HB-1-3555

(03-09-16) SPECIAL PN 18-1

Revised (01-05-24) PN 602

CHAPTER 18: SERVICING NON-PERFORMING 

LOANS – ACCOUNTS WITH REPAYMENT 

PROBLEMS

7 CFR 3555.301

18.1 INTRODUCTION

The servicer is required to employ an experienced and knowledgeable staff, follow 

accepted industry servicing practices, and maintain a servicing platform that keeps

records of all servicing actions. Servicers are fully responsible for complying with this

Chapter regardless of any sub-servicing arrangements. Chapter 17 of this Handbook 

outlines the servicer’s responsibility to report to the Agency all loans through Electronic 

Status Reporting (ESR). 

When a loan becomes past due, the servicer must take prompt and aggressive action 

to help the borrower bring the account current. The servicer should work closely with the 

borrower to resolve any delinquency as early as possible to prevent further collection 

activity. In cases where the borrower is unable or unwilling to repay the loan, the 

servicer must take prompt action to liquidate the loan, either by encouraging the borrower 

to liquidate voluntarily or through foreclosure. 

Section 1 of this Chapter states the minimum actions the servicer is required to take to

bring past-due accounts current. Section 2 of this Chapter describes various alternatives 

to foreclosure that the servicer will pursue, including traditional and special loan 

servicing actions. Section 3 of this Chapter describes the policy on custodial property 

requirements. Section 4 describes the requirements within the foreclosure process.

Section 5 provides servicers with requirements when a property is in a county, parish or 

municipality that has been declared by the President of the United States to be a major 

disaster area where federal aid in the form of individual assistance is being made 

available.

SECTION 1: COLLECTION EFFORTS AND REQUIREMENTS [7 CFR 3555.301]

18.2 OVERVIEW

A goal of the Agency is to provide a borrower the maximum opportunity to remain a 

successful homeowner and the servicer should approach loan servicing as a preventive as 

well as a curative action. Prompt counseling and follow-up with a borrower who is late 

with a monthly payment, especially the first payment, is key to enhancing the likelihood 

of success. The servicer should identify any servicing actions that could aid a borrower 

who is experiencing repayment problems.
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18.3 MINIMUM REQUIREMENTS [7 CFR 3555.301]

When a borrower’s account becomes past due, the servicer must, at a minimum, take 

the collection efforts described below. Each delinquency should be treated individually 

using collection techniques that fit the individual circumstances. Additionally, the 

Agency recommends making personal contact with a delinquent borrower until the 

delinquency is cured. Debt collection efforts may be suspended when applicable laws 

restrict creditor action to collect a debt or take action. An example that may be a 

violation of an applicable law is if the commencement of debtor’s bankruptcy case 

occurs.

A. Initial Contact

The servicer must attempt to make verbal or written contact with the borrower on or 

before the day an account becomes 20 days past due. The servicer must send a letter to 

the borrower if unable to reach the borrower by telephone. This contact must solicit 

enough information to evaluate the borrower’s ability to cure the default and to help 

determine the additional servicing actions to be taken. At a minimum, the servicer must 

attempt to establish and document the following:

• The borrower’s current mailing address and telephone number; 

• The reason for the default;

• Whether the reason is temporary or long-term;

• The borrower’s attitude toward the debt.

• The borrower’s present income and employment status;

• The borrower’s current monthly obligations; and

• A realistic and satisfactory arrangement for curing the default.

B. Notify Credit Repository

The servicer must provide an accurate and complete file of the status of mortgages in 

its Agency-guaranteed loan portfolio to a minimum of three credit repositories each 

month with the goal of avoiding disputes that could arise from inaccurate or inconsistent 

reporting.

C. Send Certified Letter to the Borrower

Before an account becomes 60 days past due and if there is no payment arrangement 

in place, the lender must send a certified letter to the borrower requesting an interview for 

the purpose of resolving the past due account. The letter should emphasize the 

importance of meeting the debt obligation, negative impact of non-repayment on the 

borrower’s credit history
HB-1-3555

Paragraph 18.3 Minimum Requirements

(03-09-16) SPECIAL PN 18-3

Revised (01-05-24) PN 602

The information required at the initial contact should be requested in the certified 

letter if initial contact was not made successful.

D. Inspect the Property

On or before an account’s 60th day of delinquency and before initiating a liquidation 

action, the servicer must assess the physical condition of the property, determine 

occupancy, and take the necessary steps to preserve and protect the property. At 

minimum the servicer must document the following.:

• Physical Condition and Occupancy – Assess and document the physical condition 

of the property and determine the occupancy status of the dwelling. This will 

include identifying any actions essential to protect and preserve the property.

• Abandoned property – The servicer will document the servicing file outlining the 

abandonment determination using indicators such as property and yard condition, 

posted “for sale” signs, presence of personal property or vehicles, last known 

mailing address, or absence of a power meter. The servicer will refer the loan for 

acceleration within 15 days of the date of the inspection report confirming the 

property was abandoned. Additional guidance regarding management methods 

and activities of custodial properties can be found in section 18.7.A of this 

Chapter.

• Inspections – The servicer should inspect the mortgaged property at least monthly 

to verify continued occupancy and ensure the property is being adequately 

maintained. Exterior inspections are sufficient to make these determinations. If 

the inspection shows the property is not being adequately maintained or is vacant 

or abandoned, an attempt to complete an interior inspection should be performed.

Inspection records must be retained in the mortgage file and address at a 

minimum, the condition of the property, occupancy status, any necessary repairs 

to protect an abandoned property, the date of inspection, and who performed the 

inspection.

E. Proceed with Liquidation

Once the account becomes 90 days past due and the borrower has been nonresponsive or has declined all available foreclosure prevention options, the servicer must 

initiate liquidation proceedings considering any applicable notice and waiting period 

under state law.

18.4 DOCUMENTATION REQUIREMENTS AND PENALTIES [7 CFR 3555.301]

A. Collection Records

The servicer must maintain records of all collection efforts and must make them 

available upon request by the Agency. These records may either be in the form of 
HB-1-3555

Paragraph 18.4 Documentation Requirements and Penalties

18-4

servicing logs and/or copies of letters sent to the borrower. The records must indicate the 

following:

• Reason for the default.

• Date(s) and content of written notification(s) to the borrower.

• Dates and results of personal contacts with the borrower to resolve the debt both 

by telephone and/or in-person.

• Dates and documentation of property inspections; and

• Date liquidation action was initiated.

B. Grace Period for Completing Collection Action

The servicer is required to take all collection actions within the time frames described 

in Paragraph 18.3 of this Chapter. However, the Agency may allow a grace period of 

five business days for completing each required collection action. Thus, no penalty will 

be assessed if the servicer takes the required action before the end of the grace period.

C. Penalties for Failure to Fulfill Collection Obligations

If the servicer fails to take the minimum collection efforts in Paragraph 18.3 and 

experiences a loss on the loan, the loss claim amount will be reduced. The Agency may 

apply the penalties below for a servicer’s failure to take the required collection actions. 

These penalties are described in greater detail in Chapter 19 and Appendix 8 of this 

Handbook and include the grace period offered by the Agency as noted in Paragraph 18.4 

B above.

• The claim may be denied if the servicer failed to attempt to make any contact with 

the borrower before the loan was 65 days past due.

• The claim may be denied if the servicer failed to notify the Agency, in accordance 

with Chapter 17 of this Handbook, when the account was in default.

• Accrued interest for the claim will be reduced by 50 percent if the servicer failed 

to attempt to make a first contact with the borrower within 25 days past the due 

date, but within 65 days past due.

• If the servicer fails to order an inspection of the property within 65 days past due, 

the accrued interest will be reduced by 10 percent.

• The servicer is required to protect and preserve the property. The loss claim will 

be reduced by the dollar value of the loss attributable to the servicer’s failure to 

inspect and secure an abandoned property as documented by an appraisal. 
HB-1-3555

(03-09-16) SPECIAL PN 18-5 

Revised (01-05-24) PN 602 

SECTION 2: LOSS MITIGATION

[7 CFR 3555.301, 3555.303, 3555.304 and 3555.305] 

18.5 LOSS MITIGATION OPTIONS

The servicer will make every possible effort to assist borrowers who are experiencing 

an involuntary inability to pay their mortgage and show cooperation to resolve default 

situations using appropriate loss mitigation tools. Loss mitigation options include 

informal repayment agreements, special forbearance agreements, or loan modifications. 

Special forbearance agreements and loan modifications should be used when information 

in the servicing file supports the borrower’s ability and willingness to pay. Voluntary 

liquidation methods such as pre-foreclosure sales and deed-in-lieu of foreclosure may be 

used to protect the Government’s interest once the servicer has examined other servicing 

options and determined the borrower cannot continue with the loan obligation. 

Traditional/standard loss mitigation options must be exhausted prior to use of Special 

Loan Servicing Options. Consideration must be given to all options prior to initiation of 

liquidation.

The servicer must attempt to obtain information on the borrower’s financial condition 

and make an informed determination of the borrower’s ability to repay the arrearage and 

continue making mortgage payments as scheduled. Details on consideration and 

processing the below actions are located in the Attachment 18-A, Loss Mitigation Guide: 

• Servicing Early Delinquent Loans; 

• Informal Repayment Agreement;

• Loss mitigation overview; 

• General policies, procedures and minimum actions that constitute effective loss 

mitigation techniques; 

• Special Forbearance; 

• Traditional Loan Modification; 

• Special Loan Servicing Options; 

• Pre-Foreclosure Sale; 

• Deed-in-Lieu of Foreclosure; 

• Servicing plan, checklists; disposition cost benefit analysis; and

• Reporting – ESR and status of mortgage codes. 

All servicers must submit loss mitigation information through USDA LINC 

https://usdalinc.sc.egov.usda.gov/RHShome.do.
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SECTION 3: CUSTODIAL PROPERTY

[7 CFR 3555.306]

18.6 INTRODUCTION

Custodial property is borrower-owned property that is vacant or abandoned and in 

the possession of the servicer for the purposes of property inspection, preservation, and 

protection. The Agency holds the servicer accountable for all servicing and property

management responsibilities associated with custodial property. This section outlines 

the requirements for managing these types of properties.

18.7 PROPERTY MANAGEMENT METHODS AND ACTIVITIES [7 CFR 3555.306 

 (e)]

The servicer and Agency share a common interest to ensure that properties are 

managed and maintained. Attachment 18E of this Chapter outlines the maximum 

allowable costs for property preservation and maintenance costs. Costs higher than the 

published amounts for maintenance and preservation may be appropriate in some 

extenuating circumstances such as very rural areas, extreme neglect, or amounts of 

debris and are subject to approval by the Justification for the higher cost must be 

documented with color photos and detailed invoices and a determination will be made 

during the loss claim review.

A. Vacant or Abandoned Properties 

The servicer may need to take custody of the security property when it has been 

determined the property is vacant or has been abandoned. The servicer must inspect the 

property within 30 days of this determination to confirm occupancy and document its 

condition. When the inspection reveals the property is vacant, the servicer should take 

the following actions:

• Try to locate the borrower to determine the reason for vacancy; and

• Take immediate action to protect the property from vandalism and the elements 

in accordance with local laws.

Preservation and protection requirements for custodial property are as follows:
HB-1-3555

Paragraph 18.7 Property Management Methods and Activities

(03-09-16) SPECIAL PN 18-7

Revised (01-05-24) PN 602

• Perform monthly interior and exterior inspections to document the general 

condition of the property and any actions required to adequately protect and 

preserve the property. The servicer will maintain adequate documentation to 

support servicing decisions. 

• Take necessary actions to prevent unauthorized entry unless otherwise prohibited 

by state law. 

• Secure windows and doors. Boarding the property should be avoided unless it is 

necessary to avert vandalism to the property. The servicer may post a notice with 

contact information, however, should not post large signs or take other actions 

that might call attention to the vacant property.

• Determine if any emergency repairs are necessary to adequately preserve and 

protect the property. Emergency repairs will be completed by the servicer as 

quickly as possible to avoid property deterioration and does not require prior 

Agency approval. Servicers will retain documentation of all repairs, including 

photos of before and after work, for submission with any loss claim. 

• File a claim under the borrower’s insurance policy for insurable damage. 

• Protect plumbing and other operating systems from freeze damage.

• Remove any interior or exterior debris that poses a health, environmental, fire, or 

safety hazard. Examples include, but are not limited to, highly flammable 

chemicals, decaying food, dead animals, broken glass or other sharp objects, and 

large quantities of paint or paint products.

• Mow lawns, maintain shrubs, and perform snow removal.

• Maintain receipts and invoices for all costs incurred for preservation and 

protection of custodial properties. Services associated with preservation and 

protection of properties must be typical and reasonable.

• Notify the insurance carrier regarding the vacancy to ensure appropriate coverage 

is maintained.

