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

Election to Acquire Deadline for Coinsured Projects

Legal Opinion: GHM-0076

Index: 3.400

Subject: Election to Acquire Deadline for Coinsured Projects

April 8, 1993

John J. Knapp, Esq.

Powell, Goldstein, Frazer & Murphy

1001 Pennsylvania Avenue, N.W., Sixth Floor

Washington, D.C. 20004

Re: Franciscan Club Apartments

FHA No. 061-10558

Kentwood Square Apartments

FHA No. 051-10519

(601689v/GHM:L-1394)

Dear Mr. Knapp:

This is in response to your letter of December 22, 1992,

concerning FHA\'s curtailment of mortgage note interest in the

coinsurance claims benefits for the above-captioned projects due

to the failure to obtain extensions of time within which to file

an election to acquire the property. You estimate that the

curtailment of interest reduced the \"adjusted claim\" by \$532,536.96

for the Kentwood Square claim and by \$274,727.78 for the Franciscan

Club claim. The curtailments were made because the lender did not

submit an election to acquire these projects within the 75-day

period after the date of default and did not request an extension

of time in which to file the election.

You stated in your letter that the curtailments were improper

because, notwithstanding the provisions of the coinsurance

regulations, FHA did not require or provide a mechanism for making

a request for an extension. You claim that it was not FHA\'s

practice to respond to requests for extensions when they were

submitted. You also contend that FHA\'s acceptance of the Monthly

Default Status Report without objection constituted an approval of

the extension.

The curtailments were proper because York never received a

written extension of time and failed to submit its notice of

election within the 75-day period as required by the regulations.

It is our understanding that extensions of time were not requested

with respect to these projects. Therefore, mortgage note interest

was curtailed on these projects by the number of days by which the

required actions were late.

Section 255.811(a) (24 CFR § 255.811(a) (1990)) provides, in

part, that a curtailment of interest will not be imposed if the

lender complies with section 255.811 and section 255.815:

\"To reinstate a defaulted Mortgage, the lender may

use one or more of the forms of financial relief

described in this section. The lender\'s efforts to cure

a default will not result in a curtailment of interest

as provided by § 255.821(b) in any subsequent claim for

insurance benefits, if the lender complies with

conditions set forth in this section and the notice

requirements set forth in §§ 255.810 and 255.815. . . .\"

Section 255.815 (24 CFR § 255.815 (1990)) makes clear that

the lender must submit an election to acquire the property and file

a claim within 75 days after default or must receive a written

extension of time from FHA within which to make an election to

acquire the property and file a claim.

Section 255.815 states:

\"Unless the Commissioner has given the lender a

written extension, the lender must notify the

Commissioner of its election to acquire the property and

its intention to file a claim for insurance benefits

within 75 days of the date of default. The Commissioner

will approve an extension of the 75-day deadline if the

Commissioner determines that (a) the lender and the

Mortgagor are diligently pursuing reinstatement of the

Mortgage, and (b) reinstatement of the Mortgage and

resolution of the problems that led to the default are

feasible.\"

If the lender does not file its election within the 75-day period

or does not receive a written extension, then the mortgage interest

is curtailed pursuant to Section 255.821(b)

(24 CFR § 255.821(b) (1990)) which provides:

\"An amount equivalent to Mortgage interest on the

unpaid principal balance of the Mortgage on the date the

lender initiated foreclosure proceedings or on the date

the lender acquired title to the property through deed-

in-lieu of foreclosure. This interest will be payable

from the date of default to the date of payment of

insurance benefits. However, if the lender fails to meet

any of the requirements of §§ 255.810, 255.815, 255.816,

255.818(b) or § 255.823(b) within the specified time

(including any permissible extension of time), the

accrual of interest allowance on the cash payment will

be curtailed by the number of days by which the required

action was late.\"

You argue that paragraph 10-3a of HUD Handbook 4566.2,

\"Management, Servicing and Disposition Requirements for Projects

with 223(f) Coinsured Loans\" and Form 92426 do not require or

provide a mechanism for requesting an extension of time within

which to make the election to acquire the property. You state that

timely submission of Form 92426 reporting the nature and progress

of the lender\'s ongoing efforts to obtain reinstatement of the

mortgage was deemed satisfactory compliance with the requirement

to request an extension of time. While paragraph 10-3a does not

specifically state that a lender must request an extension of time,

section 255.815 does require written approval from the Commissioner

for an extension. Paragraph 10-3a does make clear that HUD will

make a decision regarding an extension of time. The purpose behind

the request for an extension of time, as explained in the Handbook,

is to allow HUD to make a decision about whether the lender and

mortgagor are working diligently toward reinstatement of the

mortgage and that resolution of the problems that led to default

are feasible.

The extension requirement in section 255.815 is reiterated in

the Monthly Default Status Report (HUD Form 92426) which provides

in its instructions that, unless the HUD Field Office approves an

extension of time, the lender must submit its notice of election

within 75 days after the date of default. Form 92426 also

instructs the mortgagee to send an original and one copy to HUD

Headquarters, Office of Multifamily Housing Management and one copy

of the Form to the HUD Field Office having jurisdiction over the

project. The practice has been that mortgagees requesting

extensions of time will attach a cover letter requesting the

extension of time to the Form. When the Handbook, the instructions

on Form 92426 and the regulations are read together, it is clear

that a lender must obtain a written extension of time within which

to file an election to acquire the property. If York was uncertain

about the procedures for requesting an extension of time, York

should have sought guidance from the relevant Field Office or

Headquarters. In any event, York was, or should have been aware

that it had not received a written extension from FHA as required

by the regulations, and therefore was required to submit its notice

of election within the 75-day period or be subject to curtailment

of mortgage note interest until it did file the notice.

Extensions must be requested because HUD will approve an

extension only if HUD is convinced that a workout is feasible and

is in HUD\'s best interest. Upon inquiry by lenders, the Director

of the Office of Multifamily Housing Management has consistently

informed mortgagees that any approvals of extensions of time given

by that office will be evidenced in writing. It would be incorrect

to assume that an absence of communications in writing is an

affirmative response.

Therefore, the curtailments with respect to the above-

captioned projects were proper because York neither submitted a

request for, nor received a written approval of, an extension of

time as required by the regulations.

Very sincerely yours,

John J. Daly

Associate General Counsel

Insured Housing and Finance