www.hudclips.org 

U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D. C. 20410-8000

April 6, 1988
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 88-11
TO:       ALL APPROVED MORTGAGEES
SUBJECT:  Mortgage Insurance on Indian Reservations and other
          Restricted Lands
 
     The purpose of this letter is to provide implementing
instructions for Section 248 of the National Housing Act.  Section
248 provides for Single Family Mortgage Insurance on Indian
Reservations and other restricted lands.  These instructions are
effective immediately.
                             Background
 
     (1)  Need for Program.  Prior to this program there has been no
          procedure for the mortgaging of a leasehold of tribal land.
          Since many leases restrict ownership of housing on tribal
          land to Indians, such restrictions have precluded non-
          Indian mortgagees from foreclosing on the property and
          conveying good, marketable title to the Department.
          Because of the inexperience of most mortgagees in dealing
          with tribal courts and tribal governments, mortgagees have
          been disinclined to lend money where alienation of the
          property is restricted and where mortgage insurance cannot
          be obtained.  The enactment of Section 248 has removed the
          marketability of title restriction and has given HUD
          authority to waive any other limitation determined contrary
          to promoting the availability of FHA mortgage insurance on
          Indian reservations.
 
     (2)  Program Overview.  The principal differences in the
          operation of this program and standard procedures are as
          follows.  Most of these will be elaborated elsewhere in
          this letter.
 
          (a)  Marketability of title.  Mortgagees do not have to
               convey marketable title in order to get mortgage
               insurance benefits.  Mortgagees will not be involved
               in foreclosure activities but will be permitted to
               assign mortgages under this section to HUD once the
               mortgagor is more than 90 days in default.
 
          (b)  Eviction procedures.  Mortgagees must submit evidence
               with the application for mortgage insurance that the
               tribe having jurisdiction over the mortgaged property
               has adopted eviction procedures to be used in the
               event of foreclosure.
 
          (c)  First lien.  Where the mortgagor cannot establish that
               the mortgage will be a first lien, he will have to
               establish that the tribal government has passed a law
               effecting the superiority of FHA-insured and HUD-held
               mortgages.
 
          (d)  Mortgage and lease.  The enclosed rider must be made
               to existing mortgage forms for properties on Indian
               lands.  The attached lease must be used.  Approval of
               these forms has been obtained from the Bureau of
               Indian Affairs (BIA).
 
     (3)  Definitions.
 
          (a)  Indian means an individual member of any Indian tribe
               and that member's family.
 
          (b)  Indian land means trust or otherwise restricted land
               (1) as defined by the Secretary of the Interior, over
               which an Indian tribe is recognized by the United
               States as having governmental jurisdiction; (2) held
               in trust for the benefit of any Indian tribe or
               individual or held by any Indian tribe or individual
               subject to a restriction by the United States against
               alienation;  or (3) acquired by Alaska natives under
               the Alaska Native Claims Settlement Act or any other
               land acquired by Alaska natives pursuant to statute by
               virtue of their unique status as Alaska natives.
 
          (c)  Indian tribe means any Indian or Alaska native tribe,
               band, nation, or other organized group or community of
               Indians or Alaska natives recognized as eligible for
               the services provided to Indians or Alaska natives by
               the Secretary of the Interior because of its status as
               such an entity, or that is an eligible recipient under
               chapter 67 of title 31, United States Code.
                      Processing Requirements
 
     (4)  Tribal Participation.  While there is no explicit
          requirement for tribal consent to HUD's making this program
          available on a tribe's land, many of the program's
          requirements cannot be fulfilled without the tribe's active
          participation.  To participate, a tribe must take the
          following measures.  Lenders should contact their local HUD
          Field Office for specific guidance regarding local tribal
          lands.
 
          (a)  Certify to HUD that it has adopted eviction procedures
               and will enforce them.
 
          (b)  Permit HUD access for the purpose of servicing
               properties.
 
          (c)  Agree to the lease form that HUD prescribes.
 
          (d)  Where a tribal government's courts have jurisdiction
               to hear foreclosures, it must enact a law so that the
               FHA-insured or HUD-held mortgage can be assured of
               being a first lien.
 