A mortgage may be current or delinquent when a servicer becomes aware a borrower 

may have abandoned the security property. If the borrower redeems a property, the 

redemption amount should include all advances including emergency repairs. When an 

inspection reveals that the property is vacant or abandoned on a delinquent loan and 

liquidation is not already in progress, taking custodial possession should immediately 

initiate the foreclosure process.
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18-8

18.8 ENVIRONMENTAL HAZARDS [7 CFR 3555.306(e)]

If environmental issues impact the property’s value at the time of liquidation, the 

servicer must document when and how the hazard developed. If the environmental 

hazard was caused by activities that took place after the loan guarantee was issued, or by 

factors that could not reasonably have been detected with appropriate due diligence, the 

Agency will allow for costs from any resulting loss in the loss claim calculation. 

If it appears that it would be cost effective to determine the lien valueless because of 

an environmental hazard, the servicer should submit documentation to support this 

request to the Agency for concurrence. 

SECTION 4: ACCELERATION AND FORECLOSURE

[7 CFR 3555.306]

18.9 ACCELERATION 

When a servicer determines that a borrower is unable or unwilling to meet loan 

obligations and there is no reasonable prospect of resolving the delinquency the servicer

should initiate liquidation proceedings. A demand letter should be sent to the borrower 

within five days of when the borrower missed their third consecutive payment and will 

include the following:

• Reason the notice is being sent (e.g., default or abandonment);

• The action required to cure the default; and

• A date established to cure the default.

18.10 THE FORECLOSURE PROCESS [7 CFR 3555.306]

A. Initiation of Foreclosure - Referral 

The servicer must refer the case to an attorney or trustee for foreclosure within 180 

days of the due date of the last paid installment unless there are legal requirements that 

cause a delay in the foreclosure action. The servicer must exercise due diligence and 

manage the process by ensuring that all required actions are completed timely. 

Attachment 18-B, Acceptable State Foreclosure Time Frames, lists the recommended 

method of foreclosure and the first public action required by law to initiate foreclosure. 

In states where more than one foreclosure method is available, but only one option is 

listed, the Agency selects the method that is most cost effective in reducing legal fees and 

accrued interest expense. The Agency does not intend to prohibit the payment of loss 

claims where the servicer obtains title through a method of foreclosure other than what is 

recommended. For example, if the recommended foreclosure method is non-judicial, but 
HB-1-3555

Paragraph 18.10 The Foreclosure Process

(03-09-16) SPECIAL PN 18-9

Revised (01-05-24) PN 602

judicial foreclosures are required to preserve the servicer's right to a deficiency judgment, 

the servicer may demonstrate that recovery on a deficiency judgment is expected after 

considering the time and cost of litigation. In such case, the judicial foreclosure method 

should be considered acceptable.

B. The Foreclosure Sale

Servicers must exercise due diligence in completing the liquidation process. This due 

diligence should include an estimate of the total debt, whether the security value is 

sufficient to cover that debt, and the potential recovery of any deficiency. 

• Total Debt – Includes unpaid principal, any advances due from the borrower, 

interest accrual through the liquidation process, and other potential costs such as 

liquidation and real estate owned (REO) expenses. 

• Security Value – will be based on the current market value of the property in “as 

is” condition with a 90-120-day marketing time frame. If security property is 

inaccessible, the valuation will be based on exterior inspection only. If a 

significant (20 percent or more) decline from the value established at loan 

origination and the pre-foreclosure valuation is evident, the servicer is encouraged 

to review the value determination in accordance with established quality controls 

and be prepared to support the decline in value.

• Recovery Potential – consider the borrower’s other assets, ability to pay the 

deficiency, and other sources of recovery such as insurance claims or pending 

litigation.

• Foreclosure Bid – the servicer should consider state statutory requirements and 

the relationship of the outstanding debt and potential REO costs to the market 

value of the property. When the total debt, including the cost of acquiring, 

managing and disposing of REO property, is greater than the gross proceeds 

expected from a foreclosure sale at the market value of the security property and 

potential recovery from our sources, third-party bidding is encouraged by entering 

a foreclosure sale bid less than the value of the property. Servicer should use 

Attachment 18-D, USDA Individual State Based Bidding Chart, with the goal of 

avoiding REO and its associated management and disposition costs. The Agency 

does not need to concur on foreclosure bids.

• Auction Services – servicers are encouraged to use non-affiliated auction 

companies during the foreclosure process including marketing the property and 

bidding services. The Agency will reimburse servicers for auction service fees in

an amount not exceeding five percent of the property net sales price when the 

property is sold to a third party. Properties must be marketed for a minimum of 

15 days prior to the scheduled sale date and sold for an amount equal to or greater 

than the “Net Value Bid.”
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Paragraph 18.10 The Foreclosure Process

18-10

C. Reinstatement of Account

Unless required otherwise by state statute, the servicer may reinstate an accelerated 

account if the borrower meets all the following conditions:

• Pays the total amount delinquent, including protective advances, accrued interest, 

and any foreclosure related costs and other expenses incurred by the servicer, in a 

lump sum;

• Has the documented ability to resume scheduled payments on the loan;

18.11 MANAGING THE FORECLOSURE PROCESS [7 CFR 3555.306]

The servicer must manage the foreclosure process so that the property is liquidated in 

a cost effective, expeditious, and efficient manner. Servicers must send additional 

documentation to an attorney or trustee within five business days of receiving the request.

A. Acceptable Foreclosure Time Frames

Foreclosure must be initiated within 90 days of the date the decision to liquidate is 

made unless the foreclosure has been delayed by law or an alternative to foreclosure is 

recommended to resolve the delinquency. Initiation of foreclosure begins with the first

public action required by law, such as filing a Complaint or Petition, recording a Notice 

of Default, or publication of a Notice of Sale. The Agency adheres to the Housing and 

Urban Development’s (HUD) foreclosure time frames available on their website. These 

time frames are measured from the first legal action to the foreclosure sale date. The 

Agency foreclosure time frames start with the date of the first legal action required by 

law, ends with the foreclosure sale date, and does not include post-sale redemption 

periods or sale confirmations. 

• Redemption Period – since redemption periods may be adjusted under state laws 

based on the circumstances surrounding a property, such as the amount of unpaid 

principal still owed or the occupancy status of the property, reasonable time 

frames for redemption periods and sale confirmations should be established on a 

case-by case basis in accordance with state law. Reimbursement of accrued 

interest may be reduced in accordance with Chapter 19 of this Handbook for each 

day that the foreclosure continues past the prescribed time frame unless the 

servicer presents a valid reason that justifies the delay.

• Processing Delays – servicers must document any delays to the foreclosure 

timeline when submitting the loss claim package. Acceptable delays can include 

bankruptcy petitions filed after foreclosure initiation, contested foreclosures, and 

court scheduling delays or delays in obtaining service.
HB-1-3555

Paragraph 18.11 Managing the Foreclosure Process

(03-09-16) SPECIAL PN 18-11

Revised (01-05-24) PN 602

• Chapter 7 Bankruptcy – Servicers may be authorized a 90-day extension to the 

allowable time frame for compliance with state law when a Chapter 7 bankruptcy 

delays the completion of foreclosure. To determine the impact of a bankruptcy 

filing on the foreclosure time frame, the total number of days from first action to 

foreclosure sale will be calculated. The total number of days between the 

bankruptcy filing date and the date of bankruptcy release or dismissal for each 

applicable bankruptcy case will then be subtracted from the total number of 

foreclosure days. The resulting number of days will be compared to the Agency 

foreclosure time frame plus an automatic 90-day extension to determine if the 

time frame was met. 

• Chapter 13 Bankruptcy – Additional time allowed for a Chapter 13 bankruptcy 

delay shall not exceed 90 days from the date the payments under the bankruptcy 

plan became 60 days delinquent. The servicer must make prompt and accurate 

notification to the bankruptcy court and closely monitor the payment required by 

the bankruptcy court. If the borrower becomes 60 days delinquent in payment 

under the Chapter 13 plan, the servicer will ensure prompt legal action is taken to 

resolve. Any delay beyond 90 days from the date the account became 60 days 

delinquent under the terms of the bankruptcy plan must be supported by 

documentation.

• Prompt Referral – Servicers must exercise reasonable due diligence requirements 

by resolving a dismissal of the bankruptcy, termination of the automatic stay, or 

trustee abandonment of all interest in the secured property. The servicer’s claim 

review documentation must indicate to the foreclosure attorney after bankruptcy 

release. Any delay beyond 90 days from the date of the bankruptcy release must 

be supported by documentation supporting the delay. Submit documentation with 

the loss claim, as described in Chapter 19 of this Handbook. Failure to submit the 

documentation supporting the extended foreclosure timeframe will result in denial 

of additional accrued interest request.

B. Acceptable Liquidation Fees and Costs

Agency regulations authorize the reimbursement of actual liquidation fees and costs 

that are paid by the servicer for liquidated loans that result in a loss to the servicer within 

the limits of the guarantee. Attachment 18-C, Acceptable State Liquidation Costs and 

Fees, of this Chapter outlines the allowable fees for foreclosure, deed-in-lieu of 

foreclosure and bankruptcy and this will be utilized as the basis for determining 

reasonable and customary attorney fees. Fees higher 
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Paragraph 18.11 Managing the Foreclosure Process

18-12

than the published amounts may be appropriate, in cases such as contested foreclosures, 

required probate procedures, etc., Any reimbursement of fees over the allowable costs 

are subject to review by the Agency on a case-by-case basis. Justification for higher fees 

must be documented in the file.

It is important to make the distinction between attorney/trustee fees and 

attorney/trustee costs. Typically, the fee for the service performed by the attorney is 

listed separately on the attorney invoice from the actual costs involved in the liquidation 

proceedings. A complete list of allowable liquidation costs would not be practical since 

procedural requirements vary by jurisdiction. Generally, the Agency will reimburse a 

servicer for costs, which must be paid to public officials such as sheriffs, clerks of court 

or recorders of deeds, as well as costs, which are required by law (i.e., private service of 

process and required publications). 

In-house expenses of the servicer will not be allowed during the liquidation process. 

Employee salaries, staff attorneys and overhead charges are considered examples of inhouse expenses. Overhead expenses include, but are not limited to, items such as 

telephone calls, photocopying charges, overnight mail fees and postage (not including 

certified or registered mailings required by law). Typical overhead costs are inherent to 

the foreclosure process and payment of these expenses is not reimbursable. 

Outsourcing of services, such as document preparation services, are customary in the 

industry and are also considered as attorney overhead. These fees are allowed as a 

separate expense only if the attorney fee is reduced in a proportionate amount to the 

document preparation fee that is charged. 

Example: 

• State = Tennessee

• Acceptable Foreclosure Attorney Fee = $600 

$425 Attorney fee invoiced 

$125 Outsourced Document Preparation Fee 

$600 Total of fees charged

In the above example, the foreclosure attorney has chosen to outsource a portion of 

his service to a contractor. The total fee charged to the servicer is the same as if the 

attorney firm had performed this function. This is considered an acceptable fee that is 

eligible for reimbursement.

Interrupted Foreclosure Proceedings:

 If a foreclosure proceeding is interrupted due to a bankruptcy filed by the borrower, 

or if a deed-in-lieu of foreclosure or pre-foreclosure sale is accepted prior to the 

completion of the foreclosure:
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Paragraph 18.11 Managing the Foreclosure Process

(03-09-16) SPECIAL PN 18-13

Revised (01-05-24) PN 602

• 75% of the allowable attorney fee and all actual foreclosure costs incurred will 

 be reimbursed. 

• 100% of allowable foreclosure attorney fees and costs incurred after the 

 bankruptcy stay is lifted if state statute requires that the foreclosure be restarted 

 from the beginning. 

• If state statute does not require that the foreclosure be restarted from the 

 beginning, reimbursement of all foreclosure attorney fees incurred both before 

 and after the bankruptcy is limited to the amount listed on the Attachment 18-C, 

 Schedule of Standard Attorney/Trustee’s Fees. 

The Agency will not reimburse any attorney fees or costs incurred for a prior 

liquidation action that has been reinstated by the borrower or for which the foreclosed 

property is redeemed. Attorney fees and costs should be included in the amount collected 

from the borrower with the reinstatement or foreclosure redemption. 

The foreclosure fees in Attachment 18-C list the attorney or trustee fee limits allowed 

for each Agency recommended method of foreclosure. In states where more than one 

foreclosure method is available, the limits listed are based on the method that is most cost 

effective in reducing legal fees and interest expense. The Agency does not intend to 

prohibit the payment of attorney fees and costs where the servicer obtains title through a 

method of foreclosure other than what is recommended. However, the Agency must 

determine whether the foreclosure method chosen by the servicer was in the best interest 

of the government. For example, the recommended foreclosure method in some states is 

non-judicial; however, judicial foreclosures are required to preserve the rights of a 

deficiency judgment. If the servicer can demonstrate that the recovery of a deficiency 

judgment is expected, the foreclosure method should be considered acceptable and 

reasonable attorney fees and costs reimbursed within the limits of the guarantee. 

