August 24, 2001

MORTGAGEE LETTER 2001-19

**TO: ALL APPROVED MORTGAGEES**

**ATTENTION: Single Family Servicing Managers**

**SUBJECT:** **Single Family Foreclosure Policy and Procedural
Changes:**

> **Non-Judicial Foreclosure in Hawaii;**
>
> **First Legal Action to Commence Foreclosure in GU, IA, SD, & VI;**
>
> **Reasonable Diligence for Acquiring Possession;**
>
> **Update to HUD's Schedule of Allowable Attorney Fees; and**

**Update to HUD's Foreclosure Time Frames**

The purpose of this Mortgagee Letter is to provide guidance for several
policy and procedural changes related to the acquisition of title and
possession, and in the preparation and filing of Single Family Mortgage
Insurance Claims. Specifically, in response to several recent inquiries,
this mortgagee letter clarifies under what circumstances non-judicial
foreclosure will be acceptable in Hawaii. In addition, this mortgagee
letter provides updates to HUD's Reasonable Diligence Time Frames and
Schedule of Attorney Fees for all jurisdictions. The Department is also
confirming its procedure for measuring compliance of the Reasonable
Diligence time requirement where lenders must commence legal actions to
acquire possession of property.

1\. **[Non-Judicial Foreclosure in Hawaii]{.underline}**.

At the time HUD Handbook 4330.4, REV-1, was updated in September 1994,
the most common form of foreclosure in Hawaii was judicial foreclosure.
Therefore, there was no reference to the use of non-judicial foreclosure
in Hawaii. However, the Department did not intend to prohibit the
payment of claims where the mortgagee obtains title through non-judicial
foreclosure in jurisdictions where this was a common form of
foreclosure. In Hawaii a number of mortgagees have begun to use this
foreclosure method as a result of the increased willingness of title
insurance companies to issue policies for non-judicial foreclosure
sales. Consequently, this Mortgagee Letter clarifies that non-judicial
foreclosure is an acceptable foreclosure method in Hawaii, and
establishes a reasonable diligence time frame and attorney fee schedule
for this foreclosure method.

Effective for all Hawaiian cases where the first legal action to
initiate non-judicial foreclosure occurs on or after October 1, 2001,
mortgagees' performance in prosecuting non-judicial foreclosures will be
measured according to the reasonable diligence time frames provided in
Attachment 2. Also, effective for all Hawaiian cases where the first
legal action to initiate non-judicial foreclosure occurs on or after
October 1, 2001, mortgagees must follow the updated Schedule of Attorney
Fees in Attachment 3. The Department is updating Appendix 6 in Handbook
4330.4, REV-1, to reflect that, in the case of non-judicial foreclosures
in Hawaii, publication of a notice of intent to foreclose is the first
public action required by law to initiate foreclosure and a mortgage is
the typical security instrument used. The updated list in Attachment 1
replaces the list in Appendix 6, Handbook 4330.4, REV-1.

For cases where the first legal action to initiate an Hawaiian
non-judicial foreclosure was taken before October 1, 2001, the
Department will pay claims for insurance benefits as long as the
mortgagee conveys good and marketable title, which is accompanied by
title evidence acceptable to the Department. The expectation is that a
non-judicial foreclosure should be less time-consuming and expensive to
complete than a judicial foreclosure. Consequently, the Department may
require reimbursement if the costs claimed or the time to prosecute the
foreclosure proceeding are excessive.

# 2. Update of First Legal Action to Commence Foreclosure in GU, IA, SD, & VI

#  The Department recently reviewed the guidance it gave in Appendix 6 of Handbook 4330.4, REV-1, on what is the first legal action to commence foreclosure. As a result of this review, the Department has determined that it is necessary to update Appendix 6 to specify the first public action for foreclosure methods inadvertently left off the list. The updated list identifies the first public action for judicial foreclosures in the Virgin Islands and for non-judicial foreclosures in Guam, Iowa, and South Dakota. The updated list as provided in Attachment 1 replaces the list in Appendix 6, Handbook 4330.4, REV-1.

3\. **[Reasonable Diligence for Acquiring Possession]{.underline}**

HUD regulation 24 CFR 203.356(b) provides that mortgagees "must exercise
reasonable diligence in prosecuting the foreclosure proceedings to
completion and in acquiring title to and possession of the property."
This regulation also states that HUD will provide mortgagees with time
frames in which they must complete reasonable diligence. Prior to the
issuance of this Mortgagee Letter, the outstanding guidance listing the
state by state time frames was provided in Appendix 7, HUD Handbook
4330.4, Rev-1, dated September 1994. These time frames identified the
time between the first public legal action required by the jurisdiction
to commence foreclosure and the date that the foreclosure deed
(Sheriff's, Trustee's, etc.) or certificate of title is recorded. The
Department does not require mortgagees to acquire possession within
these time frames when a separate eviction or possessory action is
necessary.

