Servicing Guide

Published September 9, 2020

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When can a first lien charge-off be considered?

The servicer is authorized to submit to Fannie Mae for approval a request to cease collection efforts on a delinquent mortgage loan when either 1) all appropriate measures to collect under this Guide have been exhausted and the servicer has deemed the debt to be uncollectible, or 2) a foreclosure sale should not be completed for a first lien conventional mortgage loan that Fannie Mae owns or securitizes, and - in either instance - at least one of the following situations apply:

  • The mortgage loan, or the property securing it, is the subject of an agreement to resolve a legal dispute, or a court has permitted the mortgage loan to be satisfied (see D1-6-02, Handling Notices of Liens, Legal Action, Other Actions Impacting Fannie Mae’s Interest);

  • The property securing the mortgage loan is or has been the subject of either

  • The mortgage loan has an impediment or encumbrance making it impossible or impracticable to obtain clear title to the mortgaged premises, and the mortgage loan is not subject to repurchase as outlined in A1-3-02, Fannie Mae-Initiated Repurchases, Indemnifications, Make Whole Payment Requests and Deferred Payment Obligations;

  • The mortgage loan is secured by a property that is the borrower's principal residence and has a small total indebtedness (generally equal to or less than $10,000);

    Note: A total indebtedness greater than $10,000 may be submitted for consideration if extenuating circumstances exist.

  • The property securing the mortgage loan is a unit in a condominium, cooperative, or similar project, and either

    • the unit is damaged and repair of the unit is not feasible because of the physical condition of the remainder of the project;

      the project is not presently economically viable; or 

      the governing body or a court has terminated the association;

  • The property has suffered a natural or man-made disaster that results in earth movement (e.g., a landslide or a mudslide) such that rebuilding on the land is impracticable or impossible;

  • The property securing the mortgage loan is undeveloped or the above-grade primary structure has been demolished and removed, and the vacant land (and any remaining outbuilding, if applicable) does not pose a blight risk and has been maintained and preserved in accordance with this Guide; or

  • A third-party is willing to accept legal responsibility for the property securing the mortgage loan.

Fannie Mae must determine if a charge-off and release of the related first lien is the most beneficial outcome for the mortgage loan.

The servicer must follow the procedures in F-1-25, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for detailed requirements related to requesting prior approval and, if approved, completing a charge-off/lien release, the Investor Reporting Manual for reporting a charge-off to Fannie Mae and Requesting Reimbursement for Recording Cost Associated with a Mortgage Loan Satisfaction or Charge-Off in F-1-05, Expense Reimbursement

For more information, please see Servicing Guide section: D1-1-02: Evaluating a First Lien Mortgage Loan for Charge-Off and Release of Lien.

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