Foreclosure Buzz

Is the law firm's letter more than smoke?

Update of 2/28/10: See article here on Fannie Mae’s lawyers here.

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In response to my posting last week here, Fannie Mae made an effort to investigate the individual case I highlighted and to discuss my overall concerns.  The point of the posting was not to focus on an individual case, but the larger policy at stake.  I have been on many conference calls and listservs involving tenant advocates across the country, and there is undoubtedly a huge problem with lenders ignoring the law, or intentionally misleading tenants about their rights under the law.  Thus far, federal agencies have not stepped in (only the Attorney General of Connecticut has done so to my knowledge, article here).

Fannie explained that they do their own investigation of the occupants of a home after they purchase it at a foreclosure sale.  Fannie says they do not involve lawyers at all until they determine that the occupants do not appear to be covered by the Protecting Tenants at Foreclosure Act (PTFA), and that the occupants are unable or unwilling to continue to rent on a month to month basis under their own month-to-month rental program. (I am concerned that Fannie attempts to encourage tenants to enter month-to-month leases instead of honoring the current ones as can be seen from their description on their website alone here.)   Fannie claims it only has its lawyers get involved to begin eviction in these other rare circumstances.

I fail to see why it matters when Fannie lawyers get involved.  It appears realtors contact occupants first, which have greater interests to remove occupants of the property so the property can be listed and sold (earning the relator a commission).

Of course the problem is Fannie’s letter highlighted in the posting says nothing of an investigation — it was sent to “Occupant” and plainly states: “If you are a Tenant in the property, please be advised that Fannie Mae also known as Federal National Mortgage Association has chosen not to continue your lease and therefore, you are no longer entitled to possession.” See copy here.  Clearly, a statement like this sent by any lender to a bonafide tenant post-foreclosure would violate the language, meaning and intent of PTFA.  When I inquired, Fannie admitted it did not approve the letter and has since spoken with its lawyers to ask them not use it again because it appears to contradict its policies (but I doubt that the law firm of Barrett Daffin Frappier Turner & Engel LLP drafted this letter just for Fannie Mae).  Also in its defense, Fannie Mae correctly states that the occupant of the property that received the letter I highlighted was the former homeowner, so in this particular case there was no victim.  But the document appears to be a form letter and a question remains whether it has or will be sent to a bonafide tenant on behalf of Fannie or another lender.  (Update 2/26/10: It is not longer a question, the letter has been sent to bonafide tenants, see article here.)

Given that Fannie Mae has thousands of loans, thousands of foreclosures, and thousands of people working on them across the country, it might be far better if Fannie Mae would mandate what its lawyers do, as opposed to trust them.

Fannie Mae admits that it has learned of a variety of other problems in California, Utah and Connecticut and that much of the problem was implementation of its tenant policy, not the policy itself.  Alternatively, Fannie Mae might want to consider changing counsel to avoid even the appearance of impropriety.  Fannie is spending our money afterall, and firing Barrett Daffin would get the attention of other foreclosure attorneys and vendors I would imagine.  But there are undoubtedly many factors to be considered before taking such a step (it might not be Barrett Daffin’s fault for example).

Fannie Mae must not merely be able to blame its attorneys for its unwillingness or inability to control them, but I am hopeful Fannie Mae is in fact following the law and any evidence to the contrary disappears well before the law expires.

Filed under: Advice for Borrowers, National Foreclosure News