Servicing Guide

Published October 14, 2020

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E-5-05: Reimbursing Law Firms/Reimbursement of Uncollected Fees, Costs or Advances (02/12/2020)

This topic contains the following:

 

Foreclosure Milestone Invoicing Schedules

Fannie Mae has established attorney fee milestone invoicing schedules for judicial and non-judicial foreclosures.The following table outlines the requirements for handling invoices the law firms submits to the servicer.

The servicer must...
  Review the invoice and ensure the law firm has complied with the milestone invoicing schedule for the applicable jurisdiction.
  Compensate the law firm for the applicable percentage of the allowable foreclosure attorney fee based on the last milestone completed.

 

Note: The servicer must not prorate foreclosure attorney fees between milestones.

 

  Work with the law firm as needed in the applicable jurisdiction to develop invoicing standards that are in accordance with Fannie Mae’s milestone invoicing schedule requirements.

The following table sets forth the milestone invoicing schedule for a judicial foreclosure action.

Judicial Foreclosure Milestone Percentage of Allowable Foreclosure Fee
Title requested 30%
Title reviewed 40%
Complaint filed 50%
Service started 60%
Service complete 70%
Affidavit/judgment prepared 80%
Judgment to court 90%
Bid reviewed/Confirmed 95%
Foreclosure sale held/Documents recorded 100%

The following table sets forth the milestone invoicing schedule for a non-judicial foreclosure action.

Non-Judicial Foreclosure Milestone Percentage of Allowable Foreclosure Fee
Title requested 30%
Title reviewed 65%
Notices started 75%
First legal 85%
Foreclosure sale package 95%
Foreclosure sale held/Documents recorded 100%

 

Reimbursing the Law Firm When Foreclosure Proceedings are Stopped

If foreclosure proceedings are stopped (e.g., because the borrower files for bankruptcy, the mortgage loan is reinstated, or a workout agreement is executed) and foreclosure proceedings are subsequently recommenced, the fee paid to the law firm for the subsequent foreclosure proceedings will vary depending on whether the earlier proceedings can be resumed or must be started over. The following table outlines the servicer’s responsibilities for compensating the law firm for foreclosure attorney fees when a foreclosure is stopped.

If the foreclosure proceedings are stopped and... Then the servicer must compensate the law firm for...
later resumed fees for completion of the foreclosure in accordance with the established maximum allowable foreclosure fees (see Allowable Foreclosure Attorney Fees Exhibit), and any fees for which the law firm obtains the appropriate excess fee approval (see F-4-03, List of Contacts).
later started over (or a new foreclosure action is commenced)
  • all fees incurred for the actual services rendered prior to the initial action being stopped, based on the last foreclosure milestone completed (see Foreclosure Milestone Invoicing Schedules earlier in this topic); and

  • fees in accordance with the established maximum allowable foreclosure fee for completion of the subsequent foreclosure proceeding.

never resumed all fees incurred for the actual services rendered prior to the action being stopped, based on the last foreclosure milestone completed (see Foreclosure Milestone Invoicing Schedules earlier in this topic).

 

Reimbursing the Law Firm When a Bankruptcy Referral is Closed Prior to Completion

If a bankruptcy referral is closed (e.g., bankruptcy case is closed or dismissed) prior to the law firm completing all the services covered by the bankruptcy legal service referral, the servicer must reimburse the law firm for attorney fees that have been prorated to reasonably relate to the amount of legal work actually performed by the law firm and actual, reasonable, and necessary costs incurred by the law firm.

 

Collecting Legal Fees, Costs and Escrow or Corporate Advances from the Borrower

The servicer and the law firm may charge the borrower only those default-related legal expenses, including foreclosure and bankruptcy-related fees and costs, that are permitted under the terms of the note, security instrument, and applicable laws.

The following table outlines additional servicer responsibilities for collecting legal fees, costs, and escrow or corporate advances from the borrower, where legally permissible, and paying the law firm for legal fees and costs.

The servicer must...
  Include as part of the amount required to reinstate or pay off the mortgage loan
  • all legal fees and costs that were incurred in connection with the foreclosure, bankruptcy or related proceedings, and

  • all escrow or corporate advances required to protect Fannie Mae’s lien and the property securing the mortgage loan,

to the extent permitted by the terms of the note, security instrument, and applicable laws.

  Take all legally permissible steps to minimize the amount of uncollected fees, costs, and escrow or corporate advances, such as shortening the time period for which a reinstatement or payoff quote is valid or instructing the borrower to contact the servicer for updated figures.
  Retain all records justifying its determination that any legal fees or costs, or escrow or corporate advances were not legally permissible to collect from the borrower, including the date the payoff or reinstatement quote was issued, the “good through” date for the payoff or reinstatement quote, and the date the fee, cost, or advance was actually incurred.
  Ensure that all applicable and permissible legal fees and costs and escrow or corporate advances are collected from the borrower as a condition of the reinstatement, workout agreement, or payoff.
  Pay the law firm for the fees and costs incurred by the law firm even if sufficient funds were not collected from the borrower.

 

Reimbursement of Uncollected Fees, Costs and Advances

The servicer cannot request that Fannie Mae reimburse it for any legal fees, costs, or escrow or corporate advances that it failed to include as part of the amount required to reinstate or pay off the loan, unless it was not legally permissible to collect the fees, costs, or escrow or corporate advances from the borrower. If it was not legally permissible to collect fees, costs, or escrow or corporate advances from the borrower, Fannie Mae will reimburse the servicer for such items to the extent that

  • services were performed to protect Fannie Mae’s interests;

  • services were actually rendered; and

  • the fees, costs, or escrow or corporate advances were actual, reasonable, and necessary and complied with Fannie Mae’s guidelines.

The servicer must follow the procedures in F-1-05, Expense Reimbursement, to request reimbursement for attorney fees, and other costs and/or escrow or corporate advances.

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