18.12 REPORTING REQUIREMENTS

In accordance with Chapter 17 of this Handbook, servicers are required to report to 

the Agency all accounts monthly through ESR. 

Additional guidance regarding EDI reporting may be found online at 

https://www.rd.usda.gov/resources/usda-linc-training-resource-library/loan-servicing
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18-14

SECTION 5: ASSISTANCE IN NATURAL DISASTERS

[7 CFR 3555.307]

The following provides guidance for servicing accounts when a county, parish or 

municipality has been identified as a Presidentially Declared Disaster (PDD) area where federal 

aid in the form of individual assistance is being made available.

18.13 PROPERTY PROTECTION [7 CFR 3555.307(b)]

When a servicer becomes aware that they have properties secured by an Agency 

guarantee in a PDD they immediately take the following actions:

• Ascertain the number of affected properties.

• Secure abandoned properties.

• Determine the extent and nature of the damage and the effect on the borrower’s 

ability to continue making mortgage payments. 

• Determine if the property is adequately insured against the damage.

• Aid the borrower regarding the availability of appropriate relief provisions from 

local, state, or federal disaster assistance.

• Consider waiving any late payment charges if the borrower’s payments are late 

because of added expenses or loss of income due to the disaster. 

• Monitor and coordinate hazard insurance claims.

• Monitor and coordinate the progression of repairs when a deposit of insurance 

proceeds occurs in lieu of borrowers receiving insurance proceeds for properties.

18.14 SPECIAL RELIEF MEASURES [7 CFR 3555.307(c)]

The servicer must suspend all foreclosure actions for affected borrowers in PDD areas 

effective for 90 days from the date of declaration unless extended by the Agency. This 

applies to both the initiation of new foreclosures as well as foreclosures already in 

process.

To be eligible for a suspension of foreclosure activities the property or the borrower’s 

place of employment must be directly affected by the PDD. During the suspension 

servicers should consider the following factors to determine the appropriate course of 

action:

• Evaluate the effects of the disaster. 

• Instruct the borrower to file insurance claims and apply for disaster assistance that 

may be available through FEMA, state, and local governments.
HB-1-3555

Paragraph 18.14 Special Relief Measures

(03-09-16) SPECIAL PN 18-15

Revised (01-05-24) PN 602

• Offer appropriate repayment plans as outlined in Section 2 of this Chapter.

• Determine if foreclosure is the only option.

The borrower’s income or ability to pay the mortgage, any increase in living 

expenses, the extent of damage, the delinquency status of the mortgage, and the 

availability of alternative housing are additional factors to consider. The goal should be a 

formal relief provision that will cure the delinquency as soon as possible without 

imposing an undue hardship on the borrower. Forbearance is highly encouraged in 

disasters. Under forbearance, the servicer can agree to reduce or suspend the borrower’s 

monthly payments for up to 12 months. At the conclusion of the forbearance the 

borrower must agree to resume his or her regular monthly payments and to pay additional 

money at scheduled intervals toward repayment of the amount reduced or suspended. 

Regular follow-up during a suspension and reassessment of the individual borrower’s 

circumstances, based upon property inspections, borrower financial information at the 

end of the suspension period should be conducted. If the servicer is not actively engaged 

in workout options with the borrower(s) and believes suspension beyond the 90-day

period is warranted, the servicer must document the reason to extend a hold on all 

foreclosure actions and retain the documentation in their collection systems. Failure to 

do so may impact any future loss claim payment.

Servicers may use existing loss mitigation workout options to reinstate a borrower 

ready to resume mortgage responsibilities. Late charges while the borrower is on a 

forbearance plan, or paying as agreed on a repayment plan, should not be assessed. The 

servicer should take appropriate steps to mitigate the credit impact for a borrower for 

whom a forbearance or repayment plan is extended due to disaster-related circumstances.

18.15 SPECIAL RELIEF ALTERNATIVES

 In addition to the standard workout options in Attachment 18-A, The Loss Mitigation 

Guide, found at the end of this Chapter, servicers may offer the following special relief 

alternatives depending on the borrower’s circumstances

A. Special Relief Alternatives:

Borrowers must meet all the following eligibility criteria:

• The borrower occupies, as their primary residence, the property securing the 

guaranteed loan.

• The loan was current or less than thirty (30) days past due as of the date the

applicable PDD was declared;

• The servicer receives verification from the borrower the hardship 

(employment and/or property) has been resolved; 
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Paragraph 18.15 Special Relief Alternatives

 18-16

• The total modified mortgage principal and interest payment is less than or 

equal to the payment prior to modification. 

If the borrower meets the conditions above, the lender may offer any one of the 

following options: 

• Payment Deferral: If the servicer determines the borrower can maintain the 

current contractual payment including any escrow shortage created by

advances during the forbearance period, spread over 60 months, the missed 

payments may be deferred to the end of the loan term. USDA does not allow 

any type of balloon payment as part of the guaranteed UPB. Therefore, the 

term must be extended along with the deferral, thus allowing the borrower to 

make regular payments until the deferred balance is paid in full. Any interest 

accrued during the forbearance period should be included in the deferred 

balance.

• Capitalization of Delinquency and Term Extension: If the servicer determines

the borrower can maintain the current contractual payment but cannot manage 

the additional escrow repayment amount, the servicer may offer a “Cap and 

Extend Modification” under the following terms: 

o Capitalize the accumulated arrearages and eligible unreimbursed servicer 

advances, fees, and costs into the modified mortgage balance. 

o Extend term for a total of up to 360 months. 

o Modify the interest rate to no more than 50 basis points greater than the 

most recent Freddie Mac Weekly Primary Mortgage Market Survey 

(PMMS) Rate for 30-year fixed-rate conforming mortgages (U.S. 

Average), rounded to the nearest one-eighth of one percentage (0.125%), 

as of the date a plan is offered to the borrower; and 

• Mortgage Recovery Advance: The servicer may utilize a Mortgage Recovery 

Advance (MRA) to settle the borrower delinquency and bring the borrower 

current. The MRA is limited to an amount no greater than what is necessary to 

resolve any accumulated delinquency and unreimbursed servicer advances 

made during the forbearance and must meet all other requirements as 

explained in Section 5(K) of the Loss Mitigation Guide found in Attachment 

18-A of this Chapter.

 B. COVID 19 Public Health Emergency

To provide relief to borrowers impacted by COVID-19 emergency, servicers are 

authorized to approve COVID payment forbearances upon request through the end of the 

national emergency. 

 This section builds upon the Special Relief Alternatives in Section 18.15(A), 
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Paragraph 18.15 Special Relief Alternatives

(03-09-16) SPECIAL PN 18-17

Revised (01-05-24) PN 602

and expands the eligibility criteria for these Special Relief Alternatives to include the

following: 

• The borrower was no greater than 120 days past due on March 1, 2020, 

• The borrower requested and received an initial forbearance due to a COVID-19 

related hardship prior to the end of the national emergency. 

 

After evaluation for special relief alternative above, if the borrower indicates they 

cannot afford their pre-pandemic payment and requires greater payment relief, the 

servicer should evaluate the borrower for the COVID-19 Special Relief Alternatives 

identified in 18.15(C). 

C. COVID-19 Special Relief Alternatives

The servicer should establish a target payment that includes up to a twenty (20) 

percent payment reduction from the borrower’s current principal and interest payment. 

Once the target payment is established the servicer should incrementally utilize the 

following options to get as close to the target payment as possible. 

• Rate Reduction: The servicer should modify the interest rate to no more than 50 

basis points greater than the most recent Freddie Mac Weekly Primary Mortgage 

Market Survey (PMMS) Rate for 30-year fixed-rate conforming mortgages (U.S. 

Average), rounded to the nearest one-eighth of one percentage (0.125%), as of the 

date a plan is offered to the borrower. 

• Term Extensions: If the target payment is unable to be achieved with rate 

reduction alone, the servicer shall extend the term in one-month increments, up to 

a maximum of 480 months. 

• Mortgage Recovery Advance: If the targeted monthly mortgage payment still 

cannot be achieved, the servicer may consider a Mortgage Recovery Advance 

(MRA) in addition to the rate reduction and term extension to achieve the 

monthly target payment. The MRA must meet all other requirements as 

explained in Section 5(K) of the Loss Mitigation Guide found in Attachment 18-A 

of this Chapter.
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18-18

 

18.16 PROPERTY DAMAGE AND INSURANCE CLAIMS [7 CFR 3555.307(d)]

Servicers should ensure that hazard insurance claims are filed and settled as 

expeditiously as possible. Servicers are responsible for taking prompt action to protect 

the interests of the borrower and Agency when a hazard or flood occurs. This involves 

working closely with the insurance carrier, the borrower, and repair contractors. The 

servicer will complete a thorough analysis concerning the decision to repair the security 

property and document the decision. The decision should support the best level of return 

to the servicer and minimize loss to the Agency. 

Insurance proceeds will be issued jointly to the servicer and the borrower. If the 

decision is to use the proceeds to repair the property, the servicer must ensure a licensed 

contractor is used to complete the repairs. Unless the homeowner qualifies for direct 

payment of insurance proceeds in accordance with of Chapter 17 of this Handbook, the 

servicer will release the proceeds in draws based on periodic inspections. The final draw 

will be paid after verification that all repairs were satisfactorily completed. The servicer

is responsible for obtaining all lien waivers for work performed. 

If the premises have been destroyed, the servicer should compare the unpaid principal 

balance with the insurance proceeds and any other circumstances affecting the case, such 

as local laws barring reconstruction of the destroyed property. Insurance loss payments, 

condemnation awards, or similar proceeds will be applied on debts in accordance with 

lien priorities, on which the guarantee was based, or to rebuild or otherwise acquire 

needed replacement collateral. 

18.17 DEBT SETTLEMENT REPORTING

Servicers will be responsible for reporting to IRS and all national credit reporting 

repositories any discharge of indebtedness or any debt settled through liquidation in 

accordance with Internal Revenue Code. 
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Attachment 18-A

Page 1 of 32

(03-09-16) SPECIAL PN

Revised (01-05-24) PN 602

ATTACHMENT 18-A

LOSS MITIGATION GUIDE

LOSS MITIGATION GUIDE

Single Family Housing Guaranteed Loan Program

Effective:

11/1/2022

LOSS MITIGATION GUIDE

SINGLE FAMILY HOUSING GUARANTEED LOAN PROGRAM

1. SERVICING EARLY DELINQUENCY LOANS (LESS THAN 90 DAYS PAST 
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Attachment 18-A

Page 2 of 32

DUE)

The purpose of all collection efforts is to bring a delinquent mortgage current in as short a 

time as possible. Single Family Housing Guaranteed Loan Program (SFHGLP) policy as 

stated in 7 CFR § 3555 describes minimum servicing requirements to accomplish this 

objective. The majority of one or two payment delinquencies will be addressed by either 

voluntary reinstatement by borrowers, or through traditional collection methods outlined in 7

CFR § 3555, 

While a loss mitigation program is designed to address serious defaults, any reasonable 

servicer efforts to cure loans that are past due for 30 days or more contribute to the goal of 

helping residents in rural areas retain homeownership and reduce the Agency’s losses. Thus, 

effective loss mitigation begins in the early stages of servicing defaulted loans and is the 

servicer’s responsibility to validate and document the borrower’s capacity under the terms of 

the loss mitigation workout recommendation.

A. EARLY INTERVENTION

To facilitate a successful loss mitigation intervention, the servicer must attempt to 

make verbal or written contact with the borrower if the payment is not received by the 

20th day after it is due. 

Before an account becomes 60 days past due and if there is no contact or payment 

arrangement in place, the servicer must send a certified letter to the borrower requesting 

an interview in an effort to resolve the past due account. 

The earlier the servicer contacts the delinquent borrower and identifies the cause of 

the default, the more likely it is that the default will be cured, and the borrower will be 

able to keep the home. It is critical that the servicer make all decisions in a manner 

consistent with fair housing and lending principles.

B. CAUSE OF DEFAULT

The servicer should identify the underlying cause of the delinquency at the earliest 

stage of borrower contact and determine if the problem is permanent or temporary. A 

borrower whose ability to support the mortgage debt has been permanently reduced 

through death, divorce, or permanent disability is unlikely to cure the default through a 

repayment plan. Such a borrower should be evaluated for either a loan modification, 

which may result in a reduction of the mortgage payment, or a pre-foreclosure sale, 

which allows a transition to more affordable housing. In some cases, a loan modification 
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Page 3 of 32

(03-09-16) SPECIAL PN

Revised (01-05-24) PN 602

might result in higher mortgage payments because of capitalizing the arrearage. This 

option may be feasible if the borrower’s financial situation will accommodate a higher 

payment. 

