The Federal Housing Administration has clarified a reimbursement policy in
An FAQ released Tuesday aims to help stakeholders who have interpreted a legal ruling last year as indicating they must engage in court actions to handle many types of federal subordinate liens, even in non-judicial foreclosure states.
In such situations, the Department of Housing and Urban Development said it "will reimburse attorney's fees where the mortgagee submits a breakdown for reasonable and customary attorney's fees that exceed the amount provided under the nonjudicial foreclosure."
The industry has eagerly awaited the clarification, which affects a broad range of federal subordinate liens, according to Marissa Yaker, deputy general counsel of regulatory affairs at the Padgett Law Group.
"The FAQ published yesterday by FHA was highly anticipated since the 8th Circuit decision in Show Me State Premium Homes, LLC v. McDonnell was published," she said in an email. "It allows the industry the opportunity to proceed judicially on loans insured by FHA, if needed, to ensure clear title due to the presence of an applicable federal lien."
A group of mortgage banking attorneys known as USFN had previously called for an update to policy in the government-insured market in response to the ruling in that case. The case has had ramifications for a broad range of federal subordinate liens from those in the mortgage market to ones that get applied to unpaid child support.
"Many in our industry have taken that order to hold that a subordinate lien (other than a federal tax lien) held by the United States must be foreclosed by judicial action," Jeffrey Weisserman, chair of the group's advocacy committee, and CEO Pamela Donahoo said in the letter.
"While we believe there are legal arguments that can be made to counter the effects of this decision (and maybe to overturn it altogether), the decision has begun to have practical, negative consequences," they added later in the missive.
Prior to the decision, servicers, insurers and foreclosure attorneys had relied on a 1960 Supreme Court decision in a case called U.S. v. Brosnan, which was generally read as requiring nonjudicial foreclosures to eliminate junior federal liens using the state process at hand.
While there are interpretations suggesting the 1960 decision is still operative given the more recent federal appeals court ruling did not discuss the earlier case, USFN found a lot of foreclosure attorneys, servicers and title insurers were taking direction from the later ruling.
FHA, a government insurer of loans that funds many purchases by first-time homebuyers, will reimburse related fees based on Fannie Mae's determination for allowable foreclosure attorney fees and rules for amounts above maximums that aren't specified in the department's rules.
(The court ruling does not apply to Fannie or its smaller competitor, Freddie Mac, which are not federal agencies but rather government-sponsored enterprises. However, FHA does otherwise use Fannie's reimbursements as a basis for its own.)
Fannie Mae's allowable nonjudicial-fee reimbursement has been between $1,600 and $2,500 in states where it's applicable. In judicial states, specified amounts have ranged between $2,500 and around $10,000. Some states may require a non-routine litigation form or have exclusions.
FHA's clarification adds to developments that suggest it is being more responsive to servicer costs. The administration also recently doubled its "reasonable and customary" standard for
Although servicing has been the more profitable side of the mortgage business,
