HB-2-3550

The Servicer should offer all appropriate special servicing tools to help a borrower with 

financial problems bring the account current. However, if it is clear that a borrower cannot continue 

with the loan, the Servicer should analyze the feasibility of liquidation options and recommend the 

option that is in the Government’s best interest, defined as the option which will result in the greatest 

net recovery. When the Servicer’s liquidation recommendation is approved, the Servicing and Asset 

Management Office (Servicing Office) should take prompt action.

6.1 OVERVIEW OF LIQUIDATION OPTIONS

A. Voluntary Liquidation

1. Encouraging the Borrower to Sell

Sale of security property is generally the most desirable option for both the Agency 

and a borrower who is unable to continue the loan. For the Agency, a sale to another 

party avoids the potential costs of liquidation, as well as costs related to owning and 

disposing of a property. For the borrower, it offers the best opportunity for being 

released from the debt without a major credit history blemish. A borrower may sell a 

property to a third party even after the account is accelerated. If a proposed sale will 

satisfy the debt in full, the account will continue to be handled by the Servicing Office. 

When it appears that the sale proceeds will not settle the debt in full, the Field Office will 

handle the sale. The Servicing Office will notify the Field Office of the sale, any relevant 

information, and provide a Debt 

Settlement Package to the local office.

If a borrower proposes to sell the 

property for an amount which may be 

insufficient to pay the Agency debt, prior 

liens, and authorized selling expenses, the 

Field Office may consent to the sale when

it is determined to be in the best interest of 

the Agency. For states included in the 

REO/Foreclosure centralization, the 

Servicing Office may consent to the sale. 

In non-centralized states, the Field Office 

may consent to the 

_____________________________________________________________________________________

6-1

(05-27-98) SPECIAL PN

Revised (03-31-21) SPECIAL PN

CHAPTER 6: LIQUIDATION AND ACQUISITION

[7 CFR 3550.211]

Authorized Selling Expenses

Authorized selling expenses are those which a 

seller customarily and legally pays to convey 

title and includes such items as a typical real 

estate commission, up to three points to enable 

the buyer to secure credit (but not to reduce the

interest rate), real estate taxes, junior liens, deed 

preparation, abstract and title fees, termite and 

related inspections, title insurance, surveys, and 

deed and revenue stamps.
HB-2-3550

Paragraph 6.1 Overview of Liquidation Options

sale. The Agency may also advance authorized selling expenses to facilitate the sale. To 

determine if the proposed sale is in the Agency’s best interest, a copy of the sales 

contract, appraisal, and sales expenses are needed. Another lender’s appraisal may be 

used if it meets Agency appraisal guidelines.

 Whether the short sale request is approved for less than the debt or if the request is 

denied, a Loan Approval Official should provide their decision in writing to the 

homeowner. Handbook Letter 115 provides sample language for letters that may be used.

 At a minimum, the approval letter should include the approved sale price, amount of 

net proceeds due to the Agency and a Debt Settlement Package with instructions to return 

the completed package to the Servicing Office. The homeowner is to be made fully 

aware that while the Agency is agreeing to release the lien they are still responsible for 

any remaining debt, which can be settled through the debt settlement process.

 The denial letter should state, at a minimum, that the Agency has reviewed the request 

for consent to sell the property for the proposed sale price and provide specific reasons 

why the Agency does not consent to the sale. The Field Office should be listed as the 

contact. 

 In cases where a junior lien exists, the State Director may approve settlement of a 

junior lien to effect sale of the property when it is determined to be in the Agency’s best 

interest. Field staff will negotiate the lowest cost to have the junior lien released from the 

security property, bearing in mind the Agency only seeks to have the lien released (and 

not necessarily satisfied). The junior lienholder may still seek recovery from the debtor, 

if permitted by State law.

