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CHAPTER 19: LOSS CLAIMS -

COLLECTING ON THE GUARANTEE

7 CFR 3555.351

19.1 OVERVIEW

This chapter outlines collecting on the guarantee. It provides a description of 

allowable costs, the servicer process for submitting a loss claim, outlines the Agency 

review, describes penalties that could be assessed for failure to meet program 

requirements, and provides guidance on net recovery value. 

19.2 LOSS CLAIM COVERAGE

A. Loan Guarantee Limits

The maximum payment that a servicer may collect from the Agency under the Single 

Family Housing Guaranteed Loan Program (SFHGLP) is the lesser of:

• Ninety percent of the original principal amount advanced to the borrower; or

• One hundred percent of any loss equal to or less than 35 percent of the original 

principal advanced, plus 85 percent of any remaining loss up to 65 percent of the 

principal advanced.

When calculating the maximum loss claim amount, any previously reimbursed

Mortgage Recovery Advance (MRA) provided for the loan should be included in the loss.

For example, if the original principal amount (OPA) guaranteed on a loan was 

$100,000, the maximum loss payment would be $90,000, which is the lesser of:

1. Ninety percent of principal

• OPA is $100,000.

• 90 percent of OPA is $90,000.

2. One hundred percent of 35 percent and 85 percent of 65 percent

• OPA is $100,000.

• 35 percent of OPA is $35,000.
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• 65 percent of OPA is $65,000.

• 85 percent of 65 percent of OPA is $55,250.

• Payment amount is 100 percent of 35 percent of OPA ($35,000) plus 85 

percent of 65 percent of OPA ($55,250). This equals $90,250.

The Agency’s exposure would be limited to $90,000, which is the lesser of the two 

loss payment amounts.

If the Agency had previously reimbursed the servicer for a MRA in the amount of 

$30,000, The maximum exposure on the final loss claim would be $60,000 which is the 

lesser amount minus the MRA already paid.

B. Losses Covered by the Guarantee 

Losses that are covered by the loan guarantee include the following:

• Principal and interest owed on the loan.

• Additional interest accrued up to 60 days from the settlement date through the 

date the loss claim is paid.

• Principal and interest indebtedness on protective advances provided by the 

servicer to protect the security property.

• Liquidation and disposition costs as outlined in Chapter’s 18 and 19 of this 

Handbook.

C. Reasonable and Customary

Liquidation and disposition costs should be similar to costs the servicer incurs when 

servicing non-guaranteed loans. Refer to Chapter 18 for further guidance on customary 

costs related to the management and liquidation of acquired properties. Allowable costs 

could include:

• Appraisal-related costs excluding management fees. Reasonable and customary 

costs are determined by the Department of Veteran Affairs appraisal fee schedule.

• Securing the property.
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• Payment of real estate commissions to sell the property at a maximum of six 

percent of the sales price unless incentives can be justified or a minimum of 

$2,000 commission for low value sales. 

Costs associated with servicer in-house expenses (e.g. employee salaries, in-house 

legal fees, travel, Real Estate Owned (REO) management fees and other company 

expenses) are not allowed.

Allowable liquidation and disposition costs differ for properties sold to a third party 

from those that remain in the servicer’s inventory at payment of the loss claim. 

1. Third Party Foreclosure or Pre-Foreclosure Sale.

If the property is sold to a third-party at the foreclosure sale or by a preforeclosure sale (PFS), the loss claim will be calculated on the actual sales price. The 

Agency will reimburse the servicer for actual liquidation expenses plus additional 

interest for up to 45 days from the PFS closing date or foreclosure sale date. The 

servicer should file the loss claim within 45 days of funds receipt or in the case of a 

PFS, the settlement date, otherwise the loss claim may be denied or reduced. 

Documentation of expenses associated with a loss claim request must be retained in 

the servicer’s permanent file. 

2. Acquired by the Servicer at a Foreclosure Sale or by Deed-in-Lieu. 

For property acquired by the servicer at the foreclosure sale or by deed-in-lieu, the 

servicer will order a market value appraisal that is compliant with Uniform Standards 

of Professional Appraisal Practice (USPAP) standards. If the servicer utilized a 

qualified appraisal during liquidation and it is dated within 6 months of the loss claim 

date, the servicer may reuse the existing appraisal. To estimate holding and 

disposition costs, a standard acquisition and management resale factor of 15.95

percent (aka VA Net Value Factor) as established by the Department of Veteran 

Affairs (VA) of the estimated sales price is used. Loss claims for acquired property

should be filed by the servicer within 60 days of the foreclosure sale date, acquisition 

date, or possession of the security property. Loss claims filed beyond this period may 

be reduced or denied by the Agency.

