U.S. Department of Housing and Urban Development

Office of Housing

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Special Attention of:

Notice H 94-49 (HUD)

All Secretary\'s Representatives

All State Coordinators Issued: 6/28/94

All Area Coordinators Expires: 6/30/95

All Housing Directors
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All Directors of Housing Management Cross References:

All Chief Property Officers

All Chiefs of Loan Management

All Single Family Supervisory Loan

Specialists

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Subject: 1992 Amendments to the Single Family Regulations

On October 20, 1992, the regulations governing the claims and the

servicing of FHA-insured single family mortgages were amended to improve

the efficiency of the Single Family Mortgage Insurance Program.
Mortgagee

Letter 93-16, dated June 11, 1993, identifies these changes and provides

guidance in their implementation.

Although these amendments were effective 30 days after publication of

the final rule, some of them are applicable to all mortgages (regardless
of

the date they were insured), and some of the amendments affect only
those

mortgages insured under firm commitments issued on or after November 19,

1992, or under direct endorsement processing where the credit work sheet

was signed by the mortgagee\'s approved underwriter on or after November
19,

1992\.

The Mortgagee Letter offers clarification by addressing issues

applicable to all mortgages in Section A, and in Section B, addresses
those

issues applicable only to those mortgages insured under firm commitments

issued on or after November 19, 1992, or under direct endorsement

processing where the credit work sheet was signed by the mortgagee\'s

approved underwriter on or after November 19, 1992.

This Notice is an adjunct to the Mortgagee Letter and will provide

procedural guidance for several key issues that require Field Office

staff involvement. In responding to mortgagee inquiries, refer to the

requirements as set forth in the amended regulations and in the
Mortgagee

Letter. Do not quote or refer mortgagees to the instructions provided

within this Notice. The instructions provided in this Notice are for use

by HUD staff only.

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HSIP: Distribution: W-3-1, W-2(OGC)(H)(Z), W-3(A)(H)(ZAOO), W-4(H), R-1,

R-2, R-3, R-3-1(H)(RC), R-3-2, R-3-3, R-6, R-6-1, R-6-2, R-7, R-7-1,

R-7-2, R-8, R-8-1

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There are two key issues that will require close attention by Field

Office staff. These issues involve:

\(1\) the amendments that affect the date that mortgagees must commence

foreclosure: 24 CFR 203.355; and,

\(2\) the amendments that affect reconveyance procedures:

24 CFR 203.363, 203.364, 203.366, 203.378, 203.379 and 203.387.

These changes place strict time requirements on mortgagees and on

Field Office staff. Therefore, Field Office staff (both in Loan
Management

and Property Disposition) must be sensitive to tight time frames and

respond promptly. Please review the Attachments for guidance on each

issue.

If you have any questions pertaining to the changes to 203.355,

please contact your appropriate desk officer in Headquarters Servicing

Division. For questions on all other changes, contact Jo Anne Edwards in

Headquarters Property Disposition Division at (202) 708-4767.

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Assistant Secretary for Housing

\- Federal Housing Commissioner

Attachments

2

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ATTACHMENT 1

PAGE 1 OF 11

I. 203.355 - Acquisition of Property

Prior to this amendment, the latest a mortgagee could initiate

foreclosure without penalty was 12 months from the date of default.

Now, mortgagees must initiate foreclosure within 9 months from the

date of default, except where properties have become vacant or

abandoned. In that situation, a mortgagee\'s time frame to initiate

foreclosure is reduced further.

A. All properties - This amendment reduces the time within which

foreclosure must be commenced (or other action must be taken to

acquire the property such as the completion of a deed-in-lieu)

from one year from the date of default to nine months from the

date of default for all cases where the date of default is on or

after December 1, 1992.

The key to relating the effective date of this amendment to the

claim form, HUD-27011, is first verify the date of Block 8 (the

last complete paid installment). If Block 8 is on or after

October 1, 1992, the case is subject to the new time

requirements.

B. Vacant or abandoned property - All insured mortgages are subject

to the nine month requirement where the date of default is on or

after December 1, 1992, (the date of the last paid installment is

on or after October 1, 1992). In addition, where the property

became vacant or abandoned (or should have been discovered to be

vacant or abandoned) on or after August 1, 1993, the mortgagee

may have an earlier time period to meet.

Regulation 24 CFR 203.355(a)(2) states that the mortgagee must

commence foreclosure within the later of 120 days after the date

the property became vacant or 60 days after the property is

discovered or should have been discovered vacant. The 120 day

time frame was determined by adding the standard 60 day allowance

to institute foreclosure to the 60 day time frame provided in 24

CFR 203.606(b)(1) which permits mortgagees to foreclose when a

property has been abandoned or vacant for 60 days without the

delay in foreclosure required to meet the Assignment Program

requirements. In essence, HUD added 60 days to the 60 day

allowance for properties that had been vacant or abandoned.

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ATTACHMENT 1

PAGE 2 OF 11

To simplify the requirements of this regulation, with regard to when to

apply the 60-day time frame or the 120-day time frame, the Department

has elected to allow lenders the maximum of 120 days in all cases that

fall within 203.355(a)(2), since in most cases the later date will be

the 120-day time frame. Of course, the Department expects lenders to

initiate foreclosure earlier than 120 days whenever possible, however,
the

mortgagee must initiate foreclosure within 120 days from vacancy. The
120

days starts when the property, was discovered vacant or should have been

discovered vacant, whichever is verified as earlier.