The Agency’s objective is to minimize 

any potential loss to the Government and 

to the borrower. The Field Office may 

consent to a sale for as low as the market 

value of the property, minus the prior liens 

and authorized sales expenses. When the

proposed sales price is less than the 

market value, a net recovery valuation is 

required. Both action is handled in the 

Field Office and the final decision to 

concur with the proposed sale lies with a 

Loan Approval Official.

____________________________________________________________________________________________

6-2

Example - Sale for Less Than Debt

A borrower’s debt is $30,000, the sales price of 

the property is $28,000, authorized sales 

expenses are $3,000, and the market value is 

$28,000. In this case, the Loan Approval 

Official may consent to the proposed sale since 

it will net the Agency $25,000 ($28,000 minus 

$3,000 in authorized selling expenses). If the 

proposed sales price was less than the market 

value ($28,000), a net recovery valuation would 

be required.
HB-2-3550

Paragraph 6.1 Overview of Liquidation Options

When sales proceeds will not fully 

satisfy the debt, the Servicing Office will 

make the determination of whether the 

borrower will be released from personal 

liability. This determination is based upon 

a Debt Settlement Package completed by 

the borrower and forwarded to the 

Servicing Office for review and approval. 

A completed Debt Settlement Package is 

required to be submitted at or before loan 

closing for all sales for less than the debt, 

and sales proceeds must be submitted by 

certified or cashiers check. In cases where 

the borrower is not able or willing to 

complete the Debt Settlement Package, the 

Field Office may still release the mortgage 

when it is determined to be in the best 

interest of the Agency. This generally 

occurs when the borrower has moved out 

of the area or failure to close the loan will 

result in liquidation and the Agency 

receiving less than the anticipated net 

recovery value. The Debt Settlement 

Package, if available, and proceeds from 

the sale will be transmitted to the Cash 

Section of the Loan Administration 

Branch in the Servicing Office. Form RD 

3550-17 with the final payment coded 

“00” will be used to transmit the loan 

proceeds.

The Field Office will enter in GLOBAL/NOTES the date of the sale or assumption, 

purchase price, outstanding vouchers, and the date funds were submitted to the Servicing 

Office. On accounts which were accelerated, the Field Office will also update the 

FCL/INFO screens with third party information. When proceeds have been posted or the 

assumption processed, the Servicing Office will notify the Field Office of such action 

through Task #86, “Approved short sale, release mortgage/deed only,” and will provide 

further guidance on release of the promissory note or debt settlement action, as 

appropriate.

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(05-27-98) SPECIAL PN

Revised (03-31-21) SPECIAL PN

Debt Settlement

A Debt Settlement Package consists of:

• Form RD 3550-20, “Application for 

Settlement of Indebtedness”

• Form RD 3550-21, “Payment Subsidy 

Renewal Certification”

• Copies of the last two months bank 

statements for all accounts

• Verification of Income (last two pay stubs, 

benefit letter, etc.)

• Copy of most recent Federal Income Tax 

Return

• Copy of Net Recovery Worksheet, if 

applicable

• Estimated selling expenses

• Any other relevant information

The Servicing Office should provide the Field 

Office with a Debt Settlement Package or the 

Field Office may assemble the necessary 

information. For emergency releases on debt 

settlement cases, Field Offices may fax the 

above information to: Servicing Office, Direct 

Loss Mitigation Section, ATTN: QR Debt 

Settlement, in Servicing Office at (314) 457-

4451 or (314) 457-4551. The borrower’s 

telephone number must be provided. 

Nonemergency cases are sent to the 

aforementioned section in the Servicing Office.
HB-2-3550

Paragraph 6.1 Overview of Liquidation Options

2. Deed in Lieu of Foreclosure

After the account has been accelerated, the borrower can offer to convey the security 

property to the Agency. The Agency will accept the deed in lieu of foreclosure only if 

the Agency will realize a greater net recovery value than would be obtained if foreclosure 

proceedings continued. Such a decision must be approved by a supervisor. However, the 

borrower is not released from liability for any remaining debt unless the procedures for 

debt settlement outlined in Section 3 of Chapter 7 are followed.