A borrower who needs credit, legal, or employment assistance to resolve temporary 

financial problems should be referred to housing counseling, such as HUD housing 

counseling at 1-800-569-4287 or HUD’s approved housing counseling web-site,

https://apps.hud.gov/offices/hsg/sfh/hcc/hcs.cfm as soon as possible.

C. DEFAULT COUNSELING

A borrower who receives early counseling is much more likely to bring the loan 

current. Servicers are strongly encouraged to recommend financial counseling to 

borrowers and establish working relationships with counseling agencies. The servicer 

should provide to the borrower, before the 45th day of delinquency, HUD publication 

2008-5-FHA, Save Your Home: Tips to Avoid Foreclosure, rev January 2014. This may 

not be feasible, however, if the borrower has filed a bankruptcy petition and, in the 

opinion of the servicer’s legal counsel, providing a copy of the pamphlet would be a 

violation of the bankruptcy stay. In such cases, the servicer should keep documentation 

of this fact in the servicing file.

D. INFORMAL REPAYMENT PLANS

 An informal repayment plan is a verbal agreement lasting for 3 months or less. Such a 

plan is the first and best means to ensure that a one- or two-month delinquency does not 

escalate beyond the borrower’s ability to cure. In such a plan, the servicer should 

carefully review the borrower’s financial situation and arrange payment terms that the 

borrower can realistically keep, and the delinquency can be cured. Informal repayment 

plans should be documented, however, there is no requirement to report such plans to the 

agency. 

E. BORROWERS ABILITY (CAPACITY) TO CURE

 The servicer should obtain as much information as possible regarding the borrower’s 

capacity and willingness to cure the default. When it becomes apparent that an informal 

repayment plan will not be sufficient to resolve the delinquency, the servicer should 

evaluate whether one of the more formal loss mitigation strategies should occur (see 

section 3 General).

F. SALE OF THE PROPERTY

A borrower who does not have the ability to cure the delinquent loan, but who has 

sufficient equity to sell the property and repay the arrearage from the sale proceeds, 

should be assisted in doing so. This assistance may include a written agreement that 

provides a short-term reduction or suspension of payments pending the closing of the 

property sale. The servicer has full responsibility in assisting the borrower in such a case.
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Page 4 of 32

 

2. LOSS MITIGATION OVERVIEW

SFHGLP servicers have the authority and the responsibility to use effective actions and 

strategies to assist borrowers to retain their homes, and thus reduce losses to the Agency and 

the servicer. Because of its ongoing relationship with the borrower, the servicer is in the best 

position to determine which, if any, loss mitigation strategies are appropriate in each

circumstance. A servicer may use any of the following loss mitigation options. 

A. SERVICERS LOSS MITIGATION ACTIONS

The servicer must:

• Report a complete and accurate loan-servicing plan to the agency that clearly 

outlines the approved action via USDA Lender Interactive Network Connection 

(USDA LINC); 

• Consider all reasonable means to address the delinquency at the earliest possible 

time;

• Use payment or credit scoring tools, if available, to identify high risk borrowers 

that may need more attention, rather than wait until standard contact dates. 

• Inform the borrower(s) of available loss mitigation options and the availability of 

housing counseling before the end of the second month (60th day) of delinquency. 

(Ensuring that the borrower receives the HUD publication 

https://www.hud.gov/sites/dfiles/Housing/documents/RevUpdHmownSuc121518f

nl.pdf titled Homeowners Guide to Success, is acceptable, as well as 

documentation in the servicing and collection notes of conversations with the 

borrower concerning mitigation options).; 

• Evaluate each delinquent loan once they become greater than 30 days past due but 

no later than the 90th day of delinquency to determine which loss mitigation 

option is appropriate; 

• Use loss mitigation whenever feasible to avoid foreclosure. 

• Reevaluate each delinquent loan monthly until delinquency is cured or the 

foreclosure action is complete. 

• Report loss mitigation actions through monthly default status reporting using ESR

status of mortgage code values;

• Initiate foreclosure within six months (180 days) of default unless a loss 

mitigation option is being pursued, and ensure that all actions taken are 

documented; 

• Initiate foreclosure timely on vacant and abandoned properties; and 

• Retain a complete audit trail showing all loss mitigation actions. 
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(03-09-16) SPECIAL PN

Revised (01-05-24) PN 602

3. GENERAL

Both servicers and borrowers have responsibilities under loss mitigation. While each 

option involves specific actions, some policies apply to all options, and some servicer actions 

are performed whether or not any of the loss mitigation strategies are used. This section 

describes the general policies, recommended procedures, and minimum actions that 

constitute effective loss mitigation techniques.

A. DEFAULT STATUS OF THE LOAN

Loss mitigation options are intended to provide relief for a borrower who is 

delinquent or facing imminent default. For the purposes of this guide, a default is defined 

as any loan that has failed to perform under any covenant of the mortgage or deed of trust 

for 30 days or more A borrower is ‘‘facing imminent default’’ if that borrower is current 

or less than 30 days past due on the mortgage obligation and is experiencing a significant 

reduction in income or some other hardship that will prevent the borrower from making 

the next required payment on the mortgage during the month in which it is due.

Any attempt to deliberately manufacture or misrepresent pertinent facts about a 

borrower’s financial or other qualifying status may disqualify the borrower from 

participating in loss mitigation options and result in civil or criminal penalties. If 

perpetrated by a servicer, such actions may lead to administrative and/or judicial 

penalties against the servicer.

B. OWNER OCCUPANCY

Generally, the borrower’s eligibility for any retention options should be based on 

occupancy of the property as a principal residence. Loss mitigation disposition options 

may be considered if the property has been recently vacated due to one of the following,

but not limited to, special circumstances:

• Employment transfer;

• Natural disaster; or 

• Medical condition

A servicer may make an exception for a non-occupant borrower who is seeking relief 

through a pre-foreclosure sale (PFS), or DIL when it is clear that the subject property was 

not purchased as a rental investment and the reason for vacancy was involuntary in 

nature. The servicer maintains the documents justifying such an exception in the 

servicing file. 

C. OTHER ELIGIBILITY FACTORS

The following general eligibility restrictions apply in all cases:
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Page 6 of 32

• A borrower who has a pending/active bankruptcy may be considered for loss 

mitigation options; however, the servicer must fully document the borrowers 

pending plan with items such as, but not limited to, a copy of the 

proposed/confirmed trustee plan. In addition, the servicer must obtain trustee

approval prior to loss mitigation plan execution.

• If a servicing agreement, investor guidelines, or applicable law restricts or 

prohibits compliance with any steps outlined in this guide, the servicer must 

maintain evidence in the loan file documenting the nature of any deviation from 

the provided guidance.

D. 90 DAY REVIEW

The servicer evaluates each delinquent SFHGLP loan that it services when monthly 

installments are due and unpaid for 91 days, and considers all loss mitigation techniques 

to determine which, if any, are appropriate. To meet this evaluation requirement, the 

servicer’s early involvement in the delinquency is demonstrated by contact with the 

borrower to gather sufficient information about the borrower’s circumstances, intentions, 

and financial condition. While the servicer cannot be responsible if a borrower fails to 

respond to repeated contacts, the servicer must clearly document aggressive efforts to 

reach the borrower within 90 days of the default.

E. CURABLE DEFAULT

When the delinquency is curable and the borrower is committed to remaining in the 

home, the servicer should consider reinstatement options in this order:

• Special forbearance

• Loan modification

• Special loan servicing modification

F. NON-CURABLE DEFAULT

When the delinquency is not curable and the borrower is not committed to remaining 

in the home, the servicer should consider disposition options in this order:

• Pre-foreclosure sale (PFS)

• Deed-in-lieu of foreclosure (DIL)

G. OPTION PRIORITY

The following waterfall of loss mitigation workout options must be adhered to:

1. Informal Repayment Plan

 2. Special Forbearance
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(03-09-16) SPECIAL PN

Revised (01-05-24) PN 602

3. Loan Modification

4. Special Loan Servicing

5. Pre-Foreclosure Sale

6. Deed-In-Lieu

Whenever possible, the servicer should review the borrower for all loss mitigation 

options concurrently and if eligible, provide a decision based on the highest available 

option in the waterfall. In all cases, if a borrower is eligible for both a retention and a 

pre-foreclosure option, the retention option must be prioritized. If the borrower accepts

and then fails a retention option within the first 12 months, they can be offered a preforeclosure option based on this evaluation with no further need to document ability/ 

inability to pay.

In some cases, the waterfall of loss mitigation options may warrant utilizing a 

disposition workout in-lieu of a retention workout based on the borrower’s involuntary 

inability to pay.

H. MONTHLY EVALUATION

Each month the account remains delinquent, the servicer must reevaluate the status of 

each loan following the 90-day review and maintains documentation of the evaluations in 

its servicing or collection system. The evaluation may be as simple as notes in the 

collection system that the borrower’s payments under special forbearance are made as 

agreed. Reports generated by servicing systems that track repayment plans are adequate 

for documentation purposes.

I. EVALUATING THE BORROWERS FINANCIAL CONDITION

For any loss mitigation option, the servicer must obtain detailed financial information 

from the borrower. The servicer may ask the borrower to give this information on a form 

of its choice that collects all the data elements required for loss mitigation.

If the borrower is cooperative, the information may be taken during a telephone 

interview if it is a complete picture of the borrower’s financial information. Regardless 

of how the financial information is initially obtained, the servicer should request the 

borrower provide evidence to support the income with current paystubs and/or a profit 

and loss statement if the borrower is self-employed. In addition, the servicer should 

obtain a credit report to verify debts, and any other forms of verification the servicer 

deems appropriate.

Once a servicer has the borrower’s complete financial information, they should 

analyze the borrower’s current and future ability to meet the monthly mortgage obligation 

by estimating the borrower’s assets and income as follows:

• Determine the borrower’s current monthly gross income making necessary 

adjustments for income fluctuations.
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Attachment 18-A 

Page 8 of 32

 

• Determine the borrower’s normal monthly financial obligations including debt 

service on the mortgage and other credit obligations. Make adjustments for 

obligations due over the term of the proposed special forbearance agreement, or in 

the case of all other options, for a minimum of three months.

• Any child support or alimony obligations should be documented with a court 

order to determine the monthly obligation.

• Determine the borrowers current Housing to Income (HTI) percentage as well as 

their total Debt to Income (DTI).

All detailed financial information used to determine the borrower’s financial capacity 

must be dated within 90 days from the date of receipt by the servicer. The servicer must 

communicate a decision to the borrower within 30 days of receiving a complete loss 

mitigation package. 

The servicer must use good business judgment to ensure that the workout option 

selected reasonably reflects the borrower’s ability to pay. A borrower with sufficient 

income or other assets should be asked to cure the debt through a retention option. 

J. INCOME VERIFICATION

Servicers shall document their process in determining each borrower’s income 

scenario. When verifying income of a borrower, servicers should use good business 

judgment consistent with how they evaluate borrowers when modifying loans held in 

their own portfolio but at a minimum provide the following:

• Wage or Salary income: 

o Paystub(s) not more than 90 days old at time of submission to servicer, that 

covers at least 4 weeks of earned income. 

o Borrowers most recent W-2 or executed tax returns (can be waived if paystubs 

document at least 6 months YTD income). 

• Self-Employment Income:

o Most recent quarterly or YTD profit and loss statement along with a copy of 

the most recent executed Tax Return. Audited financial statements are not 

required. 

• Other/ Benefit Income: 

o Bonus, commission, tips, overtime, etc. income must be documented with 

reliable third-party evidence that such income is consistent and likely to 

continue. 

o Benefit income including but not limited to social security, disability, public 

assistance and Supplemental Nutrition Assistance Program (SNAP) benefits 

can be considered income for the purpose of loss mitigation. Benefit income 
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Attachment 18-A 

Page 9 of 32

(03-09-16) SPECIAL PN

Revised (01-05-24) PN 602

must be documented through award letter, exhibits, or benefits statements 

from the provider or evidence of receipt to the borrower.

• Non- Taxable Income: 

o The servicer, at its discretion, may “gross up” income not subject to Federal 

Taxes. When grossing up any income, the servicer must document and 

support the amount of grossed up income and should use the same tax rate, 

but not exceeding 25 percent, for grossing up that the borrower used to 

calculate his/her tax from the previous year.

o Excluding documentation from prior years, all financial information must be 

dated within 90 days from the date of receipt by the servicer.

