The Securities and Exchange Commission has penned an open letter to chief financial officers reminding them be sure their 10-Qs and 10-Ks contain plenty of disclosures regarding any risks the company may face related to mortgages and foreclosure-related activities.

The SEC’s Division of Corporation Finance sent the letter directly to an unspecified number of companies during the month of October, then the SEC posted it online to serve as a notice for all public company CFOs. “With quarterlies due in coming days, (SEC) staff determined it would be helpful for industry participants to see our areas of focus so they could improve their disclosures,” said SEC spokesman John Nester. He said “several” companies received the letter directly.

A nationwide investigation into foreclosure practices put a halt to a mounting number of residential foreclosures as financial institutions and mortgage servicers face allegations of automated, rubber-stamped actions without adequate documentation. The SEC letter is the latest installment in a series of "Dear CFO" letters. It serves as a warning not just for financial institutions and those directly tied to the foreclosure mess, but even corporate investors who may get caught in the crossfire, to be sure their risks are clearly disclosed.

“To the extent corporate investors are involved in potential issues with respect to the review of foreclosures of underlying assets or defects in securitizations, they need to be thinking about impairments and potential litigation,” said Robert Malionek, a partner in securities litigation with the law firm Latham & Watkins. “This cuts across many different constituencies.”

Lynn Turner, managing director in the forensic accounting practice at LECG and a former chief accountant at the SEC, said the documentation crisis will no doubt lead to a drawn-out litigation process. “It will be a fight about who ends up with the losses—the people who bought the loans or the people who originated them,” he said.

In the meantime, the SEC letter says, companies will be expected to think about whether they have some exposure that needs to be disclosed. The letter tells companies to take a close look at the effect of various representations and warranties regarding mortgages made to purchasers of the mortgages or mortgage-backed securities.

It’s not a complete list, but the SEC says companies should start by thinking about such warranties and representations made with respect to ownership of the loan, validity of the lien securing the loan, the absence of delinquent taxes or liens against the property, the process used to select the loan for inclusion in a transaction, the loan’s compliance with loan criteria such as underwriting standards established by the buyer, the delivery of all required documents to the trust, and the loan’s compliance with applicable laws.

The letter tells companies to think about how such warranties and representations might now be producing increased risks and uncertainties in a number of respects, including litigations risks, potential defects in securitizations, impairments, and liquidity. The SEC staff reminds companies to pay attention not only to disclosure rules in Regulation S-K, but also accounting rules regarding contingencies in Accounting Standards Codification Topic 450-20.