3. Borrowers in Bankruptcy

If the Agency is offered title to a property by a Bankruptcy Court, the decision to 

accept the conveyance must be approved by a supervisor and the Office of General 

Counsel (OGC). The Agency generally will accept the conveyance if the Agency will 

acquire title free of all liens and encumbrances other than Agency loans, and the 

conveyance will enable the Agency to substantially recover the Agency debt. The 

Agency may pay any necessary and proper fees approved by the Bankruptcy Court in 

connection with the conveyance.

B. Foreclosure

1. Agency Foreclosure

When the Servicing Office determines that liquidation is 

appropriate, the loan is accelerated. Between the time that the loan is accelerated and the 

time the foreclosure takes place, the borrower may offer to liquidate voluntarily.

2. Foreclosure by Another Lien Holder

When notified that a foreclosure action has been or will be initiated by another lien 

holder, the Servicing Office should develop a strategy that is expected to result in the 

greatest net recovery by the Government. This may be to join the action, make an offer 

for the property at the foreclosure sale, or to settle the debt of the other lien holder in 

exchange for an assignment of the note and mortgage.

In a situation where the Government did not protect its interest in a security property 

during a foreclosure by another lien holder and the Government has redemption rights, 

the Servicing Office Supervisor will determine whether to redeem the property depending

on the estimated net recovery value.

____________________________________________________________________________________________

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HB-2-3550

Paragraph 6.1 Overview of Liquidation Options

C. Release of a Valueless Lien

In liquidation cases, if a net recovery valuation indicates the Agency’s lien is valueless 

(that is, there is no or a negative potential recovery), the lien may be released. This action 

generally occurs and is approved at the Field Office level, and when done, the Field Office will 

notify the Field Assistance Desk at the Servicing Office. This is necessary to ensure that taxes 

and insurance are no longer paid by the Agency, and a Debt Settlement Package is sent to the 

borrower by the Servicing Office.

6.2 NET RECOVERY VALUE

Estimated net recovery value represents the amount that the Agency could expect to 

recover from a property if it was liquidated after considering all costs associated with liquidating, 

holding, and selling the property. Attachment 6-A contains a net recovery value worksheet to 

aid in this calculation. Actual net recovery value is the amount the Agency in fact does recover 

from the sale of a property, after accounting for all costs.

A. Establishing Market Value

The market value of the property is the 

fundamental basis for establishing the estimated 

net recovery value. All calculations undertaken 

on the net recovery value worksheet provide 

additions or deductions from market value.

Depending upon the likely method of 

liquidation and at what point in the process the 

calculation is being made, market value may be based on an estimated value, on an appraisal, or 

on the actual sale price. Early in the process of determining which liquidation method should be 

followed, the Servicer may need to make a rough estimate of the market value based on any 

available information.

B. Environmental Considerations

The Servicer’s estimate of market value must take into consideration potential 

environmental hazards that may pose a liability issue for the Agency and the presence of 

environmental resources for which the Agency will have an affirmative responsibility to take 

protective measures once it owns the property. Exhibit 6-1 provides a partial list of 

environmental factors for consideration. ____________________________________________________________________________________________

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(05-27-98) SPECIAL PN

Revised (03-31-21) SPECIAL PN

Calculation of Net Recovery Value

Market value

(less) Costs

(plus) Income

Net recovery value
HB-2-3550

Paragraph 6.2 Net Recovery Value

In order to minimize Agency liability, the Agency must ensure, prior to acquiring 

property through foreclosure, that the property has been examined for potential contamination 

from hazardous substances, hazardous wastes, and petroleum products, including underground 

storage tanks. This should be accomplished by requesting that Field Staff complete the 

Transaction Screen Questionnaire, ASTM Standard E-1528 (TSQ). If the completed 

questionnaire raises any concerns it should be submitted to the State Environmental Coordinator 

for further evaluation and guidance.

The Agency also should examine the property prior to acquisition and consider any costs 

associated with environmental resources the Agency might be required to 

protect.