Under this amendment, there is no requirement to initiate foreclosure

where the mortgage is current, regardless of how long the property has

remained vacant.

1\. If the mortgage is in default and the property has been determined

to be vacant or abandoned, foreclosure must be initiated by the

earliest of:

\(a\) nine months from the date of default; or,

\(b\) 120 days after the date the property become vacant, was

discovered vacant, or should have been discovered

vacant.

NOTE: The 60-day time frame is still applicable for

bankruptcies and reinstitution of foreclosure

(Refer to the following item (C.) Bankruptcies).

2\. If the property became vacant prior to an inspection, and the

mortgagee has knowledge of such vacancy, then the date the

property became vacant is the vacancy date. If the mortgagee has

no information, or other reasonable means to establish a vacancy

prior to an inspection (discovery date), the date the property is

discovered vacant through an inspection will be considered the

vacancy date. Where the mortgagee is required to inspect in

accordance with 203.377, and fails to do so within the time required,

and the property is subsequently discovered vacant, the vacancy date

will be considered to be the last date the inspection could have been

performed within the time requirement.

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ATTACHMENT 1

PAGE 3 OF 11

3\. If a required inspection was not performed, the mortgagee will have

failed to have taken reasonable action to protect and preserve the

property and would have failed to have established the vacancy date

for the purpose of initiating foreclosure within the required time

frame.

4\. If information is available to the mortgagee indicating that the

property had become vacant or abandoned at a date earlier than the

inspection date, then this earlier date will be considered as the

vacancy date. This type of information includes: complaints

concerning the unkempt and apparent vacant condition of the

premises, condemnation or other notices requesting that the

mortgagee secure the property, notices citing utility disconnections,

or billings from the local jurisdiction for debris removal, snow

removal or lawn cuttings resulting from local code violations. These

situations usually denote that the property has been left vacant.

5\. In order to avoid imposing a penalty in those cases where all or
part

of the 120-day period expires before the effective date of the

amendment, interest curtailment will be imposed only in those cases

where;

\(a\) the date of default is on or after December 1, 1992, (the last

unpaid installment is on or after October 1, 1992); and

\(b\) the mortgagee discovers (or should have discovered) the

property to be vacant or abandoned on or after August 1,

1993\.

6\. For cases where the mortgagee is aware that the property has

remained vacant, but the mortgage has been current, the trigger for

the 120 day time frame shall be the date of default.

7\. After the date of default, the 120 day time frame will begin on the

earlier of the date the property was found vacant/abandoned or the

date the property should have been found vacant/abandoned.

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ATTACHMENT 1

PAGE 4 OF 11

8\. The amendment to 203.377, discussed in more detail in Item 6, of

the mortgagee letter, defines the initiation of foreclosure on

vacant or abandoned properties as a reasonable action to preserve

and protect the property.

NOTE: Where the mortgagee was subject to this amendment and

failed to initiate foreclosure timely on cases where

the property was vacant or abandoned the mortgagee

should identify the date foreclosure should have begun

in Block 31 of Form HUD 27011 to self-curtail interest

of the subject claim.

C. Bankruptcies - The amended 203.355 (a)(c) also clarifies the effect

of a bankruptcy stay on foreclosure initiation.

1\. HUD\'s long-standing policy has been to consider the prohibition

to foreclosure due to a bankruptcy stay to be the same as a

prohibition to foreclosure due to state law. In both

circumstances the mortgagee has had, and continues to have, 60

days following the release of the specific prohibition to

institute foreclosure.

2\. The same 60-day time frame is also applied to situations where

the mortgagee must discontinue the prosecution of foreclosure

because the mortgagor(s) filed bankruptcy. Foreclosure must be

recommenced within 60 days after the expiration of the time

during which foreclosure was prohibited.

Because of the revised requirements that result in a reduction of time

to initiate foreclosure, especially where the property has become

vacant or abandoned, Field Office staff may expect to begin receiving

additional requests for extensions of time to initiate foreclosure or

complete a deed in lieu of foreclosure. As with any mortgagee request

for an extension of time, Field Office staff should carefully review

the facts and approve or disapprove extensions based upon the

circumstances.

Your review of the mortgagee\'s request must also take into

consideration the complexity of the foreclosure process in your state

and the potential savings that accrue from accepting a deed in lieu of

foreclosure. The additional interest cost to HUD of a 30 to 60 day

extension of time to allow the mortgagee to complete a deed in lieu

will more than be offset by the substantial savings of avoiding the

additional costs of a foreclosure.

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ATTACHMENT 1

PAGE 5 OF 11

II\. 203.363 - Effect of Noncompliance with Regulations

Requirements for mortgages insured with firm commitments issued on or

after November 19, 1992, or under direct endorsement processing where

the credit worksheet was signed by the mortgagee\'s approved

underwriter on or after November 19, 1992.

