CHAPTER 8. COLLECTING GENERIC DEBTS

The Financial Operations Center (FOC) is responsible for servicing and
collecting a variety of debts and receivables that are transferred to
the FOC from other organizations within HUD. All debts other than Title
I claims are referred to as "generic" debts. This Chapter provides
policies and procedures unique to the servicing and collection of
generic debts. Where not covered in this Chapter, the information
presented in Chapters 1 through 7 of this handbook applies to the
collection of generic debts.

8-1 [WHY DEBTS ARE REFERRED TO THE FOC.]{.underline} Generally,
referrals to the FOC are limited to debts that stem from FHA programs
and activities. Since the FOC has established processes and systems to
automatically refer delinquent debts to the Department of the Treasury,
and to take other actions that are required by the Debt Collection
Improvement Act (1996), other HUD organizations may find it advantageous
to refer delinquent debts to the FOC. To obtain the benefit of referral
to the FOC, there should be a sufficient anticipated volume of cases to
justify the costs associated with establishing a new debt category in
DCAMS (if required).

8-2 [TYPES OF DEBTS.]{.underline} Generic debts serviced by the FOC may
be consumer debts or commercial debts. Each debt type is associated with
an accounting category. These categories facilitate appropriate
financial reporting from DCAMS. Debts types that originate at the FOC or
that have been assigned to the FOC include:

