I. INTRODUCTION
The FDIC has clarified 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.
The FDIC continues to encourage institutions to avoid unnecessary foreclosures by working constructively with borrowers and considering prudent workout arrangements that increase the potential for financially stressed borrowers to keep their properties.
II. DISCONTINUATION OF FORECLOSURE PROCEEDINGS
When workout arrangements are unsuccessful or not economically feasible, 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 institutions have initiated foreclosure, the borrower(s) may have already abandoned or stopped maintaining the property. Such properties 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:
III. SUPERVISORY PROCESS
The FDIC’s supervisory activities will include a review of institutions’ policies and practices related to foreclosure proceedings, including determinations to discontinue such actions. During safety and soundness examinations, examiners will review institutions’ analyses for supporting decisions to initiate, pursue, or discontinue foreclosure actions; decisions to release liens; and management reports on these activities. During consumer protection examinations, examiners will review the actions taken by institutions to contact the borrower(s) and whether notices to the borrower(s) and local authorities regarding their decision to discontinue a foreclosure proceeding include the information described above and were provided in a manner that complies with applicable state or local government authorities’ notification requirements. Consumer protection examiners also will review whether institutions’ consumer inquiry and complaint process adequately address concerns raised regarding abandoned foreclosures.