Regulatory Expectations for Abandoned Foreclosures

This week, the Federal Deposit Insurance Corporation (“FDIC”) clarified its supervisory expectations for how institutions should handle decisions to discontinue foreclosure proceedings that are underway, commonly referred to as abandoned foreclosures. Although not all institutions fall into the FDIC’s supervisory scope, prudential regulators and examiners often address practical problems (such as foreclosures) similarly.

In the same way that institutions should have uniform policies and practices that address the initiation of foreclosures, they should likewise have appropriate policies and practices to discontinue foreclosure actions.

Highlights outlined in the Financial Institution Letter include:

  • Institutions should establish policies and procedures for acquiring other real estate that mitigates the impact the foreclosure process has on the value of surrounding properties.
  • Institutions may 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. However, 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).

If you have any questions as your organization updates its policies and practices, please contact Spilman.


By R. Scott Adams

R. Scott Adams


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