[Debt Type:]{.underline} [Accounting Category:]{.underline}

Single Family (SF) Deficiency Judgments SF Default Guaranteed

SF Rents SF Administrative

SF Erroneous MIP Refund SF Administrative

SF Unsecured SF Administrative

SF Vacant Lots SF Administrative

SF Indemnification Agreements SF Default Guaranteed

SF Civil Money Penalties SF Administrative

SF Claim Overpayments SF Default Guaranteed

SF Partial Claims SF Default Guaranteed

SF Upfront SF Administrative

Title I Repurchase Title I

Title I Premiums Title I

Multi Family (MF) Claim Overpayments MF Default Guaranteed

MF Premiums MF Administrative

> The following are brief descriptions of generic debt types serviced in
> the FOC. The authority to collect these debts can be found at 24 CFR
> Part 17 and in the Office of Housing -- Federal Housing
> Administration, Redelegation of Authority to the Deputy Assistant
> Secretary for Finance and Budget published in the Federal Register
> (Vol. 71, No. 197) on October 12, 2006. The Deputy Assistant Secretary
> for Finance and Budget has redelegated authority to designated
> positions within the Financial Operations Center by memorandum.
>
> [Single Family Deficiency Judgments.]{.underline} These consumer debts
> originated as part of a Deficiency Judgment Pilot Program implemented
> in February 1989. The program was designed as a deterrent against
> abuse committed by mortgagors who disregarded their financial
> obligations for reasons other than genuine hardship (generally
> "walkaways" and investors) and to generate revenue for the Department.
> The decision on how often to pursue deficiency judgments, and on which
> cases, was left to the Loan Management Branch in the HUD field
> offices. The deficiencies are created as a result of a foreclosure on
> a HUD insured Title II mortgage loan where the proceeds from the sale
> do not cover the total amount owed. These debts were assigned to the
> Housing Debt Management Centers for appropriate collection action. The
> functions of the Debt Management Centers were consolidated at the FOC
> in 1998. The referral package should include supporting documentation
> including copies of the Judgment and Assignment of Judgment to HUD.
> (References: Housing Notice H94-89 and 24 CFR 203.369.)
>
> [Single Family Rents.]{.underline} These consumer debts originated as
> a result of the pilot program implemented in 1993 named "Single Family
> Property Disposition Program Referral of Delinquent Former Tenant
> Accounts to Debt Management Center". The debts result from past due
> rent owed by former tenants of HUD-owned Single Family properties. If
> the debtor fails to respond to demands from the Department's property
> management contractor, and does not establish an acceptable repayment
> agreement, the debt can be referred by the Housing Single Family REO
> Division to the FOC for appropriate collection action. While this
> pilot program ended on December 30, 1995, additional referrals may be
> made to the FOC as appropriate. The referral package should include
> supporting documentation including a copy of the rental agreement and
> a history of rental payments made/missed. (References: Housing Notices
> H94-97 and H93-86, and HUD Handbook 4310.5.)
>
> [Single Family Erroneous MIP Refunds]{.underline} These consumer debts
> originate in Housing's Single Family Insurance Operations Division and
> result from the erroneous refund of unearned mortgage insurance
> premiums. The erroneous refunds can be caused by refinance "netting"
> problems, lender errors, the wrong person being paid, two checks
> issued in error, wrong case number being paid, overpayment of refund
> amount, etc. On September 28, 1989, the authority to collect these
> debts was delegated to the then Albany Debt Management Center (later
> known as the FOC) by the Deputy Under Secretary for Field
> Coordination. If the debtor fails to respond to demands from the
> Single Family Operations Division, the debts are referred to the FOC
> for appropriate collection action. The referral package should include
> supporting documentation including a copy of the refund check.
>
> [Single Family Unsecured Debts.]{.underline} These are both consumer
> and commercial administrative debts resulting from a myriad of
> different Single Family Housing activities. As an example, if a
> HUD-held mortgage loan is satisfied, but an escrow disbursement is not
> posted until after the lien is satisfied of record, the recoupment of
> the disbursement is classified and handled as a SF Unsecured Debt. If
> the obligated party fails to respond to demands from the Housing
> program staff, the debt can be referred to the FOC for appropriate
> collection action. The referral package should include supporting
> documentation. (References: Housing Notices H94-80 and H93-66.)
>
> [Single Family Vacant Lots.]{.underline} These are consumer debts that
> originate when Housing's Office of Single Family Asset Management
> determines that it is not practical to foreclose on a HUD-held Title
> II mortgage loan because the mortgaged property is a vacant lot that
> has a value less than the estimated cost of the foreclosure action. If
> the obligated party fails to respond to demands from the Housing
> program staff, the debt can be referred to the FOC for appropriate
> collection action. The referral package should include supporting
> documentation.
>
> [Single Family Indemnification Agreements.]{.underline} These
> commercial debts originate when Housing's SF Quality Assurance
> Division's lender monitoring staff perform compliance reviews of a
> lender's origination and/or servicing activities. When a review
> uncovers activities that expose the Department to an unacceptable
> level of risk, the lender may agree to indemnify HUD for losses
> incurred by HUD on specific noncompliant loans. If HUD agrees to
> indemnification as a means to resolve HUD's findings, the Department
> and the lender execute an Indemnification Agreement. The agreement
> states that the lender will repay HUD for any losses that the
> Department incurs because it insured the loans covered by the
