West Coast Real Estate Update: March 2016 #2

FDIC Clarifies "Abandoned Foreclosures" Guidelines

The Federal Deposit Insurance Corporation (FDIC) clarified on March 2, 2016, its existing guidelines with respect to the decision by any FDIC-supervised institution to discontinue foreclosure proceedings after such proceedings have already begun ("abandoned foreclosures"). The clarification appears rooted in the FDIC's concern that when the initial notice of foreclosure is given to a borrower, the borrower may cease maintaining its property and/or abandon the property. Such actions detrimentally impact not just the subject property, but also the surrounding neighborhood. If a lender forecloses, it should, and typically does, mitigate many of the adverse actions of the prior property owner; however, if the lender abandons its foreclosure, then the property and the neighborhood may further deteriorate into crime and blight.

The FDIC requires each institution it supervises to maintain policies and procedures specific to that institution's decision to abandon a foreclosure. Among other things, these policies require that the institution:

• obtain current information regarding the value of the real estate and use that information to determine whether to initiate and whether to abandon a foreclosure
• after making a decision not to complete a foreclosure, it should determine when to release its lien to minimize potential liability as mortgagee
• notify state and local government authorities that it has elected not to move forward with the foreclosure and comply with any government requirements applicable to the abandoned foreclosure
• provide written notice to the borrower (using reasonable means of locating the borrower) that:
• the foreclosure will not move forward
• the mortgage lien has/has not been released
• the borrower has the right to continue to occupy the property until title is transferred
• the borrower remains financially obligated for the repayment of the loan (in California, the institution's ability to pursue the borrower would remain subject to California Code of Civil Procedure Section 726), real estate taxes, insurance premiums and homeowner association dues
• the borrower is required to maintain the property in accordance with all applicable laws