The servicer can negotiate a “cash for keys” option with the former borrower for a 

maximum of up to $2,500. The property must be left in broom swept condition with 

all personal property removed before the borrower can be eligible to receive this 

incentive. A written agreement must be signed by borrower and retained in servicing 

file.
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19.3 FILING A LOSS CLAIM

All requests for loss claim payments will be made through an electronic web 

submission via USDA Lender Interactive Network Connection (USDA LINC) and can be 

accessed at https://usdalinc.sc.egov.usda.gov/RHShome.do. All information entered into 

the USDA LINC Loss Claim Administration system must be supported by documentation 

in the loss claim file. The servicer is responsible for the completeness and accuracy of 

the loss claim submission. 

Information for gaining access to USDA LINC, submitting loss claims, and uploading 

loss claim documentation can be located in the Loan Servicing section under USDA Loss 

Claim Administration User Guide found at https://www.rd.usda.gov/programsservices/lenders/usda-linc-training-resource-library .

A. Sold to a Third Party or PFS

For property that is sold through PFS or to a third party at the foreclosure sale, the 

loss claim must be submitted within 45 days from the PFS closing date, foreclosure sale 

date or the date the proceeds were received, whichever is later. 

B. Acquired by the Servicer at Foreclosure or Deed-in-Lieu

For properties that are acquired by the servicer, the servicer must order an appraisal 

within 15 days of the foreclosure sale date, acquisition date, or possession of the security 

property and file the loss claim within 60 days of the foreclosure sale date, acquisition 

date, or possession of the security property. In cases where a separate legal action is 

necessary to gain possession following a foreclosure, proceeding should be initiated 

within 30 calendar days of the foreclosure sale, redemption period or other prevailing 

State law affecting acquisition of title. The Agency will determine the value of the 

property for the basis of the loss claim by utilizing the market value of the security 

property through the Property Sale Value Calculator (PSVC). The Agency will apply an 

acquisition and management resale factor to estimate holding and disposition costs, based 

on the most current VA Management and Acquisition Factor (also known as the VA Net 

Value Factor) found at: https://www.benefits.va.gov/HOMELOANS/servicers_valeri.asp.
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C. Market Value Appraisal

The servicer will order an appraisal prepared by a licensed or certified appraiser. The 

appraisal must comply with USPAP with the following requirements:

• USDA to be named as either the client and/or intended user.

• The intended use is market value for loss mitigation or asset valuation; and

• State the highest and best use analysis for the subject property. 

The appraiser will use one of the following forms: 

• Uniform Residential Appraisal Report (URAR/Fannie Mae Form 1004 or Freddie 

Mac form 70) 

• Manufactured Home Appraisal Report (Fannie Mae Form 1004C or Freddie Mac 

Form 70-B); or

• Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073 or 

Freddie Mac Form 465).

Along with the above-mentioned appraisal forms, the following should be included:

• Photos documenting the interior inspection are part of the appraisal inspection. 

The following color photos must be included: 

o All living spaces in the property (i.e. living room, family room, bonus room, 

dining room/area, etc.) 

o All bedrooms 

o Kitchen 

o Bathrooms 

o Basement/crawlspace 

o Laundry room 

o Mechanicals (furnace/air conditioner unit/water heater/electrical panel) 

o Attic 

o Garage/sheds 

o Any/all deferred maintenance items 
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Appraisals will be in PDF format with color photos upon submission to USDA LINC.

D. The Property Sale Value Calculator 

The Agency has developed a Property Sale Value Calculator (PSVC) to determine the 

estimated sales price for REO loss claims. The model coefficients use data on 

approximately 94,000 historical loss claims from the program. The Agency updates the 

model coefficients on a regular basis using actual property sale values acquired through a 

third-party data provider. The Agency adds historical data to the model every year and 

re-generates coefficients to ensure historical relationships between variables represent the 

most recent data available and that the model produces accurate property value estimates. 

19.4 CALCULATING NET RECOVERY VALUE

As a part of the loss claim, the Agency will reimburse the servicer for the difference 

between the loss incurred by the servicer and the net recovery value of the property, 

within the limits of the guarantee. Net recovery value is the amount the servicer recovers 

from the sale of a property after accounting for all costs. Net recovery value is calculated 

differently for properties that have been sold than for properties that are in the servicer’s 

inventory at the time the loss claim is filed. For property that has already been sold, the 

actual net recovery value is used. For property that remains in the servicer’s inventory, 

the estimated net recovery value is used.