> agreement. HUD/FHA loans may also be indemnified as a result of
> enforcement activities of HUD's Mortgagee Review Board and of the
> Office of General Counsel's Office of Program Enforcement. If HUD
> incurs a loss, the Department seeks payment from the indemnifying
> lender based on the terms of the Indemnification Agreement. As of
> March 2004, the FOC was assigned responsibility for monitoring SF
> Indemnification Agreements, calculating HUD's net loss after claim
> payment, and the billing and collecting of these debts. (Reference:
> OIG Audit Report No.: 2004-DE-0001.)
>
> [Single Family Civil Money Penalties.]{.underline} These are a mix of
> consumer and commercial debts that originate in the Office of General
> Counsels' Office of Program Enforcement. The debts are associated with
> civil actions taken by OGC related to HUD housing activities. If the
> civil action involves a repayment agreement, OGC may refer it to the
> FOC for billing and payment agreement monitoring. If the civil action
> results in a debt being owed that the debtor has failed to pay, OGC
> may refer it to the FOC for full-scale debt collection. The referral
> package must include supporting documentation including the Settlement
> Agreement or Judgment. (Reference: Mortgagee Letter 91-37.)
>
> [Single Family Claim Overpayments.]{.underline} These commercial debts
> are by Housing's Single Family Post Insurance Division's Single Family
> Claim Branch. Debts can originate as a result of mortgagees claiming
> inappropriate charges related to foreclosure, preservation and
> protection expenditures, tax payments, etc. and can also originate if
> a mortgagee fails to return a claim payment after HUD re-conveys the
> foreclosed property to the mortgagee. Housing's Single Family Claims
> Branch will demand the erroneous claim payment amount from the
> mortgagee. If the mortgagee fails to respond to their demands, the
> debt can be referred to the FOC for appropriate collection action. The
> referral package must include supporting documentation including
> details about the claim payment. (Reference: OIG Audit Report No.:
> 2005-DE-0001.)
>
> [Single Family Partial Claims.]{.underline} These consumer debts
> originate as part of Housing's loss mitigation program. Under the loss
> mitigation "partial claim" option, a mortgagee will advance funds on
> behalf of a mortgagor in an amount necessary to reinstate a delinquent
> loan (not to exceed the equivalent of 12 monthly payments). The
> mortgagee then files a claim with HUD for the funds advanced. In
> exchange for HUD's payment, the mortgagor is required to execute a
> promissory note and subordinate mortgage payable to HUD. No payment is
> due until a callable event occurs (usually a sale or refinance of the
> mortgaged property.) Once the note becomes due and payable, Housing's
> Oklahoma City National Servicing Center's contractor issues a demand
> letter. Interest begins to accrue on the debt from the date of this
> letter. If the borrower fails to pay, the debt can be referred to the
> FOC for appropriate collection action. The referral package must
> include supporting documentation including a copy of the note and
> lien. (References: 24 CFR 203.371 and Mortgagee Letters 00-05, 97-17,
> 96-61.)
>
> [Single Family Upfront.]{.underline} These commercial debts are
> originated by Housing's Single Family Insurance Operations Division.
> They result from the underpayment of an upfront mortgage insurance
> premium payment, refinance credit corrections, duplicate premium
> refunds or unpaid penalties due on a late premium payment. If the
> lender fails to respond to the demand letters from Single Family
> Insurance Operations Division, the debt can be referred to the FOC for
> appropriate collection action. The referral package must include
> supporting documentation including the premium billing information.
> (References: Mortgagee Letters 94-31, 94-28, 94-25, 92-35, 91-26,
> 91-1.)
>
> [Title I Repurchase.]{.underline} These commercial debts originate in
> the FOC as the result of a repurchase request to a Title I lender that
> goes unpaid. (See Paragraph 3-10 for additional information about
> Title I repurchases.) If the lender fails to repay the claim and the
> debt cannot be offset against other pending Title I claims, a generic
> debt case will be established in DCAMS (see also paragraph 8-5) for
> further collection action. (References: 24 CFR 201.54 (h), 201.63, and
> Part 17, subpart C.)
>
> [Title I Premiums.]{.underline} These commercial debts originate in
> the FOC as a result of a Title I lender failing to pay premiums due on
> Title I loans. If the lender fails to pay all or part of their premium
> bill and associated demand letters go unanswered, a generic debt case
> will be established in DCAMS (see also paragraph 8-5) for further
> collection action. (References: 24 CFR 201.31, 201.63 and Part 17,
> subpart C)
>
> [Multi Family Claim Overpayments.]{.underline} These commercial debts
> are originated by Housing's Multi Family Financial Operations
> Division's Multi Family Claim Branch. If a lender is overpaid on a
> Multi Family claim, the Multi Family Claims Branch will demand the
> overage back from the lender. If the lender fails to respond to their
> demands, the debt can be referred to the FOC for appropriate
> collection action. The referral package must include supporting
> documentation including details about the claim payment. (Reference:
> 24 CFR Part 207.)
>
> [Multi Family Premiums.]{.underline} These commercial debts are
> originated by Housing's Multi Family Financial Operations Division's
> Multi Family Insurance Operations Branch. If the lender fails to pay,
> or otherwise resolve, all or part of their loan insurance premium
> bill, and associated demand letters go unanswered, the debt can be
> referred to the FOC for appropriate collection action. The referral
> package must include supporting documentation including information
> about the premium billing. (References: 24 CFR Part 207 and Mortgagee
> Letter 91-23.)

