Discontinuation of Foreclosure Proceedings

Summary:

The FDIC is clarifying supervisory expectations in existing guidance for institutions' risk-management practices for decisions to discontinue foreclosure proceedings after initiating such actions, which are commonly referred to as abandoned foreclosures. Institutions should have appropriate policies and practices pertaining to decisions to discontinue foreclosure actions.

Statement of Applicability to Institutions With Total Assets Under $1 Billion: This Financial Institution Letter applies to all FDIC-supervised institutions.

Highlights:

• Existing supervisory guidance reminds institutions of the need to establish policies and procedures for acquiring other real estate that mitigate the impact the foreclosure process has on the value of surrounding properties.
• Institutions that initiate the foreclosure process may subsequently decide to discontinue the proceeding based on financial considerations, such as a determination that the costs to foreclose, rehabilitate, and sell a property exceed its current market value.
• When such decisions are made after an institution has initiated foreclosure, the borrower may have already abandoned or stopped maintaining the property, which can lead to blight, crime, or an accumulation of trash, causing a negative effect on neighboring properties and the local community.
• Institutions should have appropriate policies and practices pertaining to decisions to discontinue the foreclosure process that address:
  • Obtaining and assessing current valuation and other relevant information,
  • Releasing liens,
  • Notifying local authorities, and
  • Notifying and contacting the borrower(s).
• FDIC Supervisory activities will include a review of institutions' policies and practices for decisions to discontinue foreclosure proceedings.

Distribution:

• FDIC-Supervised Institutions

Suggested Routing:

• Chief Executive Officer, Chief Lending Officer, Chief Compliance Officer

Paper copies may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).