Should the mortgagee reapply for mortgage insurance benefits following

the reconveyance of a property, the mortgagee will not be reimbursed

for any expenses (such as preservation and protection and taxes)

incurred in connection with that property after its reconveyance from

HUD nor be paid any debenture interest after the date of initial

conveyance or the deadline date for conveyance as required by

203.359, whichever is earlier. NOTE: Page 10 of Mortgagee Letter

93-16 incorrectly states \"reconveyance\". Offices should review the

claim to ensure that there are no improper expenses included on the

claims form. Immediately notify Single Family Insurance Claims in

Headquarters if you find any improper expenses.

This amendment also provides that any reduction in the Secretary\'s

estimate of value from the time of reconveyance to the time of

reapplication be deducted from any subsequent insurance claim. If

there is a reduction in value, promptly provide written notification

to the mortgagee and Claims of this fact and order an appraisal if

necessary to establish the value at the time of reapplication for

insurance benefits.

III\. 203.364 - Mortgagee\'s Liability for Property Expenditures

Requirements for all mortgages

A. When (a) it becomes necessary for HUD to reconvey a property due

to noncompliance with the regulations or, (b) HUD consents to the

withdrawal of the application for insurance benefits, the

mortgagee must reimburse HUD all of its expenses incurred in

connection with the acquisition and reconveyance of the property

( 203.364).

B. Reimbursement shall include (a) the refund of the insurance

benefits paid, (b) interest on the insurance benefits refunded

by the mortgagee to HUD from the date the insurance benefits

were paid to the date refunded at a rate set in conformity with

the Treasury Fiscal Requirements Manual, and (c) HUD\'s cost of

holding the property from the date the deed to HUD was filed for

record to the date of reconveyance. See page 7 item 4 for a

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ATTACHMENT 1

PAGE 6 OF 11

discussion on these costs. Field Offices must notify the

mortgagee of any income received from the property in order for

the mortgagee to adjust their settlement calculations.

NOTE: The instructions listed below and in Attachment 2 supersede those

provided in Notice H 91-34 dated April 25, 1991, as they relate to
Property

Disposition\'s responsibility in connection with defective title, damage
and

reconveyance of properties.

IV\. 203.366 - Conveyance of Marketable Title

A. HUD regulation (24 CFR 203.366) was amended to add new guidelines

affecting the conveyance of properties without marketable title.

However, paragraph (a) continues in effect: \"The mortgagee shall

tender to the Commissioner a satisfactory conveyance of title and

transfer of possession of the property. The deed or other

instrument of conveyance shall convey good marketable title to

the property, which shall be accompanied by title evidence

satisfactory to the Commissioner\".

B. The new paragraph (b) Conveyance of property without good

marketable title, has been added which applies to mortgages

insured with firm commitments issued on or after November 19,

1992, or under direct endorsement processing the credit worksheet

was signed by the mortgagee\'s approved underwriter on or after

November 19, 1992.

1\. Under this requirement, when a property is conveyed to HUD

with defective title, the mortgagee will be allowed 60 days

from the date of receipt of HUD\'s notification to correct

the problem (Exhibit 1). Although the mortgagee may retain

the insurance benefits already paid, it will not be

reimbursed for any costs involved in correcting title

defects ( 203.402(f)). The mortgagee, not HUD, must bear

the cost of correcting title defects and property expenses

pending correction, since HUD did not participate in

obtaining or maintaining the mortgage lien nor in acquiring

title to the property.

The 60-day time frame is a change from our previous policy

of giving only 30 days to correct title defects. For

consistency this requirement shall pertain to all properties

that are conveyed to the Department with defective titles

notwithstanding the date of origination.

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ATTACHMENT 1

PAGE 7 OF 11

2\. Upon a written request from the lender, Field Office staff may grant

additional time to correct the title defect twice (Exhibits 3 and 4).

Requests for additional time beyond the initial 60 days shall be

handled on a case by case basis and files documented accordingly.

Offices should grant additional time only when it appears that

corrective action will be completed within the additional 30 days.

3\. If a title defect is not corrected within 60 days (or 90 days in
cases

where additional time was granted), the Field Office must notify the

mortgagee via Exhibit 4 (with Exhibit 6 attached) to reimburse

HUD its daily holding costs and interest on the insurance benefits

paid at a rate set in conformity with the Treasury Fiscal

Requirements Manual from the date of HUD\'s notice of the

defective title to the date the defect is corrected. Take this action

only where you have assurance that the title defects will be corrected

within a reasonable time period and where you determine this action

is preferable to reconveyance. Field Offices should not grant

lengthy extensions to correct title defects and should initiate

reconveyance where appropriate.

4\. The interest rate to be used through December 31, 1994, is 3

percent. Computation of holding costs shall be based on the

national average of taxes, maintenance and operating expenses and

staff costs, which currently averages \$13.42 per day. NOTE: This

does not include the \"lost interest\" portion of the normal holding

costs since the interest claim will be used in place of this expense.

The national average, less the \"lost interest\" portion, must be used

in lieu of any other locally calculated cost. Headquarters will

inform Field Offices when the interest rate and daily holding costs

are revised, at which time Field Offices must revise letters (Exhibits

4, 6, 7, 8, 12 and 13) to mortgagees to reflect the changed rates for

that calendar year. If the letters have already been issued and the

debt continues to be outstanding on the effective date the rates are

changed, send the appropriate revised letter to the mortgagee and

forward a copy to MIAS-SFC.