K. NON-BORROWER INCOME

Income from a non-borrower who also occupies the property may be used to support 

payments under all loss mitigation options with the following restrictions: 

• Occupancy of the non-borrower must be fully verified;

• Servicer should conduct a financial review of the entire household income and 

obligations to determine if there is sufficient income to pay back the arrearages;

• Servicers should consult their legal counsel to determine if the asset is eligible for 

loss mitigation since the non-borrower is not on the original mortgage; and, 

• When a borrower uses a non-borrower household member’s income in qualifying 

for a loss mitigation home retention option and the non-borrower household 

member is required by law to be included on the modified note, the non-borrower 

household member must sign all required loss mitigation documentation. 

L. DIVORCE / LEGAL SEPARATION

In instances where borrowers are divorced or legally separated, a lender can exclude 

an obligated borrower when determining eligibility for all loss mitigation options, 

providing the court has deemed the excluded borrower not responsible for the mortgage. 

The remaining obligated borrower must provide the fully executed legal document (ex. 

Divorce Decree) that shows the court’s order, as well as an executed Quit Claim if 

necessary. If documented, the divorced/separated party does not need to sign any 

required documentation for the purposes of loss mitigation. Any borrower excluded from 

eligibility requirements is still obligated to the original note and is not released from 

liability.

M. INELIGIBLE BORROWER

If the borrower is not eligible for any loss mitigation alternative based on information 

secured from the borrower in a telephone interview, the servicer should advise the 

borrower of the reason(s) and allow the borrower at least seven calendar days to submit 
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Page 10 of 32

additional information that might have an impact upon the servicer’s evaluation. The 

servicer will retain the financial analysis and supporting documentation and make it 

available for compliance reviews. Collection actions may continue.

N. COMBINED OPTION

Loss mitigation options may be used alone or in combination to resolve an existing 

default. There are some limitations, however:

• Pre-foreclosure sale may be combined with a deed-in-lieu provision in case the 

property does not sell within the time required.

• A servicer may utilize a trial plan with a loan modification when there is any 

doubt about a borrower’s long-term income stability. To reduce the risk of a 

workout failure, the borrower can demonstrate the ability to support the debt by 

making at least three-monthly payments at the modified amount before executing 

a modification.

O. FORECLOSURE

The servicer must have considered all feasible loss mitigation options before 

initiating foreclosure. The servicer must document all of the options it considered and 

retain such information for Agency review. If the borrower has abandoned the property, 

loss mitigation home retention options need not be considered prior to initiating the 

foreclosure.

P. TIME TO INITIATE ACTION

A servicer must initiate a loss mitigation option or refer to foreclosure within six 

months of the date of default. This requirement is considered satisfied by any of the 

following actions. 

• The loan is brought current or paid off.

• The borrower executes a special forbearance agreement.

• The loan modification is approved;

• The borrower executes a pre-foreclosure sale or deed in lieu agreement;

• The servicer initiates the first legal action to begin foreclosure.

Q. SERVICER REPORTING

The servicer reports these actions in the month they occur, or if after the monthly cutoff date, in the next reporting cycle using the appropriate ESR status code. 
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(03-09-16) SPECIAL PN

Revised (01-05-24) PN 602

R. EXTENSION REQUESTS

If the servicer initiated a special forbearance or loan modification, but is unable to 

complete it, the servicer may approve an extension to the timeframe to initiate foreclosure 

provided the loss mitigation option began prior to the timeframe that foreclosure was to 

be initiated. To qualify for the extension, the servicer must document evidence that it 

analyzed the borrower’s complete financial situation and evaluated the appropriate loss 

mitigation options. In addition, the servicer reports the loss mitigation initiative using the 

appropriate ESR status code in the monthly default status report.

The servicer may approve an extension for completing a deed-in-lieu of foreclosure. 

If the servicer attempts a repayment plan (not special forbearance), the servicer may 

approve an extension before the timeframe to initiate foreclosure expires and explains 

why an extension is necessary. 

S. OPTION FAILURE

If loss mitigation options fail, the servicer may either resume or initiate foreclosure or 

initiate another loss mitigation option. Failure occurs when:

• The borrower does not perform under the terms of a written special forbearance 

agreement for 60 days; or

• The borrower does not perform under the terms of a trial period used as a

condition of loan modification or special loan servicing approval. Servicers must 

continue to perform outreach efforts to borrowers for other workout alternatives. 

Borrowers’ financial capacity will dictate whether a retention or disposition 

workout alternative is feasible.

• There is no signed contract of sale within 3 months of a pre-foreclosure sale 

agreement; or if there is a signed contract of sale, settlement has not occurred 

within 6 months of the agreement; or the borrower notifies the servicer of 

withdrawal from the agreement; or the servicer notifies the borrower in writing 

that it has terminated the agreement.

T. DOCUMENTATION

For each claim, the servicer must maintain evidence in its servicing notes and 

collection history systems of its compliance with loss mitigation guidelines as well as 

supporting documentation including all communications with any Agency office. The 

servicing notes and collection history systems also must retain evidence of compliance 

with counseling and other actions on loans that do not result in a claim.

U. SERVICING PLAN

Under 7 C.F.R. §3555, the servicer must add a servicing plan in the “Add Loss 

Mitigation” screen in USDA LINC when a method other than foreclosure is approved to 

resolve the borrower’s delinquency. The servicing plan must be submitted prior to
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Page 12 of 32

implementing any action with the borrower. For pre-foreclosure sales and deed-in-lieu of 

foreclosure alternatives, the servicer must retain a Disposition (PFS/DIL) Cost Benefit 

Analysis along with the servicing plan.

If the servicer provides the borrower with an option that requires a trial payment, the 

servicer must enter the trial modification into USDA LINC at the time of approval. 

When the borrower completes the trial period and executes the final agreement, the 

servicer must enter the final modification terms into USDA LINC and finalize the 

modification.

4. SPECIAL FORBEARANCE

A special forbearance agreement is a written plan that may temporarily reduce or suspend 

payments and/or gradually increase monthly payments in an amount sufficient to repay the 

arrearage for a short period. A special forbearance agreement may also involve payments for 

several months followed by a loan modification. The agreement provides the borrower with 

relief not typically afforded under an informal repayment agreement. Examples of 

provisions in a special forbearance agreement include a repayment term of four or more 

months; suspending or reducing payments for one or more months to allow the borrower to 

recover from the cause of default; or an agreement to allow the borrower to resume making 

full monthly payments while delaying repayment of the arrearage.

A special forbearance is a plan that involves one of the following:

• Full repayment: Monthly payments in an amount sufficient to repay the arrearage 

over time, typically less than or equal to six months; or

• Hardship or disaster forbearance: Reduced or suspended monthly payments while the 

borrower(s) resolves the hardship, such as unemployment, followed by an evaluation 

for other home preservation options if needed.

The maximum arrearage under a special forbearance plan cannot exceed the equivalent of 

12 months delinquency. 

A. LOAN ELIGIBILITY

The loan is a minimum of 30 days delinquent, or at risk of imminent default, but not 

more than 12 payments delinquent and is not in foreclosure when a special forbearance 

agreement is executed. The servicer may suspend foreclosure, on advice of its legal 

counsel, subject to the borrower’s performance under the terms of the special forbearance 

agreement, if the suspension is stated in writing in the agreement.

B. PROPERTY ELIGIBILITY

The servicer must conduct an inspection to verify that the property has no physical 

conditions that adversely affect either the borrower’s continued use or ability to support 

the debt. Normally a simple curbside inspection is sufficient; however, a borrower will 
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not be able to support payments under a special forbearance plan if the property is in such 

a deteriorated condition that repairs will exhaust the borrower’s monthly resources. The 

servicer must use good business judgement to determine if an interior inspection should 

be utilized. The analysis of the borrower’s income should consider obvious property 

maintenance expenses.

The use of good business judgment is imperative. If significant deferred maintenance 

is a contributing cause of the default, it may be appropriate to provide a period of 

mortgage forbearance during which specified repairs are completed at the borrower’s 

expense. If the property is in extremely poor physical condition, a special forbearance 

plan that allows a reduction or suspension of payments must contain a requirement to 

repair the property.

C. BORROWER ELIGIBILITY

Special forbearance may be offered to a borrower who has recently experienced a 

verified loss of income or an increase in living expenses. The borrower should be the 

owner-occupant of the property securing the SFHGLP loan and committed to occupying 

the property as a primary residence during the term of the special forbearance agreement. 

D. FINANCIAL ANALYSIS

The servicer’s responsibility is to validate and document the borrower’s capacity 

under the terms of the recommendation. The servicer determines that the borrower has 

the capacity to support the modified monthly payments and bring the loan current under 

the terms of a forbearance plan. The proposed repayment terms must be consistent with 

the borrower’s ability to pay. The following documentation must be obtained to 

determine financial capacity of the borrower: 

• Letter from borrower outlining involuntary inability to pay/hardship

• Income Documentation as stated in the overview section

• Credit Report

• Detailed budget

• Documentation of any other sources of income to be used in evaluation

Excluding documentation from prior years, all financial information must be dated 

within 90 days from the date of receipt by the servicer. If the servicer’s financial analysis 

determines that the borrower either does not, or will not, have the ability to resume full 

monthly payments in the near future, special forbearance should not be used. The 

servicer should then consider other loss mitigation options.
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E. UNEMPLOYMENT 

When it has been determined that the reason for default is unemployment and the 

borrower does not have any immediate opportunities for re-employment, SFHGLP 

extends additional latitude to servicers to mitigate losses. 

Servicers have the authority to enter into a forbearance agreement with a borrower 

who is unemployed or significantly underemployed and seeking re-employment at the 

time the borrower’s financials are being analyzed by the servicer. The term of this 

forbearance shall be the lessor of 12 months or a term that would not cause the dollar 

amount of the borrower’s delinquency to exceed 12 months of scheduled monthly 

mortgage payment reduction, will be contingent upon the servicer’s financial analysis of 

the borrower. As a condition of the forbearance agreement, the borrower must pursue 

employment during the term of the forbearance agreement. Additionally, the borrower 

must contact the servicer if their employment status changes.

The servicer is required to verify the borrower’s employment status monthly and 

restructure the forbearance agreement or evaluate the borrower for another option, such 

as a loan modification, when the borrower’s employment status changes. As with 

SFHGLP’s standard forbearance agreement, all of the requirements apply to these Special 

Provisions.

F. DOCUMENTATION

The servicer should provide the borrower a written agreement to be signed and 

returned with the first payment, that clearly defines the term, frequency of payments, and 

amounts due under the special forbearance plan. The agreement acknowledges 

previously missed mortgage payments and states that failure to comply with its terms can 

result in foreclosure. In the absence of a signed agreement, the servicer may accept the 

borrowers modified payment as acknowledgment of the terms of the forbearance. If the 

borrower fails to provide the servicer with the signed agreement prior to the end of the 

forbearance, the servicer should document their continued efforts to collect the 

agreement. There is no maximum length for a special forbearance agreement and the 

servicer may allow as much time as is reasonable based on the borrower’s repayment 

ability.

An acceptable agreement should:

• Provide the borrower with relief not available under an informal payment plan.

• Not at any time allow the total arrearage amount to exceed the equivalent of 12 

months delinquency.

• Not allow late fees to be charged while the borrower is performing under the 

terms of a special forbearance agreement.

• Permit allowable foreclosure costs and late fees accrued before the special 
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forbearance agreement is executed to be included as part of the repayment 

schedule. However, such costs and late fees are collected only after payment of 

all principal, interest, and escrow advances. The loan is never considered 

delinquent only because the borrower has not paid late fees or other foreclosure 

costs. 

G. REVIEW AND RENEGOTIATION

The servicer reviews the status of a special forbearance plan each month and takes 

appropriate action if the borrower is not complying with the terms of the plan. A plan 

may be renegotiated if the borrower’s financial circumstances change; however, under a 

renegotiated plan, the loan cannot accrue more than 12 months delinquency.

5. LOAN MODIFICATION

A loan modification is a permanent change in one or more of the terms of a loan that 

results in a payment the borrower can afford and allows the loan to be brought current. Loan 

modifications may include a change in the interest rate, even below the market rate if 

necessary and should focus on payment reduction as a primary goal. Loan modifications 

may include capitalization of all or a portion of the arrearage. Capitalization may also 

include foreclosure fees and costs that are associated with the current foreclosure action, 

deficits in tax and insurance accounts, past due annual fees imposed by the servicer, but not 

late charges or servicers fees.

A modification may be appropriate for a borrower who has experienced a permanent or 

long-term reduction in income or an increase in expenses, or who has recovered from the 

cause of the default but does not have sufficient income to repay the arrearage through a 

repayment plan. To qualify for a modification, the borrower has a documented ability to 

support the monthly mortgage debt after the terms of the loan are modified. 

A. LOAN ELIGIBILITY 

To modify the loan under loss mitigation:

• The loan must be in default or at risk of imminent default. 

