[Link to
GHM-0004](http://www.hud.gov/offices/adm/hudclips/lops/GHM-0004LOPS.doc)

[Link to
GHM-0007](http://www.hud.gov/offices/adm/hudclips/lops/GHM-0007LOPS.doc)

Assignment of Mortgage to Unapproved Mortgagee

Legal Opinion: GHM-0016

Index: 3.400

Subject: Assignment of Mortgage to Unapproved Mortgagee

December 17, 1991

Justine E. Wilcox, Esq.

Kelley, Drye & Warren

2300 M Street, N.W.

Washington, D.C. 20037

Dear Ms. Wilcox:

This letter is in response to your letters of December 12

and 13, 1991, requesting that we provide written confirmation

that the Department of Housing and Urban Development (\"HUD\") will

honor its obligations under the contract of insurance regarding

Lakeside Apartments, Project No. 052-44113-LDP.

In your letters you state that the loan for Lakeside

Apartments was originally made by a HUD-approved mortgagee. The

loan was used by the original mortgagee as collateral for an

equipment lease. The mortgage note was endorsed to the equipment

lessor, an unapproved mortgagee, and the mortgagee and the

equipment lessor executed an Assignment and Security Agreement

which was never filed in the land records. After the terms of

the equipment lease were satisfied the mortgage note was endorsed

back to the original mortgagee, and the deed of trust and

collateral documents were returned to the original mortgagee.

Pursuant to 24 CFR 207.261(g) the contract of insurance

\"may, at the option of the Commissioner and under such conditions

as he may prescribe,\" be terminated in the event of a transfer,

pledge or assignment of an insured mortgage, or of a partial or

participating interest therein, to a mortgagee that has not been

approved by HUD for participation in the multifamily mortgage

insurance programs. Thus, the Commissioner has the option of

terminating the contract of insurance with respect to the

mortgage at issue since the mortgage was assigned to an

unapproved mortgagee, the equipment lessor.

However, there appears to have been no material harm to HUD

or any other party as a result of the mortgage being held by an

unapproved mortgagee. As the mortgage note has been endorsed

back to the original mortgagee and the mortgage and collateral

documents returned, the Commissioner has decided that HUD will

not exercise the option under section 207.261(g) to terminate the

contract of insurance if your client agrees to indemnify HUD for

any costs and damages that might be incurred by HUD as the result

of actions or inaction of the unapproved mortgagee. In addition,

HUD will require evidence that the equipment lessor has endorsed

all rights and interest back to the original mortgagee.

2

Please submit to this office a letter of indemnification and

evidence concerning the reassignment of the loan to the HUD-

approved mortgagee. We will notify you promptly as to the

sufficiency of the documents.

The foregoing election not to exercise the option to

terminate the contract of insurance does not act as a waiver of

such right with respect to any future violation of the contract

of insurance.

Very sincerely yours,

Harold A. Levy, Chief Attorney

Loan Management and Property

Disposition Section