For additional information, refer to RD Instruction 1970.

Exhibit 6-1

Environmentally Sensitive Land Uses and 

Resources

Extraordinary Circumstances

• Historic properties

• Federally listed threatened or 

endangered species, critical habitat, 

Federally proposed or candidate species

• Wetlands 

• Floodplains 

• Any violation of applicable Federal, state, or local statutory, 

regulatory, or permit requirements for environment, safety, and 

health.

• Any proposal that is likely to cause uncontrolled or unpermitted 

releases of hazardous substances, pollutants, contaminants, or 

petroleum and natural gas products.

• An adverse effect on the following environmental resources:

o Historic properties;

o Federally listed threatened or endangered species, 

critical habitat, Federally proposed or candidate species;

o Wetlands; 

o Floodplains;

o Areas having formal Federal or state designations such 

as wilderness areas, parks, or wildlife refuges; wild and 

scenic rivers; or marine sanctuaries;

o Special sources of water (such as sole source aquifers, 

wellhead protection areas, and other water sources that 

are vital in a region);

o Coastal barrier resources or, unless exempt, coastal 

zone management areas; and

o Coral reefs.

• The existence of controversy based on effects to the human 

environment brought to the Agency’s attention by a Federal, 

tribal, state, or local government agency.

____________________________________________________________________________________________

6-6
HB-2-3550

Paragraph 6.2 Net Recovery Value

It is important to note that development on Tribal land or dependent Indian communities 

may require additional coordination with the Tribe to determine if the proposal has an effect on 

the human environment or an adverse impact on cultural resources and the Section 106 review. 

In accordance with RD Instruction 1970-H, Exhibit B “when an applicant’s proposal is located 

on tribal lands, defined in 36 CFR § 800.16(x) as all lands within the exterior boundary of any 

Indian reservation and all dependent Indian communities, and that tribe has designated a Tribal 

Historic Preservation Officer (THPO) in accordance with Section 101(d)(2) of NHPA, the SHPO 

participates only under the conditions specified in 36 CFR § 800.2(c)(1)(ii). If the Indian tribe 

has not designated a THPO, then the SHPO participates in Section 106 review pursuant to 36 

CFR § 800.2(c)(2)(i)(B).” Exhibit D of RD Instruction 1970-H provides guidance on working 

with Indian Tribes in the Section 106 review.

C. Ordering An Appraisal

Information about conducting appraisals is contained in Chapter 5, Section 5 of HB-1-

3550. The point at which a formal appraisal is actually conducted will vary.

1. Valueless Lien

If the Servicer’s estimate suggests that the lien may be valueless, an appraisal should 

be obtained immediately. If the appraisal indicates that the lien is in fact valueless, it 

should be released without incurring servicing costs.

2. Deed in Lieu of Foreclosure

If, after acceleration, the borrower offers a deed in lieu of foreclosure, an appraisal 

should be obtained immediately so the Servicer can determine whether it is in the 

Government’s interest to accept the deed.

____________________________________________________________________________________________

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Revised (03-31-21) SPECIAL PN
HB-2-3550

Paragraph 6.2 Net Recovery Value

3. Foreclosure

If the property will be going to foreclosure, no appraisal should be obtained until 

shortly before the sale is scheduled to take place. In areas where the foreclosure process 

can be lengthy, the value of the property could change before the sale if it is conducted 

too far in advance.

D. Holding Period

Nearly all costs and income used in the net recovery value calculation are affected by the 

holding period. For estimated net recovery value, the length of the holding period is estimated 

differently, depending on the likely method of disposition. The holding period should be 

estimated as the time between the date the net recovery worksheet is being filled out and the 

anticipated date for:

• Filing of the deed and the expiration of redemption rights (foreclosure);

• Filing the warranty deed (deed-in-lieu of foreclosure);

• Filing the release (release of valueless lien); or

• Payoff and release (debt settlement offer subsequent to acceleration).

The time for marketing and disposition, if acquired, should also be considered when 

estimating the holding period.