     (5)  Lease.  The attached lease must be used for all insured
          Section 248 mortgages.  This lease is designed to protect
          the security interest of the mortgages and of HUD while at
          the same time ensure that the interests of the tribe are
          also protected.
 
          (a)  Term.  The term of this lease is twenty-five (25)
               years with a provision for an automatic extension of
               an additional twenty-five (25) years.  Thus,
               effectively the term of the lease is fifty (50)
               years.
 
          (b)  Termination.  The lease may not be terminated by
               either or both parties if the leasehold is mortgaged
               under Section 248.  Likewise, in the event of
               foreclosure of an FHA-insured or HUD-held mortgage,
               the lease shall not be subject to any forfeiture or
               reversion and shall not be otherwise subject to
               termination.
 
     (6)  Eligible Programs.  The following FHA mortgage insurance
          programs may be employed pursuant to Section 248.  Section
          248 cases cannot be processed under the Direct Endorsement
          program or insured pursuant to Section 223(e).  Only the
          programs listed below can be used.  When calling into HUD
          for an FHA case number and appraiser assignment, be sure to
          advise the receiving assignment clerk that the property is
          on Indian lands and will be insured under Section 248 of
          the National Housing Act.
 
                              PROGRAM
               203(b)
               203(b) ARM
               203(b) 245(a)GPM
               203(b) 245(a) GPM/GEM
               203(k) Improvements/First Lien
               203(k) ARM
               203(k) 245(a) GPM
 
     (7)  Mortgage Insurance Premium.  Mortgages insured under
          Section 248 are obligations of the FHA General Insurance
          fund.  Therefore, all of these mortgages will have periodic
          or monthly MIP payments.  Section 248 mortgages will not
          have a one-time MIP.
 
     (8)  First Lien.  Mortgages insured under Section 248 must
          constitute a first lien on the property.  A mortgage can be
          established as a first lien by filing it with the State
          recording system and with the BIA, U.S. Department of
          Interior.
 
          In the event that a tribal government has its own courts
          and these have jurisdiction to hear foreclosures, the
          tribal government must do one of the following to ensure
          that the FHA-insured mortgage is a first lien:
 
          (a)  The tribal government could enact a law satisfactory
               to HUD providing for the satisfaction of FHA-insured
               and HUD-held mortgages before other obligations are
               satisfied (other than tribal leasehold taxes against
               the property assessed after the property is
               mortgaged).
 
          (b)  Alternatively, the tribal government could enact a law
               providing that State law shall determine the priority
               of liens against the property.
 
     (9)  Tribal Leasehold Taxes.  The tribe must notify the
          mortgagee of leasehold taxes so that the mortgagee can
          include the payment of such taxes in the mortgage payment
          as is done with local property taxes.  If a tribe wishes,
          tribal tax liens resulting from unpaid taxes may be
          recorded in the State recording system.  The tribe may also
          intervene in any foreclosure proceeding to ask that the
          taxes be paid.
 
     (10) Principal Residence.  To be eligible for mortgage insurance
          under Section 248, the mortgagor must intend to occupy the
          property as a principal residence.  However, this
          provision does not apply to purchasers of the leasehold who
          assume the mortgage.
 
     (11) Mortgage Term.  The mortgage shall not have a term greater
          than thirty (30) years.
 
     (12) Valuation.  Appraisal procedures will not differ from
          standard procedures except that the requirement for
          marketability will be waived.  For new construction
          the Marshall and Swift square foot method will be used.
          The Marshall and Swift cost analysis shall also be used to
          appraise existing homes when comparables are not available.
 
          (a)  When using Marshall and Swift, note that it includes
               in its cost figures a prorated amount of real estate
               commission in tract development.  Since such an
               expense is unlikely on Indian land, it should be
               subtracted from the total.
 
          (b)  No value should be attributed to the land.   This is
               because the land will remain under tribal ownership,
               is generally leased at a nominal cost, and the
               ownership of the leaseholds is restricted.
 