8-3 [ASSIGNMENT OF GENERIC DEBTS.]{.underline} Before a debt is
transferred to the FOC, the transferring Program Area must review the
case as appropriate to determine that the debt is valid, fixed in
amount, legally enforceable against the debtor, and that the
indebtedness should not be waived (see also Paragraph 3-2). The FOC's
responsibility for a debt begins when the FOC receives a referral
package that is complete, and that contains sufficient documentation and
information to load the debt into DCAMS and to effectively service the
debt. The actual documents and information that must be transmitted will
vary based on the type of debt. The FOC determines its data and
documentation requirements and will inform the Program Areas as
necessary. A sample generic debt referral "template" is provided in
Appendix 19.

The case file should be sent to the FOC. The file should include the
original obligating documents, if any, and other pertinent paper
records. The referral should be via a transmittal memorandum from an
authorized management official of the transmitting program area
addressed to the FOC Director. If multiple debts are being referred, the
referral package should also include a spreadsheet or similar report
that provides a summary of the debts included in the transmittal (i.e.
debtor name, case number, debt amount, relevant dates, etc.)

> The FOC Director assigns the debt(s) to the appropriate FOC Division
> for review and action. The debt(s) should be established in DCAMS or
> returned to the referring office with an appropriate explanation
> within 30 days of receipt by the FOC. The FOC notifies the referring
> office when the debt(s) are established in DCAMS. The referring office
> is then responsible for appropriately updating the accounting system
> where the debts were previously established in order to avoid double
> accounting for the subject debts.
>
> Note: For SF Indemnification Agreement debts (other than Section 601
> Claims), Title I Repurchase debts and Title I Premium debts the
> determination that a billable debt exists, calculation of the amount
> owed, creation of a debt case file, establishment of the debt in
> DCAMS, and other related activities occurs within the FOC.

1.  [FILE REQUIREMENTS FOR GENERIC DEBTS.]{.underline} In addition to
    the items outlined in Paragraph 6-1, a generic debt case file may
    include the following documents.

-   Manual Billing/demand letters issued by HUD (either by FOC or
    Housing Program)

-   Copy of the signed Indemnification Agreement/Settlement Agreement or
    other documentation that establishes the basis for the debt

-   Debt calculation worksheets

-   Screen prints from debt loading to DCAMS

-   Screen prints or reports from the FHA Connection or other HUD
    systems that document the existence or amount of the debt

-   Transmittal media from the HUD Program Area

    1.  [ESTABLISHING THE DEBT IN DCAMS.]{.underline} On receipt of a
        valid debt referral, the FOC manually loads the debt in the
        "GDEBT/F71A" subsystem of DCAMS. Since debts are loaded via
        manual input, great care must be taken to load the debt
        accurately. The amount of debt loaded may be based on the
        referral from the Program Area, or the FOC may need to determine
        the debt amount (e.g., SF Indemnification Agreement debts). For
        successful servicing via DCAMS, the debtor's name, current
        address, and TIN must be input accurately. The "Date of Default"
        field in DCAMS is used by the system as the interest start date
        when calculating interest charges. This date must be determined
        and input based on the type of debt and the particulars of the
        case. For most generic debts, the interest start date is the
        date of HUD's first official written demand for payment.

        6.  [GENERIC DEBT REPAYMENT AGREEMENTS.]{.underline} Repayment
            agreements for generic debtors may require additional
            analysis beyond the steps outlined in Paragraph 2-6, due to
            the possibility of alternative administrative or collection
            actions, and the probability of correlative debts. For
            example, many of the commercial debt types involve
            lender-debtors that may be active participants in HUD/FHA
            loan programs, and thus subject to administrative sanctions
            based on failure to pay a valid debt. Where warranted, the
            LSS/DSR should review multi-year, accountant-prepared
            financial statements to assess the debtor's ability to pay
            as balanced against HUD/FHA minimum net worth requirements
            and the lender-debtor's viability as a HUD/FHA lender. The
            lender-debtor's HUD program participation status and past
            claim filing history should also be taken into consideration
            when determining if a payment plan is in HUD's best
            interests.

> In some cases (e.g. civil money penalty cases) the referring
> organization may have already approved a repayment agreement. In such
> cases, the FOC will honor such agreements unless the debtor defaults.
> In that event, the settlement agreement document must be reviewed to
> determine if there are any limitations on the available enforced
> collection actions. If there is any question or doubt, the LSS/DSR
> should seek guidance from the referring organization.

8-7 [COMPROMISE ACCEPTANCE FOR COMMERCIAL GENERIC DEBTS.]{.underline}
Lender-debtors who are actively participating in FHA Programs are
required to honor their outstanding debts. Settlement for such debtors
should be coordinated with the Office of Lender Activities.

8-8 [GENERIC DEBT DISPUTES.]{.underline} Disputes that arise from debtor
contact may require coordination with other HUD offices due to the
nature of the generic debts origination in other HUD Programs. The
LSS/DSR will coordinate with those offices as needed to clarify and
answer all debtor questions regarding debt balances and detailed
explanations of the reasons for the debt. Similarly, the FOC may require
assistance from the Program Area that originated the debt when assisting
OGC to respond to a TOP or AWG appeal from a generic debtor.