E. Deductions from Market Value

Numerous costs associated with liquidation must be considered when determining the net 

recovery value, including the following costs.

• Prior liens to be paid by the Agency. In a case where a prior lien is involved, the 

amount required to repay the prior lien holder must be included in the calculation.

• Junior liens to be paid by the Agency. If the Agency pursues foreclosure, junior 

liens are not paid. However, in the case of a deed in lieu of foreclosure, it may be to 

the Agency’s advantage to pay off a junior lien holder. The Servicing Office should 

conduct a title search to identify the position and the amount of each lien against the 

property.

____________________________________________________________________________________________

6-8
HB-2-3550

Paragraph 6.2 Net Recovery Value

• Selling expenses to be paid by the Agency. All of the transaction costs involved in 

selling the property including advertising, commissions for selling agents, required 

seller certifications, surveys, points, and closing costs paid by the Agency, whether on 

behalf of the borrower in a voluntary liquidation, or as an Agency expense for an Real 

Estate Owned (REO) sale, must be included in the calculation.

• Holding costs. During the time that the Agency owns the property, the monthly 

interest accrued is multiplied by the number of months in the holding period.

• Depreciation during the holding period. The property may depreciate in value 

while it is being held by the Agency.

• Administrative costs. The administrative burden associated with holding a property 

includes the cost of liquidation, such as attorney, filing, recordation, advertising, and 

document service fees that are customarily incurred in a foreclosure action.

• Management costs. During the period the Agency holds the property it will accrue 

costs related to cleaning, securing, and maintaining the property such as utilities and 

real estate taxes.

F. Additions to Market Value

Although most of the adjustments to market value involve deductions to reduce the 

recovery amount, there are a few factors that can increase the market value.

• Appreciation during the holding period. In markets that are strong, the property 

may appreciate while it is being held by the Agency.

• Income during the holding period. In general, the Agency does not lease 

properties. However, REO properties may be leased in limited circumstances, such 

as a property located in an area where keeping the property occupied could greatly 

reduce vandalism.

____________________________________________________________________________________________

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(05-27-98) SPECIAL PN

Revised (03-31-21) SPECIAL PN
HB-2-3550

6.3 BASIC SECURITY LOSS

The basic security loss is the difference 

between the property’s market value and the 

outstanding Agency debt on the property, 

including principal, subsidy subject to recapture, 

and other recoverable costs. Exhibit 6-2 

provides the basic security loss formula.

It is important for the Servicer to 

consider the basic security loss in determining 

how to work with the borrower. For example, 

the debt settlement arrangements the Agency 

agrees to might be more lenient in the case of a borrower with a property that lost value through 

no fault of the borrower. More important, this information can be used for portfolio analysis to 

help the Agency originate loans more effectively in the future.

6.4 DEED IN LIEU OF FORECLOSURE

A deed in lieu of foreclosure is a method of liquidation by which title to the security 

property is conveyed to the Agency by the borrower. The Agency must not consider a 

borrower’s offer to convey the title to the security property until after the account is accelerated, 

and then only when it is in the best interest of the Government based upon the estimated net 

recovery value. After an account has been accelerated, a deed in lieu of foreclosure is processed 

and approved by Field Offices. In exceptional cases where a borrower offers to convey title to 

the property at a Field Office when the account has not been accelerated, the Field Office will 

immediately contact the Servicing Office to determine an appropriate course of action.

To process a deed in lieu of foreclosure, Field Offices will obtain the following items 

from the borrower: (1) a warranty deed; (2) Form RD 1955-1, Offer to Convey Security; and (3) 

copies of any leases, junior liens, or other documents affecting the title to the property. The 

borrower should be informed that the deed will not be recorded unless the conveyance is

accepted.

Generally, borrowers will be required to satisfy liens and real estate taxes or assessments 

before conveyance is accepted. However, if the borrower is unwilling to do so, the Agency may 

elect to satisfy or settle these debts if it is in the best interest of the Government.

