By Tiffany Sanders on September 17, 2012
Whether you’re a foreclosure defense attorney or a bankruptcy lawyer whose clients are frequently struggling with mortgage debt, thoroughly familiarizing yourself with the uniform Fannie Mae and Freddie Mac documents is a must for both client service and your own efficiency. Of course, Fannie and Freddie hold a huge percentage of residential mortgage loans—Fannie alone had a 41% market share in 2011. But use of the uniform documents is much broader; most players in the residential mortgage industry use these same instruments because it makes it facilitates sale in the secondary market.
Fortunately, unlike the Fannie and Freddie servicing guides, the uniform instruments don’t change often. And, the document itself includes the date of the form. Just a quick glance at that information will tell you quite a bit about your mortgage. For example, Fannie and Freddie didn’t buy daily interest mortgage loans after January, 2001, so if you’re looking at a form dated 01/01, you know that it’s a scheduled payment loan.
Reading the whole Uniform Note and Uniform Security Instrument several times and understanding them thoroughly will save a lot of legwork in the long run, since you’ll be operating under those same terms and definitions again and again. While it’s important to do that full analysis yourself, here are a few key points to look out for:
- The definition of “loan” integrates the note and the security agreement, arguably destroying negotiability.
- The definition of “applicable law” contains no language that would exclude the U.S. Bankruptcy Code and associated rules, despite the arguments often set forth by opposing counsel.
- Understand the application of payment requirements set forth in Uniform Covenant 2; it’s standard for servicers not to comply with these provisions, but that failure gives rise to a breach of contract claim.
- Examine the legal fee provisions contained in Uniform Covenant 9. Fee applications submitted by servicers are often in no way “reasonable and appropriate”—for example, a $200 legal fee for submission of a supplemental Proof of Claim for a $50 property inspection.
These few provisions are only the beginning. The Uniform Covenants are filled with rights and responsibilities for borrowers that consumer lawyers routinely overlook, not to mention the protections afforded by TILA, Rule 3002.1 and other state and federal laws. So long as servicers aren’t challenged on those issues, they have no incentive to comply with these requirements and play fair with consumers. It’s up to us as consumer lawyers to general enough inconvenience, legal fees, penalties and other pain points to make it unprofitable for servicers to continue the routine practices that harm homeowners across the country on a regular basis. One important step in that direction is ensuring that you are well versed in what is required by the Fannie and Freddie uniform instruments and what remedies are available to your client when those obligations are breached.