A. Properties Sold at Foreclosure

When the servicer disposed of the property at the time of a loss claim submission, the 

actual net recovery value is calculated as the difference between:

• The proceeds from the sale and any other amounts recovered, such as recovered 

escrow funds; and

• Allowable liquidation and disposition costs.

B. Acquired Properties

The Agency estimates the net recovery value on unsold REO as the difference 

between:

• The estimated value of the property based on the PSVC.
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• Allowable acquisition and management costs associated with liquidation; and

• VA Net Value Factor.

19.5 AGENCY REVIEW

The Agency will review the loss claim package from the servicer. Loss claim checks 

or electronic funds transfer (EFT) payments will be issued to the servicer by the Agency 

within 60 days of the servicer’s properly filed loss claim. Agency staff will notify the 

servicer of any additional documentation required and will note it in the loss claim file.

Once all required information is submitted, the Agency must take the following 

actions:

• Determine whether the servicer has fulfilled all SFHGLP obligations and if not, 

whether reduction or denial of the loss claim is warranted.

• Review and approve the loss claim with an Agency designee with appropriate 

approval authority.

• Advise the servicer of the PSVC (if applicable) used to calculate the loss claim. 

• Provide appropriate appeal rights for any adjustments, reductions, or denials with 

specific reasons and clear explanation for the decision in accordance with 

Appendix 3 of this handbook; and

• Issue payment.

Payment of the loss claim simultaneously fulfills and terminates the loan note 

guarantee. A termination notice will be mailed to the designated payee at the time of 

payment. 

A. Reduction or Denial of a Loss Claim

The Agency will review each loss claim for adherence to program regulation and 

make any reductions and/or denial of loss claim as noted below. The Agency staff will 

use information provided by the servicer to determine if the loss claim should be adjusted 

or denied. The Agency must show that any reduction in the servicer’s loss claim which 

corresponds with the servicer’s action or failure to act. This section provides guidance 

regarding reduction or denial of a loss claim, and when applicable, the specific penalties 
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attached to those factors. Additional information regarding penalties may be found in 

Appendix 8 of this Handbook.

B. Calculation and Approval of Loss Payment

Agency staff will review the loss claim and supporting documentation submitted by 

the servicer. Agency staff will utilize the Add/Update Loss Claim transaction in the Loss 

Claim Administration menu of USDA LINC to document and create a loss claim 

payment to the servicer. The Agency’s reviewer should contact the servicer if there are 

questions about the information submitted by the servicer. 

C. Loss Claim Payment Process

The Agency will use the following procedures for loss claim processing and 

disbursement of any loss claim payment. 

1. Notification of Loss Payment Amount

The Agency should notify the servicer in writing of the amount to be paid within 

60 days of receipt of a properly completed loss claim package. If the loss claim has 

been reduced or denied, the Agency will provide a clear explanation of its decision, 

including an analysis of how the amount of any reduction was determined and 

provide notification of appeal rights in accordance with Appendix 3 of this handbook. 

2. Payment and Post Payment Activities

Payments for approved loss claims should be distributed within 60 days of receipt 

of a properly completed loss claim package. Servicers who participate in electronic 

funds transfer (EFT) should receive payment within 3 working days of loss claim 

processing. For all other servicers, a check should be generated and distributed

within 3 working days of receipt of a properly completed and submitted loss claim.

3. Review and Appeal Rights.

If a loss claim is reduced or denied, the Agency will notify the servicer of review 

and appeal rights as described in Appendix 3 of this handbook. If the servicer seeks 

to request a review or appeal a loss claim decision, the Agency will pay the approved 

portion of the loss claim within the time frames described above. Interest will not 

accrue on any disputed loss amount during the review or appeals process regardless 

of the outcome of the review or appeal.
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4. Supplemental Loss Claims

The Agency may allow the servicer to submit one supplemental loss claim in 

addition to the original loss claim submitted. The supplemental loss claim must be 

received by the Agency within six months from payment date of the initial loss claim. 

The Agency reserves the right to limit the payment of additional interest and 

expenses. The six-month expiration period may be exceeded if unusual 

circumstances exist such as a domestic incident as defined by the Department of 

Homeland Security or when a geographic location in which the property is located 

has a Presidential Disaster Declaration.