Servicing Guide

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E-2.2-02: Managing Chapter 11 Bankruptcies (05/15/2019)

This topic contains the following:


General Servicer Responsibilities

When servicing a mortgage loan involved in a Chapter 11 bankruptcy, the servicer must complete the actions described in the following table.

The servicer must…

Refer a Chapter 11 case to a law firm within two weeks of the filing of the bankruptcy case and direct the attorney to file a Notice of Appearance.


Have the law firm review the proposed reorganization plan and the disclosure statement.


Ensure the law firm actively participates in the plan confirmation process and files an objection to any plan that attempts to modify Fannie Mae’s rights under the security instruments, or that is not otherwise in Fannie Mae’s best interest.

If neither the servicer nor the law firm has been granted delegated authority to address a borrower’s request for a cramdown, the servicer must immediately report this as non-routine litigation to Fannie Mae’s Legal department by submitting a Non-Routine Litigation Form (Form 20). In cases in which the borrower will not receive a discharge upon confirmation of the reorganization plan, the servicer must instruct the law firm to attempt to negotiate termination of the automatic stay upon confirmation of the plan.

See also E-2.3-03, Handling Cramdowns of the Mortgage Debt.


Managing Chapter 11 Bankruptcies That Involve Delinquent Mortgage Loans

In all cases in which the borrower is contractually delinquent, the servicer must discuss with the law firm whether it is practical to file a Motion for Relief, a Motion for Adequate Protection Payments, and/or a Motion for Sequestration of Rental Income (if the property is being rented). The following table provides the servicer with additional directions for the proper management and servicing of a Chapter 11 bankruptcy that involves a delinquent mortgage loan.

If… Then the servicer must…

there is proof that the borrower has no equity in the security property and the property is not necessary for the borrower’s reorganization

direct the law firm to request relief from the automatic stay.

the mortgage loan is released from bankruptcy without an Order of Confirmation being issued

  • examine the possibility of arranging a workout option,

  • immediately send any required breach letter to the borrower, and

  • refer the mortgage loan to a law firm to initiate or resume foreclosure proceedings.


Servicing the Mortgage Loan After Confirmation of a Chapter 11 Plan

When a Chapter 11 reorganization plan that modifies the original terms of a mortgage loan is confirmed, the servicer must not report the modified terms (or cramdown) through Fannie Mae’s servicing solutions system. The following table provides Fannie Mae’s requirements for reporting and servicing the mortgage loan post-confirmation.

The servicer must…

Send either the mortgage loan modification documents or a copy of the reorganization plan that detail the modified terms of the mortgage loan to a document custodian, as applicable.


Report the mortgage loan modification in the next delinquency status information it transmits to Fannie Mae after the Order of Confirmation is entered. For a list of delinquency status codes, see Delinquency Status Code Hierarchy and Definitions in F-1-22, Reporting a Delinquent Mortgage Loan via Fannie Mae’s Servicing Solutions System.


Report the terms of the mortgage loan modification to Fannie Mae by submitting an email that includes a completed Bankruptcy Cramdown Template to Fannie Mae’s SF CPM division (see F-4-03, List of Contacts).


Work with its Fannie Mae Investor Reporting Representative (see F-4-03, List of Contacts) to make appropriate changes to Fannie Mae’s investor reporting system records.


Remit payments for the secured debt as regular remittances, and payments for the unsecured debt as special remittances.

With respect to special servicing option MBS mortgage loans, no changes are to be made to the terms of the mortgage loan in Fannie Mae's records until after Fannie Mae reclassifies the mortgage loan as a portfolio mortgage loan. See Removing Regular Servicing Option MBS Mortgage Loans Upon Confirmation of a Bankruptcy Plan and Reclassifying Special Servicing Option MBS Mortgage Loans Upon Confirmation of a Bankruptcy Plan in E-2.1-11, Remitting P&I for MBS Mortgage Loans That Are Part of a Bankruptcy for requirements related to reclassification or removal of MBS mortgage loans. See also Processing Pre-Petition and Post-Petition Payments in E-2.2-04, Managing 13 Bankruptcies and C-3-01, Responsibilities Related to Remitting P&I Funds to Fannie Mae for more information on actions required when a mortgage loan becomes delinquent.

In cases in which the automatic stay remains in effect following confirmation, if the borrower becomes 60 days delinquent in making the payments required under the plan, the servicer must either refer the case to a law firm within two weeks of the 60th day of delinquency or, if the case has already been referred, advise the law firm to seek relief from the automatic stay or a dismissal of the case in accordance with local bankruptcy rules and practices. The servicer is responsible for ensuring that all previous payments have been properly applied and for verifying that the borrower is 60 days delinquent before sending the referral.

Once the automatic stay is terminated or the case is dismissed, the servicer must immediately complete all of the actions described in the following table.

The servicer must…

Send any required breach letter to the borrower.


Refer the mortgage loan to a law firm to initiate or resume foreclosure.


Consider the possibility of arranging a workout option.

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