____________________________________________________________________________________________

6-10

Exhibit 6-2

Calculation of Basic Security Loss

Gross Investment

A. $__________ Principal

B. $__________ Subsidy Recapture

C. $__________ Recoverable Costs

Market Value (use current appraisal)

Basic Security Loss
HB-2-3550

Paragraph 6.4 Deed In Lieu Of Foreclosure

A deed in lieu of foreclosure does not automatically release the borrower from liability 

for any outstanding debt. The borrower’s account will be credited with the actual net recovery 

value. If the actual net recovery value does not satisfy the debt, the remaining debt must be debt 

settled following the debt settlement procedures provided in Section 3 of Chapter 7.

The borrower should be reminded that under a deed in lieu of foreclosure:

• Foreclosure action will not be suspended while the offer for a deed in lieu of 

foreclosure is considered;

• All costs related to the conveyance paid by the Agency will be added to the debt;

• A credit equal to the actual net recovery value will be applied to the debt;

• If the borrower does not satisfy the debt, the borrower will not automatically be 

released from liability; and

• The borrower will be required to provide a title insurance policy or a 

final title opinion from an Agency-approved title company or attorney.

6.5 FORECLOSURE

State laws pertaining to acceleration and 

foreclosure will affect the procedures the Agency 

is required to follow. OGC should be consulted to 

ensure that appropriate procedures are followed.

A. Making the Acceleration Decision

The Servicing Office must decide whether to accelerate the account and begin the

foreclosure process. The decision to accelerate involves numerous considerations, many of 

which will vary case-by-case. The following issues should always be considered.

1. OGC Concurrence

OGC concurrence is needed before beginning the foreclosure process if:

• The foreclosure is based on a nonmonetary default;

• The borrower obtained the loan while a civilian and entered military service after the 

loan was closed; or ____________________________________________________________________________________________

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(05-27-98) SPECIAL PN

Revised (03-31-21) SPECIAL PN

SCRA OF 2003

Original mortgage interest rate must 

be restored when loan is accelerated for 

accounts flagged for the Servicemembers 

Civil Relief Act of 2003.
HB-2-3550

Paragraph 6.5 Foreclosure

• The property also serves as security for a loan under another United States 

Department of Agriculture (USDA) Agency program such as the Farm Service 

Agency (FSA), since this may trigger liquidation of the other loan. 

2. Tribal Land

If the security property is located on tribal allotted or trust land, the acceleration may 

be approved; however, liquidation may not proceed until after the State Director has 

offered, in writing, to transfer the account to an eligible tribal member, the tribe, or the 

Indian Housing Authority servicing the tribe or tribes. This offer is generally made after 

the account has been accelerated, the appeals process has been concluded and the case 

sent to the respective State office.

3. Role of Other Lien Holders

Depending upon the status of other liens on the security property, the Servicing 

Office may invite other lien holders to join in the foreclosure action or join in a 

foreclosure action initiated by another lien holder.

Assignment of promissory notes and security instruments is authorized where a junior 

lienholder is foreclosing its lien and is paying the Agency in full.

Recapture will be calculated if the junior lienholder provides the necessary 

information.

B. Acceleration

1. The Acceleration Notice

If the Servicing Officedetermines that the appropriate approach to liquidation is 

foreclosure, the process begins with an acceleration notice. The acceleration notice 

demands full payment of the account including unpaid principal and interest, advances, 

and subsidy subject to recapture. It notifies the borrower of: (1) the reason for the 

acceleration; (2) the amount due; (3) the method of payment; (4) the opportunity for an 

informal discussion with the decision maker; and (5) the process for requesting an 

administrative appeal hearing. The notice gives the borrower 30 days to pay in full or 

request a hearing.

The notice must be sent to the borrower and any cosigners simultaneously by both 

regular mail and certified mail. If the property address is different from the address of 

the borrower, the notice should be sent to the property address as well.