     (13) Mortgage Credit.  Other than assuring that the mortgagor is
          an Indian qualified to participate in this program, there
          are no special mortgage credit considerations for Section
          248.
 
     (14) Assumptions or Sale of Leasehold.  The Indian mortgagor may
          sell his leasehold with the buyer assuming the insured
          mortgage.  While the requirements of Mortgagee Letters 86-
          15  and 88-2 governing assumptions will apply, HUD
          requirements will not restrict the sale to Indians or to
          one who will use the property as a principal residence.
          However, the lease requires that all purchasers be approved
          by the tribe.  Finally, lenders may charge an assumption
          fee.
 
     (15) Secondary Market.  Mortgages insured pursuant to Section
          248 are eligible for GNMA pools for mortgage backed
          securities.
 
                         Mortgage Servicing
 
     (16) Assignment for forbearance.  24 CFR 203.600 et seq.
          establish requirements for mortgagees with regard to the
          Assignment Program.   These requirements and those
          established in Handbook 4330.2 and supplementary
          instructions also apply to Section 248 Mortgages.
 
     (17) Contact with the mortgagor.  Pursuant to 24 CFR 203.604,
          the mortgagee must have a face-to-face interview with the
          mortgagor, or make a reasonable effort to arrange such a
          meeting before the mortgagor becomes three months'
          delinquent.  If the mortgagor defaults during a repayment
          plan arranged other than during a personal interview, the
          mortgagee must have a face-to-face interview or attempt to
          arrange such, within 30 days after the default or 30 days
          before assignment is requested.
 
          (a)  A reasonable effort to arrange such a meeting shall
               include at least one trip to see the mortgagor at the
               mortgaged property, notwithstanding that such property
               is more than 200 miles from the mortgagee, its
               servicer, or a branch office of either.
 
          (b)  The mortgagee must document that it has made at least
               one telephone call to the mortgagor for the purpose of
               trying to arrange a face-to-face interview.
 
          (c)  The mortgagee may appoint an agent to perform the
               services of arranging and conducting the meeting.
 
          (d)  The mortgagee must also:
 
               (1)  Advise the mortgagor that information regarding
                    the loan will be given to credit bureaus.
 
               (2)  Advise the mortgagor of other available
                    assistance.
 
               (3)  Notify the mortgagor that if the mortgage remains
                    in default for more than 90 days, the mortgagee
                    will ask HUD to accept assignment of the
                    mortgage.
 
               (4)  Notify the mortgagor of the qualifications for
                    forbearance relief from the mortgagee, if any,
                    and that forbearance relief may be available from
                    HUD if the mortgage is assigned.
 
               (5)  Provide the mortgagor names and addresses of HUD
                    officials to whom further communications may be
                    addressed.
 
     (18) Non-forbearance assignment.  As indicated above, mortgagees
          will not be involved in the foreclosure of defaulted
          mortgages.  Thus, notwithstanding the provisions of the
          assignment program, HUD will accept assignment of any
          Section 248 mortgage where the mortgagor has been in
          default for more than 90 days.  The mortgagee must provide
          documentation showing that the requirements of 24 CFR
          203.604 (summarized in part in the paragraph above) have
          been met.
 
     (19) Forbearance relief provided by HUD.  24 CFR 203.664
          provides requirements for HUD's providing forbearance
          relief on Section 248 mortgages.
 
     (20) Foreclosure by Secretary.  Subject to consideration of
          forbearance in accordance with Section 203.664., HUD may
          initiate foreclosure proceedings with respect to any
          mortgage acquired under this section in a tribal court, a
          court of competent jurisdiction or Federal district court.
          If the mortgagor remains on the property following
          foreclosure, HUD may seek an eviction order from the court
          hearing the foreclosure action.  From an administrative
          perspective, such foreclosures will be handled in the same
          manner as the foreclosure of other HUD-owned mortgages.
 
                            Other Issues
 
     (21) Failure to enforce evictions.  24 CFR 203.43h(b) addresses
          the problem of tribes that do not enforce eviction
          procedures.  If the Field Office Manager determines that a
          tribe has failed adequately to enforce its eviction
          procedures, HUD will cease issuing commitments for the
          insurance of mortgages to tribal members.
 
