Client Alert: Don't Abandon Your Rights When You Abandon a Foreclosure

Minimize Your Risk

Institutions considering abandoning a foreclosure should:

Be aware of potential consequences regarding discontinuing foreclosure actions.
Review policies to plan and develop documentation in accordance with supervisory expectations.
Seek counsel in establishing an appropriate policy.

FDIC Guidance

The FDIC recently issued guidance (FIL-14-2016) addressing the discontinuation of foreclosure proceedings.

Banks will often discontinue or abandon a pending judicial foreclosure proceeding. Typical valid reasons for institutions abandoning a foreclosure include:

Foreclosure costs exceed the property's market value
Costs to maintain or rehabilitate the property are prohibitive

The FDIC recently clarified its supervisory expectations regarding this issue, and is now expecting banks to maintain appropriate policies regarding abandoning foreclosures that include:

Obtaining and assessing current valuation and other relevant information
Releasing liens
Notifying local authorities
Notifying and contacting borrowers

Do Not Abandon Your Other Remedies

Although these guidelines seem innocuous on their face, institutions should be aware of potential unintended consequences, especially with releasing liens, notifying local authorities and notifying borrowers:

Releasing liens. Institutions should be careful not to release liens on other property that is not subject to the foreclosure.
Notifying local authorities. Institutions should determine if there are any local ordinances related to foreclosing real property that impose additional requirements.
Notifying borrowers. Depending on the form of written notice, institutions may inadvertently waive other rights and remedies against the borrower, any guarantors and even third parties, including monetary remedies and deficiencies.

We Can Help You

If your bank is considering abandoning a foreclosure proceeding, and there are many valid and permissible reasons for doing so, we can review your policies and prepare and develop appropriate documentation in accordance with supervisory expectations. If you decide to proceed with the foreclosure proceeding, we can also review your ORE policies to minimize risk if you decide to complete the foreclosure process and take title to a property. Please call us if you are interested in discussing these issues or seek counsel in establishing a policy.

References

FIL-14-2016 - Discontinuation of Foreclosure Proceedings, FDIC (March 2, 2016)

https://www.fdic.gov/news/news/financial/2016/fil16014.html

Barack Ferrazzano Financial Institutions Group

In recent years, our 30-attorney Group has represented more than 250 financial institutions across the country. Our M&A experience is unparalleled-over the past decade, with our Group ranked #1 in the Midwest region by number of announced bank and thrift merger and acquisition transactions, according to SNL Financial. The Financial Institutions Group was again named as one of the top financial institution groups in the nation in the U.S. News & Best Lawyers 2016 report.