• The loan is not in foreclosure at the time the modification is executed; however, a 

loan removed from foreclosure status may be modified.

• The default is due to a verified loss of income or increase in expenses.

B. PROPERTY ELIGIBILITY

While the modification option does not have a loan-to-value restriction, and an 

appraisal is not required, the servicer must conduct an inspection to verify that the 
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property has no physical conditions that adversely impact the borrower’s continued use or 

ability to support the debt. Normally a simple curbside inspection is sufficient; however, 

a borrower will not be able to support payments under a loan modification plan if the 

property is in such a deteriorated condition that repairs will exhaust the borrower’s 

monthly resources. The servicer must use good business judgement to determine if an 

interior inspection should be utilized, and if necessary, analysis of the borrower’s 

finances should consider anticipated property maintenance expenses. If the property is in 

extremely poor physical condition, a modification may not offer a resolution of the 

default. Costs to complete needed repairs may not be capitalized as part of a 

modification agreement, and the borrower may not receive any cash from the 

modification.

C. BORROWER ELIGIBILITY

The current borrower(s) on the existing Rural Development (RD) guaranteed singlefamily mortgage must be identical to the borrower(s) on the modified mortgage.

The borrower(s) must be facing imminent default or be in default. 

The Servicer should not require the borrower to contribute cash to pay down 

arrearages prior to a loan modification.

The borrower must be the owner-occupant who is committed to occupying the 

property as a primary residence. A modification must not be used to bring a loan current 

before a sale or assumption.

D. FINANCIAL ANALYSIS

To be considered for a loan modification, the borrower must provide detailed 

financial information to the Servicer. 

Servicers may collect financial information from the borrower either in writing or 

during a telephone interview. Regardless of how the borrower’s financial information 

was secured, the Servicer must independently verify the financial information.

The following documentation must be obtained to determine financial capacity of the 

borrower:

• Documentation from borrower outlining their involuntary inability to

pay/hardship;

• Income documentation as stated in the overview section; and

• Credit Report

 The credit report should only be used to validate monthly installment debt, 

revolving debt, and secondary mortgage debt. A borrower’s credit score obtained from 

any credit repository will not be considered in determining whether a borrower is 
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eligible for loss mitigation.

Questions relating to documentation requirements should be directed to the 

Servicing Office at (866) 550-5887.

1. UNDERWRITING GROSS MONTHLY INCOME

Gross monthly income includes the following, with respect to the borrower and 

any co- borrower(s):

• The gross amount, before any payroll deductions, of wages and salaries, 

overtime pay, commissions, fees, tips, bonuses, and other compensation for 

personal services.

• For self-employed borrowers, the net income from operation of a farm, 

business, or profession;

• Interest, dividends, and net income of any kind from real or personal 

property (for example, investment income and rental income);

• Benefit income, including the full amount of periodic payments received 

from Social Security (may be grossed up to a maximum of 125% of nontaxable income) (including Social Security received by adults on behalf of 

minors or by minors intended for their own support), annuities, insurance 

policies, retirement funds, pensions, disability or death benefits, and other 

similar types of periodic receipts;

• Alimony and/or child support may be used to qualify; however, it is 

voluntary and if the income renders the borrower ineligible the servicer is 

allowed to remove and re-evaluate the borrower; and

• Income received by the borrower that is reasonably likely to continue.

2. UNDERWRITING BACK-END TOTAL DEBT TO INCOME

The Back-End ratio (total debt to income ratio) is the ratio of the borrower’s total 

recurring monthly debts (such as the borrower’s monthly mortgage payment (PITIA), 

payments on all installment debts, monthly payments on all junior liens, alimony, 

child support, car lease payments, aggregate negative net rental income from all 

investment properties owned, and monthly mortgage payments for second homes) to 

the borrower’s gross monthly income. 

The servicer must validate all monthly installment debt, revolving debt, and 

secondary mortgage debt. This can be accomplished by pulling a credit report for 

each borrower or a joint report for married co-borrowers. The servicer must also 

consider any information obtained from the borrower orally or in writing concerning 
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monthly obligations not reported on the credit file and document such obligations 

accordingly.

E. FORECLOSURE

 If the foreclosure process has already begun, the Servicer should not proceed with 

the foreclosure action until the borrower has been evaluated for all loss mitigation options 

and, if eligible, an offer to participate in the modification has been made.

F. MODIFICATION PURPOSE

The purpose of a loan modification should be to provide payment relief to the 

borrower in the form of a reduced payment. In limited circumstances, the Servicer may 

find it necessary to offer the borrower a modification for which the payment is increased. 

In cases where an increased payment is necessary, the borrower must demonstrate 

affordability by making at least 3 trial payments prior to execution of the modification.

G. LIEN PRIORITY 

The servicer must ensure the first-lien status of the modified mortgage in compliance 

with any applicable state or Federal laws and regulations.

H. ESCROWS

Servicers are required to escrow for borrowers’ real estate taxes and mortgage-related 

insurance payments.

I. TRADITIONAL MODIFICATION OPTIONS

The following apply to loan modifications: 

• The modification results in a fixed-rate fully amortizing loan.

• The modified interest rate may be increased over the original note rate, but may 

not exceed the current market interest rate at the time of approval; and

• The modification brings the loan current

The servicer shall calculate the target payment as 31% of the verified gross monthly 

income. Loan Modification options shall be used in the following order to bring the 

borrowers mortgage payment (PITIA) to as close as possible to the target payment.

1. Capitalize all delinquency. Capitalization may include foreclosure fees and costs 

that are associated with a current foreclosure action, deficits in tax and insurance 

accounts and past due annual fees imposed by the servicer. Past due 

homeowner’s association dues should be capitalized if necessary, to protect the 

first lien position. Servicer late charges and fees cannot be capitalized.
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2. Modify interest rate to a level at or below the maximum allowable rate as defined 

by The Agency. If the maximum allowable interest rate has not been established 

by the Agency, the servicer should use the most recent Freddie Mac Weekly 

Primary Mortgage Market Survey (PMMS) rate for 30-year fixed rate mortgages 

plus 50 basis points rounded to the nearest one –eighth of one percent (0.125%).

3. If the target payment is unable to be achieved with rate reduction alone, the 

servicer shall extend the term in one-month increments, up to a maximum of 360 

months until one of the following is achieved.

a. The mortgage payment is at or below the target and the payment has 

been reduced a minimum of ten percent; or

b. The mortgage payment is at or below the target and the term has been 

extended to the cap of 360 months.

4. If the servicer has completed all steps of the traditional modification and the 

target payment is unable to be achieved, they may continue with Special 

Servicing Options.

5. If the servicer determines that the borrower is not eligible for Special Servicing 

Options a modification can still be offered if the following conditions are met:

a. The borrowers post modified payment is no greater than 36% of their 

monthly income, and;

b. The borrowers post modified payment has increased no more than 10%.

The modified principal balance may exceed the loan’s original principal 

balance.

The modified principal balance may exceed 100% loan-to-value.

The use of a trial payment to support the borrower’s willingness and 

ability to pay is encouraged for a traditional modification, however, it is 

not required. If the servicer should determine a trial payment is the best 

course of action, they should follow the trial period guidance provided 

below.

J. SPECIAL SERVICING OPTIONS

 The servicer must exhaust all traditional waterfall options before considering Special 

Loan Servicing (SLS). When evaluating borrowers for SLS the following additional 

criteria apply.
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• The pre modified PITI payment must be greater than 31%; and,

• The borrower post modified back-end DTI must be less than or equal to 55%.

If all traditional options have been considered and the borrowers meet the additional 

criteria the servicer may continue with the following steps to the modification waterfall. 

1. In order the meet the target payment of 31% the term may be extended up to the 

maximum allowable by the investor but not to exceed 480 months.

2. If the targeted monthly mortgage payment still cannot be achieved, the servicer

may consider a Mortgage Recovery Advance or MRA (as outlined below) in 

addition to the term extension to achieve the monthly target payment.

3. If the servicer exhausted all steps of the waterfall and the target payment is not 

achieved, however, the borrower’s payment (PITI) has been reduced by a 

minimum of ten percent, the servicer should offer the modification to the 

borrower(s).

If a borrower is found eligible using Special Servicing Options, a three-month trial 

(four if imminent default) is required to be completed prior to executing a final 

modification.

In all cases, the servicer should adhere to specific investor loan modification 

requirements when it comes to rate reduction or term extension.

K. MORTGAGE RECOVERY ADVANCE

The maximum amount of a Mortgage Recovery Advance is 30 percent of the 

unpaid principal balance at the time of initial default, and shall include any principal 

reduction needed to achieve the target monthly mortgage payment. If the borrower has 

previously been provided an MRA under special relief measures due to a Natural 

Disaster as outlined in Chapter 18, Section 5, they may be considered for an additional 

Mortgage Recovery Advance under this section provided that the combined amount of 

MRA does not exceed the 30 percent as outlined above.

To file a claim for reimbursement of a mortgage recovery advance, the servicer 

must submit a claim to RD within 60 days of the advance being executed by the 

borrower through his or her signature on the promissory note. When filing the claim

for reimbursement with RD, the servicer must upload the original promissory note and 

a copy of the filed mortgage or deed-of-trust using the USDA LINC website. The 

servicer must also upload a summary of the amount of the funds advanced, including 

the monthly PITIA and principal deferment (if applicable), and other account 

information indicating the borrower's arrearage before the advance. In addition, the 

servicer should supply the present status of the account as of the date of the advance

including evidence the loan has been reinstated; the name, address, and tax ID number 

for the servicer; and the name, address, and phone number of a contact person for the 
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servicer who can answer questions about the reimbursement request.

The complete claim, including all supporting documents referred to above, must be 

submitted within 60 days of the execution of the mortgage recovery advance. 

After the claim is completed, the servicer must ensure the mortgage is properly 

recorded and upload the final recorded mortgage to the agency within 6 months of 

execution.

All required documentation must be submitted to the Servicing Office for 

reimbursement. Please refer to the MRA Guidelines below for address and contact 

information.

The servicer may file a claim for reimbursement of up to $250 for a title search 

and/or recording fees in connection with the promissory note and mortgage or deed-oftrust. The servicer should provide evidence of these fees when filing the claim. These 

claims are not part of the mortgage recovery advance and must be submitted in 

accordance with 7 CFR § 3555.354.

1. MRA GUIDELINES

No interest will accrue on the Mortgage Recovery Advance. The payment 

of the Mortgage Recovery Advance is not due until the earliest of (i) the 

maturity of the modified mortgage, (ii) the borrower transfers title to the 

property (by sale or by other voluntary or involuntary means), or (iii) a pay-off 

of the mortgage. Servicers may use HUD’s Partial Claim documents for the 

Mortgage Recovery Advance promissory note and mortgage or deed of trust.

The promissory Note and mortgage or deed of trust should be made payable 

to the United States of America, acting through the Rural Housing Service (and 

its successors). The borrower must send payment directly to RD at:

USDA - Rural Development

Wholesale Lockbox

PO Box 790391

3180 Rider Trail S.

Earth City, MO 63045

L. STAND ALONE MRA

If the servicer determines the borrower is not eligible for a modification under 

traditional or special loan servicing options, the servicer can offer the borrower a standalone MRA to cure the delinquency if the following criteria are met:
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• The hardship that caused the borrowers involuntary inability to pay has been 

cured.

• The borrower’s current payment is below 31%;

• There is no reasonable ability for the borrower to cure the delinquency on their 

own within 12 months; and

• The borrower has not been modified under Special Loan Servicing options in the 

past.

If all the above conditions are met, the servicer may utilize a mortgage recovery 

advance to settle the borrower delinquency and return the borrower to a current status. 

The mortgage recovery advance is limited to an amount no greater than what is necessary 

to resolve any delinquency and unreimbursed servicer advances made during the 

delinquency and must meet all other requirements as explained in section 5.K above.

M. TRIAL PAYMENT REQUIREMENTS

Prior to modifying a loan using RD Special Loan Servicing, the servicer must have 

the borrower complete a trial period during which the borrower makes the monthly 

mortgage payment they would make under the modified mortgage.

For borrowers who are in default when special loan servicing is initiated, the trial 

period must be three months in length. The servicer cannot modify the loan using 

special loan servicing unless the borrower makes all three reduced trial payments on 

time.

For borrowers facing imminent default when special loan servicing is initiated, the 

trial period must be four months in length. The servicer cannot modify the loan using 

special loan servicing unless the borrower makes all four reduced trial payments on

time.

