Freddie Mac Single-Family Seller/Servicer Guide 9301.6 — Deficiency rights and property considerations

This section contains requirements related to: ■ Obtaining judgment for less than total indebtedness and preserving deficiency rights ■ Circumstances where preserving deficiency rights requires additional expense ■ Borrower abandonment of the property ■ Preserving the property during the foreclosure process ■ Expenses that may become First Liens on the property

(a) Obtaining judgment for less than total indebtedness and preserving deficiency rights (i) Obtaining judgment for less than total indebtedness While Servicers are required to obtain judgment against the Borrower for the total indebtedness due under the Note and Mortgage in accordance with applicable law and the Guide, there may be cases where the foreclosure proceeding will be significantly shortened if the Servicer only seeks judgment for any amount less than the total indebtedness (e.g., for only principal and interest owed by the Borrower). If the Servicer determines that obtaining judgment for any amount less than the total indebtedness is in Freddie Mac’s best interest, it may do so. The Servicer must record the decision to obtain judgment for a lesser amount and the grounds for its decision in the Mortgage file. Prior to obtaining final judgment of foreclosure on any amount less than the total indebtedness, the Servicer must ensure that: ■ All requirements of the Guide have been met ■ The ratio of the sum of principal and interest to the market value of the Mortgaged Premises is 100% or more. The Servicer must obtain the value of the Mortgaged Premises in accordance with Section 9202.4(a), as if the Servicer were obtaining an “estimated market value” of the Mortgaged Premises for a short sale (see Section 9208.2(a)(ii) for instructions on obtaining a short sale property value.) ■ In the event the Borrower reinstates or satisfies the Mortgage after judgment is obtained, the Servicer must instruct foreclosure counsel to vacate the judgment. If this is not possible and the Servicer has unreimbursed expenses or advances that are not collectable because it obtained judgment for an amount less than the total indebtedness, the Servicer may not seek reimbursement from Freddie Mac for those expenses or advances. (ii) When to preserve/waive deficiency rights ■ When to preserve deficiency rights In all instances, except as set forth in this section, where the foreclosure timeline will not be extended or additional fees/costs will not be incurred above the approved expense limits set forth in Exhibit 57A, Approved Attorney, Foreclosure, Mediation, Postponement Fees and Title Expenses, Servicers must work with their foreclosure attorney to preserve Freddie Mac’s right to pursue a deficiency action. Freddie Mac reserves the right to pursue deficiencies after the foreclosure sale on a case-by-case basis If the Mortgage has mortgage insurance, the Servicer must follow the MI’s instructions for pursuing deficiency judgments or waiving deficiency judgments. ■ When to waive deficiency rights The Servicer must adhere to the requirements provided in this section in order to waive Freddie Mac’s right to pursue a deficiency judgment against a Borrower. In many jurisdictions, applicable law provides Freddie Mac the right to pursue a deficiency balance after a foreclosure sale. In some instances, it may be in Freddie Mac’s best interest to waive the right to collect the deficiency including, but not limited to, cases where a waiver will do one of the following: ❑ Expedite the foreclosure ❑ Expeditiously resolve litigation and/or bankruptcy in Freddie Mac’s favor ❑ Result in a consent judgment conveying the Mortgaged Premises to Freddie Mac in Illinois ❑ Obtain a Borrower’s consent to the final judgment of foreclosure on an expedited basis ❑ Expedite or result in the entry of an order confirming or ratifying the foreclosure sale by the court ❑ Minimize or avoid the imposition of additional redemption, confirmation or ratification periods, if State law would impose such additional periods If the Servicer determines that waiving Freddie Mac’s right to pursue a deficiency is in Freddie Mac’s best interest, then the Servicer may use its discretion without obtaining Freddie Mac’s prior approval to waive Freddie Mac’s right to pursue a deficiency. If the Servicer waives Freddie Mac’s right to pursue a deficiency, then at the time it reports the foreclosure sale results as required by Section 9301.9(a), the Servicer must notify Freddie Mac that the deficiency rights have not been preserved. The Servicer must record that it waived Freddie Mac’s deficiency rights, as well as the grounds for its decision, in the Mortgage file. Servicers must meet the requirements of Section 9301.9(a) when waiving deficiency rights.