5\. If the defect is not corrected within a reasonable time and/or the

Field Office does not have reasonable assurance that defects will be

corrected in a reasonable period, the Field Office must notify the

mortgagee via Exhibit 7 (with Exhibit 8 attached) that it has decided

to reconvey the property. The mortgagee must reimburse HUD

holding costs from the date the deed for record was filed to the date

of reconveyance as well as the full amount of the insurance benefits

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ATTACHMENT 1

PAGE 8 OF 11

claim and interest on the claim from the date paid to the

date refunded /1 as provided in 203.363 and 203.364 (See

Attachment 2 for reconveyance procedures).

C. Offices are reminded that when title defects such as

encroachment, easements, and rights of way, reduce the property

value by a measurable amount which may detract from the property

value, but do not prevent its sale, the property need not be

recommended for reconveyance. In such instances, the claim

should be paid if the Field Office determines this is preferable

and the mortgagee agrees to accept a reduction in insurance

benefits that is considered adequate by the Field Office to

compensate for any anticipated loss to the mortgage insurance

fund resulting from the existence of the title condition. See

Paragraph VIII.

V. 203.378 - Property Condition

Requirements for all mortgages

A. Should the mortgagee convey the property damaged per 203.379(a)

i.e., fire, flood, earthquake, tornado or mortgagee neglect

without prior notice or approval from the Field Office, the

Office shall either (1) reconvey the property, or (2) require

the mortgagee to reimburse the Department the greater of HUD\'s

estimate of the cost of repair or any insurance recovery,

or (3) request the mortgagee to repair. See Paragraph VI B.

for Section 203.379(b) for other type of damages.

B. If Field Office staff determines that a property should be

repaired and needs additional time to provide a complete estimate

of repairs, notify the mortgagee of the length of time needed to

furnish HUD\'s estimate of the cost of repair.

C. If the damage is corrected by the mortgagee within the approved

time frame and the Field Office made a request to \"stop payment\"

on the claim, notify Headquarters\' Mortgage Insurance Accounting

and Servicing - Single Family Claims (MIAS-SFC) staff that the

damage has been corrected. Should the problem still exist after

expiration of the approved time frame and no adequate response

has been received, Field Offices are to take immediate steps to

convey title to the property back to the mortgagee in accordance

with the instructions outlined in Attachment 2 - Procedures for

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/1 The mortgagee must also reimburse HUD for any

additional holding costs incurred from the date of

refund to the date the quitclaim deed is recorded.

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ATTACHMENT 1

PAGE 9 OF 11

Reconveying Properties to Mortgagees.

D. Field Offices should use reconveyance sparingly and only as a

last resort where other reasonable actions cannot resolve the

problem.

Requirements for mortgages insured with firm commitments issued on

or after November 19, 1992, or under direct endorsement processing

the credit worksheet was signed by the mortgagee\'s approved

underwriter on or after November 19, 1992.

The Federal Register and the CFR omitted a passage of 12 words

belonging in paragraph (c)(3) of Section 203.378. After the word

\"property\" the following should be inserted: \"has sustained

while in the possession of the mortgagee if the property\".

Under the new paragraph (c)(3), the mortgagee is responsible for

any damage the property has sustained while in the mortgagee\'s

possession if the property was conveyed without prior notice to

and approval by HUD of such damage as provided in the amended

203.379. NOTE: This new paragraph relates to the new

notification requirements identified in the new paragraph

203.379(b) which is not being implemented at this time.

Therefore, implementation of 203.378 (c)(3) is also being

deferred at this time.

VI\. 203.379 - Adjustment for Damage or Neglect

A. Mortgagee Neglect - Requirements for all Mortgages

1\. For a list of items that must be present before mortgagee

neglect can be established, see Paragraph 2-28 of Handbook

4310.5 Rev-1.

2\. In cases where it may be too late for the mortgagee to

adjust its reimbursable expenses on Parts B and C of Form

HUD-27011, discuss performance with the mortgagee to

determine if reasonable measures were taken by the mortgagee

(such as completing inspections at required intervals and

taking immediate action to correct potentially damaging

conditions) to protect and preserve the property but it was

damaged anyway. If this is the case, the mortgagee would

not be responsible for the property damage. The Field

Office must determine \"reasonableness\" and document the file

accordingly.

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ATTACHMENT 1

PAGE 10 OF 11

3\. If the Field Office is not satisfied with the mortgagee\'s
explanation

and determines that the damage was the result of mortgagee

neglect, a number of options must be considered depending on

which best serves the interest of the Secretary. Good judgement

should be applied in determining which of the following options

would be the most practical way to resolve the problem.

\(a\) Mortgagee Will Repair. If a decision is made to have the

mortgagee repair the damage, send Exhibit 2 to the lender

giving them 90 days to complete the repairs. An additional

30-days may be granted, but in no event should repairs

exceed 120 days. A copy of your instructions must be

forwarded to Loan Management and a copy retained for

Property Disposition files.

