award or settle a claim for damages in connection with a condemnation or taking by eminent domain, the servicer may disburse the proceeds without contacting the borrower. Generally, the servicer must apply the proceeds to reduce the mortgage loan debt unless there is only a partial taking of the property securing a mortgage loan and foreclosure proceedings have been initiated. In such cases, the servicer must contact Fannie Mae’s SF CPM division (see F-4-03, List of Contacts) to determine how to apply the proceeds, as Fannie Mae may prefer to use the proceeds to restore or repair the property.

For more information please see: D1-1-01, Evaluating a Request for the Release, or Partial Release, of Property Securing a Mortgage Loan.

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