     (22) Construction Advances.  Although 24 CFR 203.43h(d) provides
          for insuring construction advances on Section 248 cases, we
          are not implementing this provision at present.
 
     If you have any questions concerning this Mortgagee Letter,
please contact Joseph Bates in the Single Family Development
Division, Programs and Procedures Branch, (202) 755-5672.
 
                         Sincerely,
                         Thomas T. Demery
                         Assistant Secretary
Enclosures
 
                         RESIDENTIAL LEASE
                                   Lease No.
                                   Contract No.
 
     THIS LEASE, made and entered into between                     
                                          , hereafter designated as
 
"LESSOR," and                                     residing upon the
                                                  Indian Reservation,
 
hereinafter designated as "LESSEE(S)."  If the Lessor is not an
Indian Tribe, the term "Tribe: is defined as:                      
                                                                   .
 
                            WITNESSETH:
 
     1.   SECRETARIAL APPROVAL.  As used in this Lease, the term
"Secretary" means the Secretary of the Interior or his duly
authorized representative.  This Lease is subject to the approval of
the Secretary pursuant to the Act of August 9, 1955, 69 Stat. 539, as
amended; 25 U.S.C. 415.  This Lease has been prescribed by the
Secretary of Housing and Urban Development (HUD) pursuant to 24 CFR
203.43h(c), which implements Section 248 of the National Housing Act,
12 U.S.C. 1715z-13, for use in connection with Federal Housing
Administration (FHA) insurance of a mortgage on the interest created
by this Lease.
 
     2.   PREMISES.  Lessor, as authorized by law and in accordance
with a resolution adopted by the                                     
                  on                              , hereby leases to
 
the Lessee(s) all that tract or parcel of land situated on the
                                                Indian Reservation,
 
County of                                              State of
                                                  , and described as
 
follows:
 
     3.   USE OF PREMISES.  The object of this Lease is to enable the
Lessee(s) to construct, improve and/or maintain a dwelling and
related structures on the leased premises, and otherwise to use said
premises as a principal residence.
 
     4.   TERM.  Lessee shall have and hold the premises for a term
of twenty-five (25) years beginning on the effective date of this
Lease.  This Lease shall automatically and without notice renew for
an additional term of twenty-five (25) years on the same terms and
conditions contained herein.  This Lease may not be terminated by
either or both parties during its initial or renewal term if, and as
long as, the Lease and/or any improvements on the premises, or any
interest therein, are mortgaged or otherwise pledged as security for
any loan in accordance with the provisions hereof, unless consent in
writing to such termination is given by the Lender and, when HUD/FHA
insurance is in force, by HUD.  This Lease shall not be subject to
any forfeiture or reversion and shall not be otherwise terminable, if
such event would adversely affect any interest in the premises,
including improvements thereon, acquired in accordance with the
purchaser at a foreclosure sale under such mortgage (or lien) or
provisions hereof by the holder of any mortgage or other lien, or of
any under any conveyance given in lieu of foreclosure, or of any
holder subsequent to such purchase.  In the event HUD acquires a
mortgage on the interest created by this Lease by assignment from a
lender, the Lessor shall not terminate the Lease without the written
consent of HUD as long as the mortgage is in force.
 
     5.   RENT.  The improvement of housing for
families is a public purpose of the Lessor.  The consideration for
this Lease is (1) the said purpose, (2) the promise hereby given of
Lessee(s) to pay the Lessor rent at the rate of One Dollar ($1.00)
for each twenty-five (25) year term, payment to be made each term in
advance, (3) the extinguishment, hereby agreed to by Lessee(s), of
any and all use rights heretofore held by Lessee(s) in the premises,
so that Lessee(s) shall hereafter hold rights only by virtue of this
lease, and (4) other good and valuable considerations, the receipt of
which is hereby acknowledged by Lessor.  It is agreed that there
shall be no adjustment of the rent if the Lease is terminated before
its term otherwise would expire or in the event that any part of the
premises is taken by condemnation for highway or other public
purposes.
 