\(b\) Reduce Claim. If the decision is for HUD to accept the

property in damaged condition, the mortgagee must be

instructed to within 30 days, reduce its claim by HUD\'s

estimate of the cost of repair or any insurance recovery

received by the mortgagee, whichever is greater. On claims

already paid, instruct the lender to refund the greater amount

to HUD within 30 days.

Occasionally, mortgagees will fail to show a damage estimate

or insurance recovery on the original claim and interest is

improperly calculated on the full unpaid principal balance. It

is important that you add to the amount to be refunded, the

debenture interest paid on the unpaid principal balance which

is equivalent to the damage estimate or insurance recovery.

Before determining what amount should be refunded, Field

Offices should obtain information from MIAS-SFC regarding

the claim payment which also includes the interest calculation.

\(c\) Offset of Future Claim. In situations where HUD agrees to

accept the property in damaged condition but the mortgagee

fails or refuses to reduce its claim or make a refund to HUD

within 30 days, initiate the steps outlined under Attachment 2

for possible offset on a future claim.

\(d\) Reconveyance. If a decision is made to reconvey, Field

Offices should follow the procedure outlined in Attachment 2.

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ATTACHMENT 1

PAGE 11 OF 11

4\. When a property that has been damaged by fire, flood,

earthquake, tornado or the mortgagee\'s failure to take

reasonable action to inspect, preserve and protect was

conveyed without HUD\'s authorization, options 3. a, b, c

or d listed above should be applied depending on which

option would best serve the interest of the Department.

B. HUD is deferring implementation of the notification requirement

identified in the new paragraph 203.379(b) (damage by events

other than fire, flood, earthquake or tornado or damage

notwithstanding reasonable action by the mortgagee to inspect,

protect and preserve the property as required by 203.377). The

new requirement would affect only those mortgages insured under

a Firm Commitment issued on or after November 19, 1992, or under

Direct Endorsement processing where the credit worksheet was

signed by the mortgagee\'s approved underwriter on or after

November 19, 1992. Since relatively few mortgages are included

in this universe, a delay in implementation will not adversely

affect either HUD or mortgage lenders.

HUD will issue implementing procedures for the new requirement of

203.379(b) in a future Mortgagee Letter and Notice. Until that

time, mortgagees must continue to follow the requirements of

Chapter 9, HUD Handbook 4330.1, Rev-4, concerning the condition

of conveyed properties.

VII\. 203.387 - Acceptability of Customary Title Evidence

Requirements for all Mortgages

This amendment provides that, in the event of a disagreement as to the

acceptability of title and title evidence, HUD\'s decision will be

final.

VIII\. 203.391 - Title Objection Waiver with Reduced Insurance Benefits

Requirements for all Mortgages

This change clarifies that the option to approve a claim payment in a

reduced amount if the title is defective rests with HUD and not the

mortgagee. The reduced amount shall be restricted to Part B Claim

payments. If the reduction exceeds the amount due, MIAS-SFC will bill

the mortgagee later for the difference.

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ATTACHMENT 2

PAGE 1 OF 5

PROCEDURES FOR RECONVEYING PROPERTIES TO MORTGAGEES

1\. Have Field Office Area Counsel (Regional Counsel in co-located
offices

only) review the case to be reconveyed, for conformity with 24 CFR

203.363. In order to speed up the process, do not refer case to

Regional Counsel except in co-located offices.

2\. Upon approval from the Area/Regional Counsel, place the property in
a

hold off market status and send the mortgagee a Preliminary Notice of

Intent to Reconvey. Exhibit 1 is to be used in cases of where the

cause of the reconveyance is a title defect and where the insured

mortgage had been insured on or after November 19, 1992, or under

direct endorsement processing where the credit worksheet was signed by

the mortgagee\'s approved underwriter on or after November 19, 1992.

Exhibit 1-A is to be used in title defect reconveyances where the

mortgage had been insured prior to November 19, 1992. Exhibit 2 shall

be used for damaged properties. These letters will advise the lender

to correct the problem within the stated time frame or the property

may be reconveyed (60 days for title defects and 90 days for property

damage). Should the mortgagee request additional time to correct a

damaged property, determine if the corrective action can be

accomplished within the 30 day time frame and send Exhibit 5.

3\. For Title Defects Only. Field Offices can grant additional time to

correct the title defect twice, 30 days with no penalty (for

reconveyances where the mortgage had been insured prior to 11/19/92)

and additional time with penalty. When the request for additional

time is for 30 days, determine if the corrective action can be

accomplished within this time frame and send Exhibit 3.

If the mortgage had been insured on or after November 19, 1992, the

mortgagee requests additional time beyond the original 30-day

extension and the Field Office has assurance that the title defect can

be corrected within a reasonable time frame, send Exhibit 4 along with

Exhibit 6.

4\. Only after completing steps 1 and 2 above, to stop all further claim

payments (partial, final or supplemental) to the mortgagee for a

particular property being reconveyed, promptly forward a copy of

Exhibit 1 or Exhibit 2 to Headquarters\' Mortgage Insurance Accounting

and Servicing - Single Family Claims (MIAS-SFC) staff and instruct

MIAS-SFC to stop payment on Part A of the claim form if not already

paid. Your instructions should also request that a hold be placed on

the claim until further notice. This information can be faxed or

mailed to MIAS-SFC\'s Systems Management

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

ATTACHMENT 2

PAGE 2 OF 5

and Control Section, HFMPMS, P. O. Box 44807, Washington, DC

20046-4807. The telephone number is (703) 235-9102 (Single Family

Claims Telephone Center) and the facsimile machine number is (202)

708-0299. To ensure prompt delivery, you may want to fax all

correspondence pertaining to reconveyance actions directly to the

Reconveyance Specialist\'s attention.