___________________________________________________________________________________________

6-12
HB-2-3550

Paragraph 6.5 Foreclosure

2. Treatment of Payment Subsidy

If a borrower is receiving payment subsidy, the payment subsidy agreement will not 

be canceled when the debt is accelerated, but the agreement will not be renewed when it 

expires unless the account is reinstated.

3. Special Servicing

After a borrower’s account has been accelerated, the borrower is no longer eligible 

for any of the special servicing actions described in Chapter 5.

4. Assignment of Security Instruments

Assignment of promissory notes and security instruments is authorized when an 

account has been accelerated, all appeals have been exhausted, the case has been 

accepted by OGC for foreclosure, and the Agency is being paid at least the net recovery 

value of the security property.

5. Offers to Pay

Field Offices will refer offers to cure the default to the Servicing Office. The 

borrower is permitted to cure the default and retain the loan under the following 

conditions:

• The Agency is required by State law to reinstate the loan; or

• The Agency is required by a decision from the National Appeals Division (NAD) 

to reinstate the loan; or

• The borrower has not cured the account within the last two years to prevent 

foreclosure. 

The Deputy Administrator of the Servicing and Asset Management Office has the 

authority to grant a waiver to the two-year limitation for allowing borrowers to cure the default 

and avoid foreclosure if it is in the government’s best interest. Field Office employees may 

recommend a waiver to the two-year limitation. When a proposal is made to waive the two-year 

limitation, a cure and financial statement must be completed to include wage or other income 

statements and a profile credit report to demonstrate repayment ability (41 percent Total Debt 

Ratio). In addition, the borrower must agree to establish and fund an

____________________________________________________________________________________________

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Revised (03-31-21) SPECIAL PN
HB-2-3550

Paragraph 6.5 Foreclosure

escrow account, and agree to cure the default within 30 days of the date of the offer (which must 

be at least two weeks prior to the scheduled foreclosure sale date). In States with judicial 

foreclosures, the offer may only be accepted until the time the case has been referred to the 

United States Attorney for foreclosure. Field Offices will submit the request to waive the twoyear limitation through their State Office for submission to the Servicing Office, Attention: 

Acceleration Unit. In the submission to the Servicing Office, State Offices will indicate the 

borrower’s total debt ratio and why the waiver is being requested. Field Offices will maintain 

the supporting documentation in the borrower’s case file.

When an offer is made to accept less than the full amount to cure the default, a cure and financial 

statement must be completed. If RHS accepts the offer the account will be reamortized if the 

borrower is unable to pay the remaining delinquency within 30 days of reinstating the account.

Funds submitted by a borrower to a Field Office should be sent to the lockbox on a RD Form 

3550-17, “Funds Transmittal Report.” 

C. Review of the Acceleration Decision

Several remedies are available to borrowers who believe their accounts should not have 

been accelerated. These include an informal review at the Servicing Office, mediation or dispute

resolution, and a formal appeal with the NAD. Paragraph 1.9 describes the appeal and review 

process in detail. 

D. Initiating Legal Proceedings

Field Offices should continue the foreclosure process 30 days after the acceleration notice 

is sent if the borrower does not request an informal review or appeal the acceleration decision, or 

as soon as NAD upholds the Agency’s decision to foreclose. Because foreclosure law differs 

from State to State, the Servicing Office should consult with OGC for guidance, as necessary, 

regarding the specific processing procedures for each State.

The Agency will only seek a deficiency judgment (in those States where available) when 

foreclosure is initiated and the Agency determines the borrower has or will have the assets from 

which a deficiency judgment could be recovered. Deficiency judgments will never be sought in 

the following situations: (1) acceleration is due to an unpaid recapture amount; (2) the borrower 

was granted a moratorium at any time during the course of the loan and faithfully tried to meet 

the loan obligations; (3) State law does not permit a personal deficiency; (4) in nonjudicial 

foreclosure States, the United States Attorney will not accept a referral for the deficiency; or (5) 

the Agency has determined after consultation with OGC, that it is not cost effective to seek a 

deficiency on a particular case.