     6.   IMPROVEMENTS.  All buildings or other improvements now
existing or hereafter constructed on the premises shall be the
leasehold property of the Lessee(s) during the term of this Lease,
including any extension or renewal thereof.
 
     7.   USE RIGHT.  Upon expiration of this Lease, or upon its
termination in accordance with the terms hereof, unless such
termination is due to default upon the part of Lessee(s), Lessee(s)
or any successors in interest shall be entitled to use rights in the
premises if qualified under the laws and customs of the
                  .  If not so eligible, Lessee(s) and any successors
in interest shall, upon demand, surrender to Lessor upon expiration
or other termination of this Lease complete and peaceable possession
of the premises and all improvements thereon, which shall be the
property of the                                   .
 
     8.   FEDERAL SUPERVISION.  (a)  Nothing contained in this Lease
shall operate to delay or prevent a termination of Federal
responsibilities with respect to the premises by the issuance of a
fee patent, the lifting of restrictions on alienation, or otherwise
during the term of the Lease; such termination, however, shall not
serve to abrogate the Lease.  (b)  No member of Congress or any
delegate thereto or any Resident Commissioner shall be admitted to
any share or part of this Lease or to any benefit that may arise
herefrom.  (c)  The Lessee(s) agree(s) not to use or cause to be used
any part of said premises for any unlawful conduct or purpose.
 
     9.   QUIET ENJOYMENT.  Lessor agrees to defend the title to the
premises and also agrees that Lessee(s) and any successors in
interest shall peaceably and quietly hold, enjoy and occupy the
premises for the duration of this Lease without any hindrance,
interruption, ejection or molestation by Lessor or by any other
persons whomsoever.
 
     10.  ASSIGNMENT.  Except as otherwise provided herein, Lessee(s)
shall not assign this Lease without the prior written consent of the
Lessor and, if this Lease and/or any improvements on the premises are
mortgaged or pledged as security for a loan, without the written
approval of the lender.  Lessee(s) may assign the Lease or deliver
possession of the premises, including any improvements thereon, to
the lender or its successors in interest if Lessee(s) default(s) in
any mortgage or other loan agreement for which the Lease and/or
improvements on the premises are pledged as security, and, in such
event, the lender or its successors in interest may transfer this
Lease or possession of the premises to a successor Lessee.  Nothing
in this Lease shall prevent the Lessee(s) from executing and
recording a mortgage, declaration of trust and/or other security
instrument as may be necessary to obtain financing for the
construction and/or improvement of a dwelling and related structures,
or shall prevent the mortgagee or other lender from foreclosing or
instituting other appropriate proceedings under law in the event of
default or any mortgage or other loan agreement by the Lessee(s).
Except in cases involving loans for home construction or home
improvement by a bank or other recognized lending institution, where
no such consent or approval of Lessor shall be required, lessee(s)
may not execute a mortgage, declaration of trust or other security
instrument pledging their interest in this Lease or any improvements
on the premises without the prior consent of Lessor and the approval
of the Secretary.
 
     Notwithstanding the provisions contained above, the following
additional requirements shall be applicable to a Lease which secures
a mortgage insured or held by HUD/FHA:
 
     (1)  Lessee(s) shall not sell or otherwise assign this Lease
          without the prior written consent of the tribe of which the
          Lessee(s) is/are member(s), if the Lessor is not such
          tribe.
 
     (2)  In the event HUD acquires the mortgage secured by this
          Lease, and subsequently acquires the Lease by foreclosure,
          or by the assignment of the Lease by Lessee(s) (for which
          the approval of the tribe is not required), then:
 
          (a)  HUD will notify the tribe of the availability of the
               Lease for sale, the sales price and other terms of
               sale.
 
          (b)  If a purchaser is found, the Lease will be transferred
               by HUD to the purchaser, with the written consent
               and approval of the tribe.
 
          (c)  If a purchaser cannot be found, HUD shall be entitled
               to sublease the leased premises to anyone wishing to
               sublease the same.  The term of the initial sublease
               period and any succeeding periods shall not exceed one
               year each.  A purchaser approved by the tribe must
               wait where the leased premises are sublet until the
               expiration of any current sublease before occupying
               the premises.
 