5\. If the mortgagee has not corrected the title defect or damage within

the allotted time, send Exhibit 7 to the mortgagee stating the reason

for reconveyance and a request for reimbursement to HUD. Also forward

a copy to MIAS-SFC. Exhibits 4 and 7 are HUD\'s demand letters asking

for reimbursement of HUD\'s expenses relating to the reconveyance.

These letters provide the basis necessary for MIAS-SFC to establish an

accounts receivable and make subsequent demands for payments as

identified in 24 CFR 17.72 and 24 CFR 17.102. MIAS-SFC will charge

additional fees to the mortgagees if the debts become delinquent for

more than 90 days and will require that the debt be liquidated through

administrative offset. Along with Exhibit 4, send Exhibit 6 and with

Exhibit 7, send Exhibit 8 which are sample cover letters for the

mortgagee to send in their remittance.

For those offices having the capability, you can obtain partial and

final settlement figures from the A43C Single Family Claims Subsystem,

using the K-06 screen. A printout of this information is to be made a

permanent part of your case file and the dollar amounts are to be used

to determine the claims portion of your reimbursement amount request

to the mortgagee.

A function has been added to the A43 Claims Subsystem that will allow

Field Offices to obtain information concerning accounts receivable

actions taken by MIAS-SFC. By using Inquiry By Case Number on the

Single Family Claims Accounts Receivable System (ARS), screen function

N-06 will display the transaction data for the receivable under

inquiry, such as: date and dollar amount of the receivable

established, liquidation history (cash collections, offsets,

adjustments), balance due and the receivable status (referred for

offset or appeal/delay.

If your office does not have the capability to secure reports from the

A43C subsystem, contact your Regional Office. Field Offices can also

contact the Single Family Claims Telephone Center for information on

claims payments.

6\. Upon written notification from Headquarters that the remittance has

been received from the mortgagee either by check or offsetting action,

prepare a quitclaim deed signed either by the Office Manager or

Director, Housing Management Division. Forward a copy of the executed

deed to the mortgagee with a copy of Exhibit 10 via certified mail,

return receipt requested and place a copy in the case file. Within 5

days, staff or the appropriate Real Estate Asset

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

ATTACHMENT 2

PAGE 3 OF 5

Manager must record the original deed at the courthouse in the county

where the property is located and send the recorded deed to the

mortgagee with a copy of Exhibit 11 via certified mail, return receipt

requested. Documentary stamps and other costs may be reimbursed via

standard voucher procedure.

The mortgagee must also reimburse HUD for any additional holding cost

incurred from the date of their remittance to the date the quitclaim

deed is recorded. The length of time it takes to record the deed will

determine the amount to bill the mortgagee. When requesting

additional holding cost, with Exhibit 12 send Exhibit 13 which is a

sample letter for the mortgagee to send in their remittance. If the

debt is not paid within a set timeframe (30 days), the policy and

procedures for collecting such debt are described in 24 CFR 17 and HUD

Handbook 1900.25 Rev. 3, Delinquent Debt Collection Handbook.

For mortgages insured with firm commitments issued on or after

November 19, 1992, or under direct endorsement processing the credit

worksheet was signed by the Mortgagee\'s approved underwriter on or

after November 19, 1992, If a title defect is corrected after the

allotted time but prior to the reconveyance, the mortgagee must

reimburse HUD for daily holding costs plus interest on the claim from

the date of Exhibit 1 to the date the defect is corrected. You should

immediately notify MIAS-SFC if the problem is resolved or payment is

received in the Field. This notification should be faxed and mailed.

Single Family Claims will remove the non-payment flag in A43C and

cease collection activities based on this notification. If payment is

received in the Field Office, deposit the check in HUD\'s lockbox in

accordance with SAMS procedures and provide a copy of the check to

MIAS-SFC.

A tracking log must be maintained for recording all reconveyance

actions from the date the decision to reconvey is made, to the date

the recorded quitclaim deed is mailed to the mortgagee. The log

should indicate at least the mortgagee\'s ID number, FHA case number,

property address and the dates of each significant action. A sample

tracking log has been provided at Exhibit 14.

7\. At least two demand letters must be sent before offsetting action is

allowed on collection activities of the Federal government. If no

response or an unsatisfactory response is received from the first

demand (Exhibit 4 or 7) within 30 days, a second demand (Exhibit 9)

must be made with a 30-day response time which outlines HUD\'s

intention to offset and the lender\'s rights to appeal. Forward a copy

of these letters to MIAS-SFC.

There are two situations in which a mortgagee can appeal HUD\'s action.

The first occurs when the mortgagee appeals the reconveyance action.