All trial payments must be made in the month in which they are due.
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N. STEPS TO ACHIEVE AFFORDABILITY IN ORDER OF PRIORITY

Order Traditional Options Special Loan 

Servicing

Trial 

Required

1 Reduce Rate

2 Extend 360

3 Extend 480 Y

4 MRA w/ Mod Y

5 Affordability Check

Payment Increase <=10% & HTI 

<=36%

Y

6 MRA Only Y

O. DOCUMENTATION 

The servicer ensures that the modification documentation preserves the first lien 

status of the SFHGLP-guaranteed loan. The servicer will decide in accordance with state 

law as to whether it is necessary to record the modification agreement in order to 

maintain the first lien. 

P. DISCLOSURES

The servicer complies with any disclosure or notice requirements applicable under 

state or federal law.

Q. FAILURE

If the loan becomes delinquent following modification, it shall be treated as a new 

default and serviced accordingly. Since the servicer maintains the first lien status of the 

loan subsequent to modification, any amount that is not in the first lien position is not 

guaranteed by SFHGLP and is not subject to a claim. If the servicer submits a claim, the 

Agency reserves the right to request documentation (legal or otherwise) establishing the 

loan’s first lien status.
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R. SUBSEQUENT USE

If a loan has been modified within the previous two years, re-default risk is presumed 

to increase following a subsequent modification. Before granting a modification in this 

circumstance, the servicer must validate the borrower has experienced a change in 

circumstances that led to a separate default or imminent default unrelated to the first. 

Any such decision must be documented and placed in the servicing file. A subsequent 

modification should be an unusual occurrence, and the cause of the second default should 

not be related to the original reason for default. In all cases, a borrower is only allowed 

one Special Loan Servicing modification during the life of the loan.

S. LOAN NOTE GUARANTEE

The terms of the SFHGLP Loan Note Guarantee (LNG) may change. The LNG may 

be extended to coincide with the terms of a loan modification that meets the eligibility 

criteria as noted in 7 CFR § 3555.303. Any loss on the modified loan is limited to the 

lessor of either 90 percent of the original loan amount, or the sum of the first 35 percent 

of the loss and 85 percent of the balance of the loss.

T. SERVICER NOTIFICATION REQUIREMENTS (MODIFICATIONS)

The servicer will upload a copy of the executed loan modification to the borrower file 

within 30 days of execution and no later than 60 days via USDA LINC. If loan 

modification was not executed the servicer uploads notification that modification was not 

executed to the borrower file via USDA LINC

 The agreement should contain the following key data elements:

• Borrower and co-borrower name(s) and ID number(s)

• Effective modification date

• Modified unpaid principal balance

• Eligible interest and costs capitalized

• Sum of modified principal and capitalized interest and costs

• Interest rate

• Maturity date

U. AGENCY ACTION

The Agency staff processes the loan modification by means of the Guaranteed Loan 

System (GLS).
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6. PRE-FORECLOSURE SALE/DEED-IN-LIEU

The pre-foreclosure sale (PFS) option allows a borrower in default to sell his or her home 

and use the sale proceeds to satisfy the mortgage debt even if the proceeds are less than the 

amount owed. This option is appropriate for a borrower whose financial situation requires the 

sale of the home, but who is unable to do so because the value of the property has declined to 

less than the amount owed on the mortgage.

A borrower wishing to use the PFS option submits a request to the servicer along with any 

financial information the servicer requires. The servicer obtains a recent market value appraisal 

and preliminary title report to determine the feasibility of the PFS. The servicer notifies the 

borrower whether the request is approved.

The borrower makes a commitment to actively market the property for a period of at least 

three months, during which time the servicer delays foreclosure action. If the property does not 

sell, the servicer is encouraged to work with the borrower to determine the eligibility for a deedin-lieu of foreclosure.

Deed-in-lieu of foreclosure (DIL) is a disposition option in which a borrower voluntarily 

deeds the collateral property to the servicer in exchange for a release from all obligations under 

the mortgage. A DIL is usually preferable to foreclosure because it avoids the time and expense 

of a legal foreclosure action and the property is generally in better physical condition at 

acquisition due to the cooperative nature of the transaction.

The servicer may only review a borrower for a DIL prior to a PFS in cases of death, 

borrower incapacitation or other extreme circumstances. The servicer must use good business 

judgement when making this determination and retain all appropriate documentation in the 

servicing file. 

A. LOAN ELIGIBILITY

The loan is in default (delinquent more than 30 days) at the time the pre-foreclosure 

sale is closed. A servicer may exercise discretion to accept an application from a 

borrower who is facing imminent default, and if the loan will be in default by the time the 

pre-foreclosure sale is completed. The servicer documents this decision in the servicing 

file. Under no circumstances shall PFS be available to borrowers who have voluntarily 

stopped paying their mortgage despite their continued ability to pay.

B. BORROWER ELIGIBILITY

The PFS option may be extended to a borrower who:

• Is in default or facing imminent default due to a verified increase in living 

expenses or decrease in income.

• Occupies the property as a primary residence (servicer must document occupancy 

status); and
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• Is not eligible for any available retention options.

In addition, borrowers who have failed to perform on an accepted loan modification 

using USDA guidance may be evaluated for a PFS option.

A non-occupant borrower may be reviewed for a PFS option if it is determined the

vacancy was involuntary in nature, such as job loss, mandatory transfer, divorce, death, 

etc. 

 C. BORROWERS APPLICATION/DOCUMENTATION

A defaulted borrower or a borrower facing imminent default who expresses interest in 

a pre-foreclosure sale should be sent a copy of the servicer’s PFS criteria. Additionally, 

the servicer is encouraged to proactively solicit participation by a borrower who is in 

default or facing imminent default on an SFHGLP first mortgage and who is unable to 

cure the default.

By signing and returning the application with the required financial information, the 

borrower should acknowledge receipt of housing counseling, and agree to: 

• List the property with a licensed real estate broker unrelated to the borrower (The 

listing agreement should include a specific cancellation clause in the event the 

terms of a sale are not acceptable);

• Make a good faith effort to aggressively market the property; and,

• Perform all normal property maintenance and repairs until closing of the preforeclosure sale.

D. PROPERTY VALUE

The servicer obtains a standard market value appraisal from an appraiser who does 

not share any interest with the borrower or borrower’s agent. The appraisal contains 

both “As Is” and “As Repaired” values for the property and should be valid for six 

months. A copy of the appraisal is shared with the homeowner or sales agent, if 

requested. Appraisals or opinions of value provided by the borrower, or borrower’s real 

estate agent are not acceptable. The servicer reviews the appraisal and satisfies itself 

that the opinion represents the fair market value of the subject property. The list price of 

the property must reflect its fair market value. The cost of the appraisal is reimbursable 

in the loss claim.

 E. PROPERTY CONDITION

Properties that have sustained serious damage (from fire, flood, earthquake, tornado, 

etc.) should not be considered for PFS if the cost of repair exceeds ten percent of the “As 

Repaired” appraised value until all insurance claims have been resolved. The servicer 

may exercise discretion to accept or reject a damaged property when the repair costs are 
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less than the ten percent threshold and should document the decision in the servicing file.

Prior to servicing plan submission, servicers must ensure that hazard insurance claims 

involving property damage are filed and settled expeditiously. All repairs and 

replacements using the insurance proceeds must be planned, performed and inspected in 

accordance with Agency construction requirements and procedures. (7 CFR 3555.252)

 F. CONDITION OF TITLE

The property has marketable title. The servicer obtains a title search or preliminary 

title report to verify that the title is not impaired either with unresolvable title problems or 

with junior liens that cannot be discharged. If the servicer determines that junior liens 

and other title issues can be resolved, the borrower’s PFS application may be approved,

and resolution of the title issues can be pursued concurrent with the marketing effort.

When reviewing for a DIL, all junior liens or issues with title must be resolved PRIOR to 

approval.

 G. FINANCIAL / PROPERTY ANALYSIS

The servicer determines the borrower’s present and anticipated financial condition.

The servicer projects the borrower’s monthly income and uses good business 

judgment to determine that the borrower is unable to support the mortgage debt. The 

servicer may continue with Pre-Foreclosure options, even if the debt is affordable,

provided the reason for default requires the borrower to relocate. 

The following documentation must be obtained and/or completed in order to 

determine financial capacity of the borrower:

• Letter from borrower outlining their involuntary inability to pay/hardship.

• Income documentation as stated in the overview section.

• Credit Report; and,

• Detailed budget.

If the borrower has been offered a loss mitigation solution based on full 

documentation in the last 12 months, the servicer can determine the borrower’s 

ability/inability to support the debt based on the previous evaluation without obtaining 

new documentation.

The following documentation pertaining to the subject property must be obtained:

• Appraisal;

• Listing Agreement;

• Sales Contract (if applicable);
HB-1-3555

Attachment 18-A

Page 28 of 32

• Closing Disclosure;

• Title Report; and

• All PFS workouts must be accompanied by the “Disposition (PFS/DIL) Cost 

Benefit Analysis” (Attachment 18-B). Attachment 18-B is an example of the 

analysis that must be completed for a PFS workout can be considered. 

Servicers may generate their own version of Attachment 18-B in-lieu of 

utilizing the example provided.

 H. TIMING OF PFS ACTIONS

The servicer should review for a PFS, commences foreclosure, or initiates another 

loss mitigation option within six months of the date of default, unless the default is 

cured earlier.

If the PFS follows a failed special forbearance agreement, the PFS, foreclosure or 

other option should be initiated within 90 days of the failure.

 I. DURATION OF THE PFS PERIOD

The PFS period should be 90 days from the date of approval. The servicer should 

review the marketing efforts with the borrower each month. After 90 days have passed 

without a scheduled closing, the servicer should discuss the likelihood of a sale with the 

real estate broker and decide if a 30 day extension to the PFS is appropriate. 

Documentation of this decision is retained in the servicing notes. 

If the property is under contract at the end of the marketing period, the servicer 

may extend the PFS period for 60 days, not to exceed a total of 6 months.

The pre-foreclosure option may also be extended to a borrower that has not 

received prior approval to participate in the PFS program. A sales contract offer must 

be validated by an appraisal that is conducted by an appraiser not party to the 

transaction. The appraisal must support the “as is” property value independent of the 

current offer.

If a closing of an approved PFS has not occurred within 90 days of the expiration of 

the PFS period (or 6 months of the date of default, whichever is later), the servicer 

should automatically evaluate the borrower for a deed-in-lieu, and if not eligible, 

commence foreclosure. If the borrower’s financial condition has improved significantly 

to the point that a cure of the delinquency is a viable option, the servicer may undertake 

a special forbearance agreement or a loan modification. However, the servicer should 

fully justify this decision in the claim review file and approve the action within the 90-

day period.
HB-1-3555

Attachment 18-A

Page 29 of 32

(03-09-16) SPECIAL PN

Revised (01-05-24) PN 602

 J. OTHER SERVICER ACTIONS

The servicer is responsible for inspection, protection, and preservation of the 

property between the 45th day of default and the date it approves the borrower’s PFS 

request. Funds spent for preservation and protection may be reimbursed.

The servicer must provide any documents deemed pertinent to describe all servicing 

actions taken.

 K. EARLY TERMINATION

The borrower’s participation in the PFS option may be terminated at the servicer’s 

discretion, for any of the following reasons:

• Unresolvable title problems;

• Determination that the borrower is not acting in good faith to market the 

property; or,

• Voluntary withdrawal by the borrower.

 L. BORROWER CONSIDERATION

 A borrower who successfully sells the property securing the loan using the PFS 

option is relieved of the mortgage obligation. The borrower shall not be pursued for 

deficiency judgments by either the servicer or the Agency.

 M. NET SALES PROCEEDS

The servicer may approve a sales contract or listing price in which the net sales 

proceeds are at least 84 percent of the home’s “As-Is” appraised value. “Net Sales 

Proceeds” is defined as the contract/ listing price less: 

• Sales commission of six percent or less.

• Local/State transfer tax stamps and other customary closing costs including the 

seller’s costs for a title search and title insurance.

• Up to $2,500 may be used from sales proceeds for discharge of liens or 

encumbrances; and,

• Allowable seller concessions must not exceed 3% of the sales price. In cases

where Rural Development is guaranteeing a new loan, the seller concessions 

will be limited to 1% of the purchaser’s new mortgage loan amount.

 Examples of settlement costs which may not be included in the net sales proceeds 

calculation are:

• Tax service fees and other property transfer costs normally paid by the buyer;
HB-1-3555

Attachment 18-A

Page 30 of 32

• Home warranty fees;

• Repairs not stipulated in the appraisal;

• Survey costs;

• Lawyer’s fees for representing the seller (apart from conducting the settlement 

or review of documents);

• Purchaser’s down payment, escrow impounds and interim interest;

• Purchaser’s upfront/monthly mortgage insurance premiums; and,

• Servicer’s Title Insurance fee.

There can be no hidden terms or special understandings between any of the parties 

involved in the transaction, i.e., the buyer, seller, appraiser, sales agent, closing agent, 

and servicer.