          (d)  No mortgagee (except HUD as assignee of a mortgage)
               may obtain title to the interest created by this Lease
               without the prior written consent of the tribe.
 
     12.  OPTION.  In the event of default by the Lessee(s) on any
mortgage or other loan agreement for which this Lease or any
improvements on the premises are pledged as security, Lessor shall
have the right of first refusal to acquire the Lessee's interest in
the premises (subject to all valid liens and encumbrances) upon (a)
payment of all sums then in arrears, and (b) either payment of the
balance of the loan or assumption of the mortgage.  Said right of
first refusal may be exercised at any time within thirty (30) days
after notice in writing from the lender of the Lessee's default,
which notice shall be given before the lender invokes any other
remedies provided under the mortgage or by law, and shall be
exercised by notice in writing from the Lessor to the Lessee(s) and
the lender; provided, however, that the Lessee(s) shall have fifteen
(15) days from the date of the latter notice to cure the default.
The estate acquired by the Lessor through exercise of said right of
first refusal shall not merge with any other estate or title held by
the                                          as long as this Lease
and/or any improvements on the premises, or any interest therein, are
mortgaged or otherwise pledged as security for any loan, and said
estate shall remain subordinate to any valid and subsisting mortgage
or other security instrument.  Provided:  Where the Lessee(s)
default(s) on a HUD/FHA insured mortgage, this option shall not be
exercised by the Lessor unless:  (1) HUD has considered the Lessee(s)
for assignment forbearance relief and determined Lessee(s) to be
ineligible; (2) after Lessee(s) has/have received assignment
forbearance relief, HUD determines Lessee(s) to be ineligible for
additional assignment relief, or (3)  HUD is not required by
appropriate regulation (24 CFR Section 203.664.(b)(2)) to grant
assignment forbearance relief to the Lessee(s).
 
     13.  EFFECTIVE DATE.  This Lease and all its terms and
provisions shall be binding upon the heirs, successors, executors,
administrators and assigns of the Lessee(s) and any successor in
interest to the Lessor, and shall take effect on the
       day of                       , 19   .
 
     14.  OBLIGATIONS TO THE UNITED STATES.  It is understood and
agreed that while the leased premises are in trust or restricted
status, all of the Lessee's obligations under this lease, and the
obligation of his sureties, are to the United States as well as to
the owner of the land.
 
                                                          , LESSOR
ATTEST:
                                   By
                                        (Authorized Official)
WITNESS:
                                                          , LESSEE
                                                          , LESSEE
APPROVED:                          DATE:
  Secretary of the Interior
 
                   RIDER - Section 248 Mortgages
 
1.   The interests of the mortgagor in the property described above
     were created by a lease agreement from
                     as lessor dated                             ,
     19                        .  Any reference to the "property" or
     the "premises" shall be construed as referring only to the
     interests of mortgagor created by such lease or any replacement
     lease.
 
B.   If the mortgage is assigned to the Secretary of Housing and
     Urban Development (the "Secretary") any foreclosure proceeding
     may take place in a tribal court, Federal district court, or
     other court of competent jurisdiction.  Section 248(f)(5) of the
     National Housing Act grants to any such court the jurisdiction
     to convey to the Secretary the remaining life of a lease on the
     property and to order eviction of the delinquent mortgagor.
 
C.   Any purchaser at foreclosure sale other than the Secretary must
     receive the written consent of the lessor or, if lessor is not
     an Indian Tribe, the tribe of which lessor is a member.  The
     purchaser shall receive a new lease for the remaining term of
     the existing lease unless the tribe consents to an assumption of
     the existing lease.
 
D.   This mortgage may be assumed, subject to credit approval by the
     mortgagee and the consent of the tribe to an assumption of the
     existing lease or the grant of the new lease.  Assumption shall
     not cause an adjustment of the interest rate.
 
E.   A sale of property subject to the mortgage without an assumption
     of the mortgage may be made only if a new lease for the
     remaining term of the existing lease is granted.