Under this procedure, Field Office Managers are to review the appeal

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

ATTACHMENT 2

PAGE 4 OF 5

request to determine if the property should be accepted or if the

request should be denied. If the decision is to accept the property,

a memorandum must be forward to MIAS-SFC to cancel the reconveyance

action. If the request is denied, forward a letter to the mortgagee

notifying them of the denial and request the return of funds

previously demanded. The second situation occurs when the mortgagee

appeals the offset action. When this occurs, the Regional Claims

Collection Officer upon receipt of the appeal, will forward the

request to the Regional Director, Office of Housing for an

administrative review and final decision on the offset appeal action.

8\. If 30 days have passed since the second demand was made (Exhibit 9)

and you did not receive an adequate response from the mortgagee, you

should:

\(a\) Call the MIAS-SFC telephone center (703-235-9102) to verity

whether or not MIAS-SFC has received copies of the billing

letters (Exhibit 4 or, 7 and 9). If not, provide copies of

the original billing and the second demand letters. These

provide sufficient basis for MIAS-SFC to proceed with the

administrative offset actions.

\(b\) Verity whether or not a collection has been received either

by the Field or MIAS-SFC.

If collected in the Field, forward a copy of the check to

MIAS-SFC so that further collection activities can be

ceased.

If not, MIAS-SFC will automatically initiate offset actions

against the mortgagee. You can verily this by calling the

MIAS-SFC Telephone Center.

Once collected, MIAS-SFC will forward a copy of the

collection information (copy of check or offset action) to

your office. The Field Office must then prepare and forward

the quitclaim deed to the mortgagee.

\(c\) Initiate procedure for deletion of case from the Single

Family Accounting Management System (SAMS).

9\. Note the following requirements for mortgages insured with firm

commitments issued on or after November 19, 1992, or under direct

endorsement processing where the credit worksheet was signed by the

mortgagee\'s approved underwriter on or after November 19, 1992:

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

ATTACHMENT 2

PAGE 5 OF 5

\(a\) Should the mortgagee reapply for mortgage insurance benefits

following the reconveyance of a property, the mortgagee will not

be reimbursed for any expenses (such as preservation and

protection and taxes) incurred in connection with that property

after its reconveyance from HUD nor be paid any debenture

interest after the date of initial conveyance or the deadline

date for conveyance as required by 203.359, whichever is

earlier. Offices should review the claim to ensure that there

are no improper expenses included on the claims form.

Immediately notify MIAS-SFC if you find any improper expenses.

\(b\) Any reduction in HUD\'s estimate of value from the time of

reconveyance to the time of reapplication for insurance benefits

will be deducted from the insurance benefits. If there is a

reduction in value promptly provide written notification to the

mortgagee and MIAS-SFC of this fact. Order an appraisal if

necessary to establish the value at time of reapplication for

insurance benefits.

10\. Considering the time sensitive nature affecting the reconveyance

process, Field Offices should expedite their responses to the

mortgagee via facsimile wherever and whenever possible and urge the

mortgagee to do likewise.

11\. If the damage or title defect has been satisfactorily corrected any

time after Exhibit 1, 1-A, or 2 has been sent to the mortgagee, a

memorandum must be forwarded to MIAS-SFC to cancel the reconveyance

action. Upon receipt, MIAS-SFC will release any stop payment flags

and cease all collection activities.

If there are any questions concerning the above procedures and the

attached exhibits, please contact Jo Anne Edwards in Headquarters
Property

Disposition Division at (202) 708-4767.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

EXHIBIT 1

FIELD OFFICE LETTERHEAD

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\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Dear \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Subject: PRELIMINARY NOTICE OF INTENT TO RECONVEY (Title Defect)

FHA Case Number\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Mortgagee Reference Number\_\_\_\_\_\_\_\_\_\_

Property Address\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

We are considering the reconveyance of the subject property within 60

days of the date of this notice because: (Describe title defect). To

prevent this action from occurring, you must correct the problem and

provide my office with written documentation that this situation has
been

corrected within 60 days of the date of this notice. If additional time
is

needed to correct the (Describe title defect), you may submit a written

request to my office promptly upon receipt of this notice.

If the title defect is not corrected or a written request for

additional time is not received from you within the above time frame,
the

Department will require you to pay certain expenses until the defect is

corrected or we may reconvey title to the property back to your
association

at which time you will be required to refund to HUD with interest, any

mortgage insurance award that has been paid and to reimburse HUD for all

expenses incurred in connection with the acquisition and reconveyance of

the property. It is important to note that oral communication does not

negate nor extend any requirements to provide written notification as

stated above.

The Department is holding processing of your application for insurance

benefits in abeyance in order to permit you to comply with this request.

Thank you for your prompt cooperation in this matter.

Sincerely,

Chief Property Officer

cc: MIAS-SFC

NOTE: For mortgages insured on or after the effective date of the new

regulations - November 19, 1992 (except damaged properties).

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EXHIBIT 1-A

FIELD OFFICE LETTERHEAD

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Dear \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Subject: PRELIMINARY NOTICE OF INTENT TO RECONVEY (Title Defect)

FHA Case Number\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Mortgagee Reference Number\_\_\_\_\_\_\_\_\_\_

Property Address\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

We are considering the reconveyance of the subject property within 60

days of the date of this notice because: (Describe title defect). To

prevent this action from occurring, you must correct the problem and

provide my office with written documentation that this situation has
been

corrected within 60 days of the date of this notice. If additional time
is

needed to correct the (Describe title defect), you may submit a written

request to my office promptly upon receipt of this notice.