____________________________________________________________________________________________

6-14
HB-2-3550

Paragraph 6.5 Foreclosure

Throughout the time required for legal proceedings to conclude, the Servicer should 

encourage the borrower to liquidate voluntarily and may consider using the debt settlement 

options described in Section 3 of Chapter 7.

E. The Foreclosure Sale

Once legal proceedings have concluded, the property will be sold at a foreclosure sale. 

To complete the foreclosure process, Field Offices must determine how much to bid and enter 

that bid at the sale.

1. Establishing a Bid Amount

The Agency's bid will be the lesser of the Agency's gross investment or the estimated 

net recovery value of the security property.

Gross investment is the sum of:

• The unpaid balance, defined as:

◊ In States with judicial foreclosure, the judgment account established as a result of 

the foreclosure judgment.

◊ In States with nonjudicial foreclosure, the borrower's account balance reflecting 

secured loans and advances.

• All outstanding advances and fees charged to the borrower’s account.

• Total subsidy received.

2. Bidding at the Foreclosure Sale

Procedures for bidding at a sale will vary by locality and a local presence may be 

required. If the Agency is the highest bidder, the property will become REO property, 

which will be managed and disposed of by the Field Office. If the amount received 

through the foreclosure sale is less than the borrower’s outstanding debt, the Servicing 

Office will follow the debt settlement procedures outlined in Section 3 of Chapter 7.

Note: RHS must lease or sell program and nonprogram inventory properties to public 

agencies and nonprofits to provide transitional housing and to provide turnkey housing 

for tenants of such transitional housing and for eligible families.

____________________________________________________________________________________________

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(05-27-98) SPECIAL PN

Revised (03-09-22) SPECIAL PN
HB-2-3550

Attachment 6-A

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ATTACHMENT 6-A

NET RECOVERY VALUE WORKSHEET

I. BACKGROUND

(1) Case Number: (2) Borrower Name/ID

(3) Proposed Liquidation Option: (4) Calculation Date:

(5) Estimated Holding Period:1

II. CALCULATION OF NET RECOVERY VALUE

(6) Market Value (use current appraisal) (6)

(7) Deductions from Market Value

A. Prior liens to be paid by the Agency $_________

B. Junior liens to be paid by Agency (N/A for foreclosures) $_________

C. Selling expenses to be paid by Agency 2

 $_________

D. Holding costs3

 $_________

E. Depreciation During Holding Period $_________

F. Administrative Costs4

 $_________

G. Management Costs5

 $_________

H. Total Reductions (sum of items 7A through 7G) $_________

(8) Additions to Present Market Value

A. Appreciation during holding period

B. Income during holding period

C. Total Additions (sum of items 8A and 8B)

 $________

 $________

 $________

(9) NET RECOVERY VALUE (6 minus Item 7H plus Item 8C)

1 To calculate holding period:

• For release of valueless lien, use number of months from calculation to filing the release;

• For refinancing, use number of months from calculation to closing of new loan and payoff;

• For sales, use number of months from calculation to closing of loan or transfer and assumption;

• For deed-in-lieu of foreclosure, use number of months from calculation to filing warranty deed;

• For debt settlement offer subsequent to acceleration, use number of months from calculation to payoff and 

release;

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(05-27-98) SPECIAL PN
HB-2-3550

Attachment 6-A

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• For foreclosures, use number of months from calculation to filing of deed and expiration of redemption rights; 

and

• Add the time for marketing and disposition, if acquired.

2 Selling expenses: advertising, commissions for selling agents, required seller certifications, surveys, points, and 

closing costs to be paid by the Agency.

3 Holding costs: monthly interest accrual multiplied by number of months in the holding period.

4 Administrative costs: costs of liquidation, including attorney, filing, recordation, advertising, and document service 

fees that are customarily incurred in a foreclosure action.

5 Management Costs: cost of cleaning, securing, and maintaining the property during the holding period, including 

utilities, real estate taxes, and other assessments accruing for custodial or REO properties.

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