(b) Circumstances where preserving deficiency rights requires additional expense If the Servicer knows that additional attorney fees will be incurred when preserving Freddie Mac’s right to pursue a deficiency action, and the Servicer believes it is in Freddie Mac’s best interest to preserve Freddie Mac’s right to pursue a deficiency action against the Borrower, the Servicer must submit a request for pre-approval (RPA) to Freddie Mac via PAID (Payments Automated Intelligent and Dynamic) (see Exhibit 88, Servicing Tools) to recommend incurring additional attorney fees to perfect Freddie Mac’s rights to pursue a deficiency action. If possible, the Servicer should send the recommendation to Freddie Mac before the Servicer refers a Mortgage to foreclosure. However, under no circumstances should the Servicer delay referring a Mortgage to foreclosure to obtain Freddie Mac’s approval to preserve Freddie Mac’s deficiency rights. When submitting a recommendation to Freddie Mac, the Servicer must follow the instructions provided below. Servicers must only send a recommendation to Freddie Mac if the Servicer or its attorney is able to provide justification that would outweigh both the delays in the foreclosure process, and the increased fees and costs. Servicers should include an explanation for the request in the RPA comment field along with the electronic attachment of any supporting documentation. Servicers will not receive foreclosure timeline compensatory fee consideration for delaying the foreclosure process unless explicitly stated by Freddie Mac in its response to the Servicer’s recommendation. For all other issues related to preserving deficiency rights where additional expenses are required, Servicers should direct their questions to Freddie Mac (see Directory 5).

(c) Borrower abandonment of the property Preservation of deficiency rights should be sought against a Borrower who has abandoned the property. When these cases fall outside of the requirements set forth in Section 9301.6(a)(ii), it is the Servicer’s responsibility to send a recommendation to Freddie Mac by submitting a request for pre-approval to Freddie Mac within five Business Days of discovering the property is abandoned. For all other issues related to abandonment as it relates to the preservation of deficiency rights, Servicers should direct their questions to Freddie Mac (see Directory 5).

(d) Preserving the property during the foreclosure process The Servicer must take the following actions to preserve and maintain the property during the foreclosure process: 1. Ensure the property is covered by property insurance throughout the foreclosure process, in accordance with the requirements of Section 9603.1(d). This includes taking all actions required in the mortgage clause of all applicable property insurance policies, including, but not limited to, providing all notices to the insurer required under such clause, in order to preserve the coverage and its maximum benefits for the Servicer and/or Freddie Mac, as mortgagee. 2. Take all necessary steps to protect the property from waste, damage and vandalism, and winterize, as appropriate (see Exhibit 57, 1- to 4-Unit Property Approved Expense Amounts, for an outline of winterization requirements.) Obtain approval from Freddie Mac for any property preservation expenses that either exceed Freddie Mac’s approval limits or will be incurred after the date of a foreclosure sale, including where the property is sold to a third party by submitting a request for preapproval of expenses (RPA) to Freddie Mac via PAID (see Exhibit 88, Servicing Tools). (Refer to Section 9701.2(d) regarding reimbursement for property preservation expenses.) 3. Comply with any property preservation requirements of the FHA, RHS, VA or MI, if applicable 4. For leasehold Mortgages, ensure that payments required under the terms of the lease (i.e., ground rents) are made to prevent termination of the lease, if termination of the lease will impair Freddie Mac’s lien position or interest in the property Reporting lead-based paint violations If during the foreclosure process the Servicer becomes aware of lead-based paint violations on the property, then the Servicer must report such violations to Freddie Mac (see Directory 5) within five Business Days of learning of the violation. The Servicer must include: ■ A copy of the citation ■ Copies of documentation related to a lead-based paint violation

(e) Expenses that may become First Liens on the property The Servicer must obtain bills and make payment for all expenses requiring payment under the Security Instrument. Such expenses may include, but are not limited to, property taxes, ground rents, and assessments or other charges (e.g., utility assessments, condominium/homeowners association (HOA) or Cooperative Corporation assessments, and Condominium Unit maintenance fees or Cooperative Unit Maintenance Fees) that, if delinquent, are or may become First Liens priority on the property or that if not paid would result in the subordination of Freddie Mac’s interests. (See Section 8801.2(c) regarding Cooperative Share Loan expenses that may become First Liens on the property.) If the Borrower’s Escrow Funds are insufficient to pay these items as they become due during foreclosure, or, if there is no Escrow account or if the Escrow account does not hold funds for these expenses, the Servicer must advance funds to pay these expenses, when and to the extent necessary, to protect Freddie Mac’s interests. Additionally, the Servicer must contact Freddie Mac (see Directory 5) and obtain Freddie Mac’s written approval before making payments to taxing authorities when federal, State or local income tax liens would take priority over Freddie Mac’s First Lien position.