If the title defect is not corrected or a written request for

additional time is not received from you within the above time frame,
the

Department will reconvey title to the property back to your association
at

which time you will be required to refund to HUD with interest, any

mortgage insurance award that has been paid and to reimburse HUD for all

expenses incurred in connection with the acquisition and reconveyance of

the property. It is important to note that oral communication does not

negate nor extend any requirements to provide written notification as

stated above.

The Department is holding processing of your application for insurance

benefits in abeyance in order to permit you to comply with this request.

Thank you for your prompt cooperation in this matter.

Sincerely,

Chief Property Officer

cc: MIAS-SFC

NOTE: For mortgages insured prior to November 19, 1992 (except damaged

properties).

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EXHIBIT 2

FIELD OFFICE LETTERHEAD

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\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Dear \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Subject: PRELIMINARY NOTICE OF INTENT TO RECONVEY (DAMAGE)

FHA Case Number\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Mortgagee Reference Number\_\_\_\_\_\_\_\_\_\_

Property Address\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

We are considering the reconveyance of the subject property within

90 days of the date of this notice because: \_\_\_(Describe
damage)\_\_\_\_\_\_\_\_\_.

To prevent this action from occurring, you must correct the problem and

provide my office with written documentation that this situation has
been

corrected within 90 days of the date of this notice.

If the \_\_(Describe damage)\_\_\_\_ is not corrected or a response is
not

received from you within the above time frame, the Department will
reconvey

title to the property back to your association at which time you will be

required to refund to HUD with interest, any mortgage insurance award
that

has been paid and to reimburse HUD for all expenses incurred in
connection

with the acquisition and reconveyance of the property.

The Department is holding processing of your application for

insurance benefits in abeyance in order to permit you to comply with
this

request.

Thank you for your prompt cooperation in this matter.

Sincerely,

Chief Property Officer

cc: MIAS-SFC

NOTE: For all mortgages except title defects.

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EXHIBIT 3

FIELD OFFICE LETTERHEAD

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Dear \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Subject: ADDITIONAL TIME TO CORRECT TITLE DEFECT - NO PENALTY

FHA Case Number\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Mortgagee Reference Number\_\_\_\_\_\_\_\_\_\_

Property Address\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

You are hereby granted an additional 30 days to correct \_\_\_(Describe

title defect)\_\_\_. If the problem is not corrected by
\_\_\_\_\_\_\_\_\_\_\_ and no

additional time is granted, the Department will take the necessary steps
to

reconvey the property back to your association at which time you will be

required to refund to HUD with interest, any mortgage insurance award
that

has been paid and to reimburse HUD for all expenses incurred in
connection

with the acquisition and reconveyance of the property.

Thank you for your cooperation in this matter.

Sincerely,

Chief Property Officer

cc: MIAS-SFC

NOTE: For all mortgages.

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EXHIBIT 4

Page 1 of 2

FIELD OFFICE LETTERHEAD

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Dear \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Subject: ADDITIONAL TIME TO CORRECT TITLE DEFECT - WITH PENALTY

FHA Case Number\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Mortgagee Reference Number\_\_\_\_\_\_\_\_\_\_\_

Property Address\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

You are hereby granted an additional \_\_\_\_ days to correct
\_\_\_(Describe

title defect)\_\_\_\_. As a condition of granting this additional time,
HUD

must be paid interest at a rate of 3% per annum on the amount on
insurance

benefits paid from the date of our original notice of title defect to
the

date the title defect is corrected 1/. Also include in your refund to
HUD

\$13.42 per day in holding costs accrued on a daily basis from the date
of

our original notice of defective title to the date the defect is
corrected.

This cost represents expenses the Department incurred in connection with

the property.

Please make your check payable to the United States Department of

Housing and Urban Development and forward it using the attached letter
as

soon as the title defect is corrected to:

United States Department of Housing and Urban Development

Attn: Reconveyance Specialist

Office of Housing - Single Family Post Insurance Division

Single Family Mortgage Insurance Claims Branch

P. O. Box 44807

Washington, DC 20026-4807

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

1/ Interest Formula: Benefits paid times current rate = \$x,xxx.

divided by 365 days = \$x.xx per day times total days from date

of notice to date corrected = amount due HUD.

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EXHIBIT 4

Page 2 of 2

If the problem is not corrected by \_\_(not to exceed 30 days)\_\_\_,
the

Department will take the necessary steps to reconvey the property back
to

your association at which time you will be required to refund to HUD
with

interest, any mortgage insurance award that has been paid and to
reimburse

HUD for all expenses incurred in connection with the acquisition and

reconveyance of the property.

It is important that you include the attached letter with your

remittance and send a copy of that letter to this office so your account

will be correctly credited.

Failure to reimburse the Department within the time specified above

may result in an off-set of any future mortgage insurance claim(s) filed

by your firm.

Thank you for your cooperation in this matter.

Sincerely,

Chief Property Officer

Enclosure (Exhibit 6)

cc: MIAS-SFC

NOTE: For all mortgages.