When a separate legal action is necessary to gain possession, the
Department expects the lender to begin such action immediately after
completion of the foreclosure. However, the Department has noted that
some lenders are seriously delaying commencement of necessary eviction
or possessory actions notwithstanding the reasonable diligence
requirement in 24 CFR 203.356(b). Consequently, lenders must take the
first public legal action to initiate the eviction or possessory action
within thirty calendar days of foreclosure completion. This requirement
is effective for all cases where foreclosure completion occurs after the
date of this Mortgagee Letter.

Lenders are cautioned that compliance with this time requirement for
initiating legal action only partially satisfies a lender's obligation
under 24 CFR 203.356(b) to use reasonable diligence to acquire
possession. The thirty day time requirement is only for initiating the
legal action, not completing the action. At this time, the Department is
not issuing time frames in which lenders must acquire possession because
of wide differences in time periods depending upon the location of the
property and other factors outside of the lender's control such as
sheriff's scheduling and the weather.

Pursuant to 24 CFR 203.365(c), lenders must retain in the claim review
file supporting documentation that they acted with reasonable diligence
to acquire possession of the property. Lenders will be required to
provide written documentation to justify any delays in initiating the
legal action to acquire possession. Lenders who do not provide adequate
documentation will be required to reimburse the Department for debenture
interest paid by HUD for the period after "the particular required
action should have been taken." See 24 CFR 203.365(c)(1) and 203.402(k).
Although it is impossible to specify all types of appropriate
documentation, supporting documentation may include attorney's
correspondence or copies of court records.

4\. **[Effective Dates for HUD's Reasonable Diligence Foreclosure Time
Frames]{.underline}**

The Department is revising the reasonable diligence foreclosure time
frames for several jurisdictions. Effective for all cases where the
first legal action to initiate foreclosure occurs on or after October 1,
2001, mortgagees' performance in prosecuting foreclosures will be
measured according to the reasonable diligence time frames provided in
Attachment 2. For

cases where the first legal action occurred prior to October 1, 2001,
mortgagees shall continue to follow the reasonable diligence time frames
identified in Appendix 7 of Handbook

4330.4, REV-1.

5\. **[Effective Dates for HUD\'s Schedule of Attorney
Fees]{.underline}**

The Department has decided to revise the attorney fees that it will pay
for various legal actions. The revised fees are provided in Attachment
3.

> **[Foreclosures]{.underline}**
>
> The update to HUD's Schedule of Attorney Fees, as provided in
> Attachment 3, will become effective for all cases where the first
> legal action to initiate foreclosure occurs on or after October 1,
> 2001. In the interim, mortgagees shall continue to follow the HUD
> Schedule of Attorney Fees that was issued with Mortgagee Letter 98-26
> on September 22, 1998.
>
> **[Bankruptcy Actions]{.underline}**
>
> The HUD Schedule of Attorney Fees will become effective for all
> bankruptcy clearances undertaken on or after October 1, 2001. A
> bankruptcy clearance begins when a petition for release of the
> bankruptcy stay is submitted to the bankruptcy court. Bankruptcy
> clearances begun prior to the effective date shall be reimbursed
> according to HUD's Schedule of Attorney Fees that was issued with
> Mortgagee Letter 98-26 on September 22, 1998.
>
> **[Possessory Actions (Evictions)]{.underline}**
>
> The HUD Schedule of Attorney Fees will become effective for all
> possessory actions undertaken on or after October 1, 2001. Possessory
> actions begun prior to the effective date shall be reimbursed
> according to HUD's Schedule of Attorney Fees that was issued with
> Mortgagee Letter 98-26 on September 22, 1998.
>
> **[Deeds-in-Lieu of Foreclosure]{.underline}**
>
> The HUD Schedule of Attorney Fees will become effective for all
> deeds-in-lieu recorded in HUD\'s name on or after October 1, 2001. In
> the interim, mortgagees shall continue to follow HUD Schedule of
> Attorney Fees that was issued with Mortgagee Letter 98-26 on September
> 22, 1998.

Sincerely,

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

John C. Weicher

Assistant Secretary for Housing-

> Federal Housing Commissioner

Attachments