The servicer should review the signed Contract for Sale (if available) within 5 

business days of receipt. If no contract is available, the servicer should approve the 

listing price of the property with the understanding that if an offer is made that meets 

the terms listed above, the transaction shall be pre-approved with little additional review 

required. The transaction is an outright sale of the premises. No sale by assumption 

may be considered, regardless of provisions for release of liability.

 N. CLOSING AND POST CLOSING RESPONSIBILITIES

Before the transaction closes, the servicer will provide the closing agent with a list 

of all amounts payable out of the sale proceeds. Before giving final approval for a 

closing, the servicer reviews the settlement statement to ensure that it complies with 

earlier closing cost estimates.

A PFS is reported to national credit bureaus as a “short sale.” The servicer is 

responsible for filing any applicable forms with the IRS and reporting any discharge of 

indebtedness, in accordance with the Internal Revenue Code.

 O. DEED-IN-LIEU

To be considered for a DIL the borrower must fully execute a written DIL 

agreement that contains all the conditions under which the deed will be accepted 

including: 

• Specific transfer date;

• Notification that there may be income tax consequences because of the DIL

• Acknowledgment that borrowers who comply with all the requirements of the 

agreement shall not be pursued for deficiency judgments
HB-1-3555

Attachment 18-A

Page 31 of 32

(03-09-16) SPECIAL PN

Revised (01-05-24) PN 602

• A statement describing the general physical condition in which the property 

will be conveyed demonstrating clean and marketable condition

• Agreement that the borrower will convey the property vacant and free of 

personal property unless the servicer has approved occupied conveyance

• Itemization of the keys, built-in fixtures and equipment to be delivered to the 

servicer on or before the transfer date

• Borrower’s agreement to provide evidence that certain utilities, assessments 

and homeowner’s association dues are paid in full to the transfer date unless 

otherwise agreed to by the parties

All DIL of foreclosure workouts must be accompanied by the “Disposition 

(PFS/DIL) Cost Benefit Analysis” (Attachment 18-B). Attachment 18-B is an example 

of the analysis that must be completed in order for a DIL workout to be considered. 

Servicers may generate their own version of Attachment 18-B in-lieu of utilizing the 

example provided. 

 P. FILING A CLAIM

The loss claim under the loan note guarantee is submitted to the Agency within 45 

days after the date of the PFS or DIL closing. The Agency will reimburse the servicer 

for reasonable and customary costs of the appraisal, title search (if not included in the 

settlement statement), the allowable percentage of legal fees for a foreclosure 

postponed pending completion of PFS or DIL, if applicable, and reasonable costs of 

preservation and protection. Disbursements for taxes, assessments, hazard insurance, 

and other allowable items payable before the date of the PFS or DIL closing are also 

reimbursable. The Agency will not pay costs related to the property incurred after the 

closing date.

The Agency will pay a loss mitigation incentive of $1000 for successfully closing 

a PFS or $250 for a DIL if all the documentation requirements outlined above are met.
HB-1-3555

Attachment 18-A

Page 32 of 32

Disposition (PFS/DIL) Cost Benefit Analysis (Example)

This worksheet is being provided to demonstrate cost savings to the Government, as described under 7 CFR 

3555.305. Voluntary liquidation methods must demonstrate the expected cost to the Government to be the same as or 

less than the cost of foreclosure. Other methods of liquidation must demonstrate how the proposal will result in 

savings to the Government. These options are appropriate for borrowers who have experienced a verified, 

involuntary inability to meet their mortgage obligation. Borrowers that have abandoned their mortgage obligation or 

strategically defaulted may not be eligible. For further eligibility clarification, please refer to the "Loss Mitigation 

Guide." Failure to comply with Agency Regulation, Policies and Guidance may result in a reduction or denial of any 

future Loss Claim. If you need further assistance, please contact the Servicing Office at 1-866-550-5887.

Voluntary/Other Liquidation Method Foreclosure Method

Current Market Value $180,000.00 Current Market Value $180,000.00

1 Gross Sales Price $172,500.00 1Estimated Liquidation Value $151,200.00

2 Net Sales Proceeds $157,482.63

3 Actual Net Sales Price % 91.294%

Unpaid Principal Balance $203,325.62 Unpaid Principal Balance $203,325.62

Interest to Settlement Date $5,622.79 Interest to FC Sale Date $6,401.16

Escrow Shortage $900.00 Escrow Shortage $1,100.00

FC Cost $1,513.25 FC Cost $2,731.55

Other Cost $129.13 Other Cost $129.13

Total Debt $211,490.79 2Estimated REO Marketing Cost $24,116.00

Less Net Sales Proceeds $157,482.63 Total Debt $236,291.86

Total Estimated Loss Claim $54,008.16

Less Estimated Liquidation 

Value $151,200.00

Total Estimated Loss Claim $85,091.86

1 If no offer is available enter Market Value in lieu of 

Gross Sales Price.

2 If no offer is available reduce Market Value by 

Management Acquisition Factor (14.95%) and enter in 

lieu of Net Sales Proceeds.

3 The result of the Net Sale Price divided by the Current 

Market Value

1Equal to 84% of the Current Market Value

2Multiply Estimated Liquidation Value by Management 

Acquisition Factor (15.95%)

Cost Savings to the Government: $31,083.70
HB-1-3555

Attachment 18-B

Page 1 of 2

(03-09-16) SPECIAL PN

ATTACHMENT 18-B

ACCEPTABLE STATE FORECLOSURE TIME FRAMES

State Typical 

Security 

Document

Foreclosure Method

Reasonable Diligence Time 

Frames In Months (Days)1 –

Effective 08/13/2021

First Legal Action to Commence 

(Initiation) of Foreclosure

Non-judicial Judicial

Alabama Mortgage 6 (180) Publication

Alaska Deed of Trust 10 (300) Recording of Notice of Default

Arizona Deed of Trust 6 (180) Recording of Notice of Sale

Arkansas Deed of Trust 11 (330) Recording of Notice of Sale

California Deed of Trust 12 (365) Recording of Notice of Default

Colorado Deed of Trust 12(365) Filing of Foreclosure Docs with Public 

Trustee

Connecticut Mortgage 21 (630) Delivery of Complaint to Sheriff

Delaware Mortgage 26 (780) Complaint Filed

Florida Mortgage 25 (750) Complaint Filed

Georgia Security Deed 6 (180) Publication

Guam Mortgage 11 (330) Posting and Publishing of Notice of Sale

Hawaii Mortgage 6(180) Publication of Notice of Intent to Foreclose

Mortgage 30(900) Publication of Notice of Intent to Foreclose

Idaho Deed of Trust 13 (390) Recording of Notice of Default

Illinois Mortgage 17 (510) Complaint Filed

Indiana Mortgage 13 (390) Complaint Filed

Iowa Mortgage 17 (510) Petition Filed

Deed of Trust 9 (270) Delivering Notice to Clerk

Kansas Mortgage 10 (300) Complaint Filed

Kentucky Mortgage 14 (420) Complaint Filed

Louisiana Mortgage 12 (365) Petition for Executory Process

Maine Mortgage 27 (810) Complaint Filed

Maryland Deed of Trust 18 (540) Filing an Order to Docket

Mortgage 18 (540) Complaint Filed

Massachusetts2 Mortgage 9 (270) Filing Complaint

Michigan Mortgage 9 (270) Publication

Minnesota Mortgage Deed 10 (300) Publication

Mississippi Deed of Trust 9 (270) Publication

1 State foreclosure time frames are displayed in months and converted to reasonable days expected.

2 The servicer must first obtain a Judgment from the Land Court certifying that the owners of the property being 

foreclosed are not entitled to relief under the Servicemembers Civil Relief Act (SCRA).
HB-1-3555

Attachment 18-B

Page 2 of 2

State Typical 

Security 

Document

Foreclosure Method

Reasonable Diligence Time 

Frames In Months (Days)3 –

Effective 08/13/2021

First Legal Action to 

Commence (Initiation) of 

Foreclosure

Non-judicial Judicial

Missouri Deed of Trust 5 (150) Publication

Montana Trust Indenture 9 (270) Recording of Notice of Sale

Nebraska Deed of Trust 8 (240) Publication of Notice of Sale

Mortgage 8 (240) Petition

Nevada Deed of Trust 24 (730) Recording of Notice of Default

New Hampshire Mortgage 11 (330) Publication

New Jersey Mortgage 19 (570) Complaint Filed

New Mexico Mortgage 25 (760) Complaint Filed

New York Mortgage 21 (630) Complaint Filed

North Carolina Deed of Trust 9 (270) Notice of Hearing

North Dakota Mortgage 15 (450) Complaint Filed

Ohio Mortgage Deed 13 (390) Complaint Filed

Oklahoma Mortgage 14 (420) Petition Filed

Oregon Deed of Trust 30 (900) Recording of Notice of Default

Pennsylvania Mortgage 21 (630) Complaint Filed

Puerto Rico Mortgage 21 (630) Complaint Filed

Rhode Island Mortgage 22 (660) Publication

South Carolina Mortgage 14 (420) Complaint Filed

South Dakota Mortgage 14 (420) Complaint Filed

Deed of Trust 9 (270) Publication of Notice of Sale

Tennessee Deed of Trust 6 (180) Publication

Texas Deed of Trust 8 (240) Posting and Filing of Notice of 

Sale

Utah Deed of Trust 12 (365) Recording of Notice of Sale

Mortgage 12 (365) Complaint Filed

Vermont Mortgage 4(120) 24 (720) Complaint Filed

Virgin Islands Mortgage 15 (450) Complaint Filed

Virginia Deed of Trust 7 (210) Publication

Washington Deed of Trust 18 (540) Recording of Notice of Sale

West Virginia Deed of Trust 7 (210) Publication

Wisconsin Mortgage 12 (365) Complaint Filed

Wyoming Mortgage 7 (210) Publication

3 State foreclosure time frames are displayed in months and converted to reasonable days expected.
HB-1-3555

Attachment 18-C

Page 1 of 3

(03-09-16) SPECIAL PN

Revised (02-09-23) PN 575

ATTACHMENT 18-C

ACCEPTABLE STATE LIQUIDATION COSTS AND FEES

Schedule of Standard Attorney/Trustee Fees

STATE NON-JUDICIAL 

FORECLOSURE

JUDICIAL 

FORECLOSURE

BANKRUPTCY

CLEARANCE

POSSESSORY 

ACTION

DEED-INLIEU

AK $2,000 Varies13 $500 $400

AL $1,7001 Varies13 $500 $400

AR $1,700 Varies13 $500 $400

AZ $1,700 Varies13 $400 $400

CA $1,7002 Varies13 $550 $400

CO $2,200 Varies13 $450 $400

CT $3,2003,4 Varies13 $400 $400

DC $1,2501 $2,875 Varies13 $400 $400

DE $2,450 Varies13 $450 $400

FL $4,10011 Varies13 $400 $400

GA $1,700 Varies13 $450 $400

GU $2,225 Varies13 $350 $400

HI $9,0007 Varies13 $525 $400

IA $1,275 $2,450 Varies13 $350 $400

ID $1,550 Varies13 $400 $400

IL $3,000 Varies13 $400 $400

IN $2,800 Varies13 $450 $400

KS $2,400 Varies13 $400 $400

KY $3,000 Varies13 $400 $400

LA $2,500 Varies13 $500 $400

MA $2,550 $3,4003 Varies13 $625 $400

MD $3,0005 Varies13 $500 $400

ME $3,950 Varies13 $525 $400

MI $1,900 Varies13 $425 $400

MN $1,775 $1,800 Varies13 $400 $400

MO $1,700 Varies13 $450 $400

MS $1,5001 Varies13 $400 $400

MT $1,800 Varies13 $400 $400

NC $2,175 Varies13 $400 $400

ND $2,350 Varies13 $350 $400

NE $1,400 $1,950 Varies13 $350 $400

NH $1,725 Varies13 $425 $400

NJ $4,500 Varies13 $500 $400

NM $4,000 Varies13 $400 $400

NV $2,000 Varies13 $650 $400

NY $1,4509 $5,2253,9 Varies13 $725 $400

OH $3,000 Varies13 $600 $400

OK $2,700 Varies13 $350 $400

OR $1,700 $3,700 Varies13 $400 $400

PA $3,200 Varies13 $450 $400

PR $2,8003,10 Varies13 $300 $400

RI $2,250 Varies13 $525 $400
HB-1-3555

Attachment 18-C 

Page 2 of 3

STATE NON-JUDICIAL 

FORECLOSURE

JUDICIAL 

FORECLOSURE

BANKRUPTCY

CLEARANCE

POSSESSORY 

ACTION

DEED-INLIEU

SC $2,850 Varies13 $450 $400

SD $2,250 Varies13 $400 $400

TN $1,500 Varies13 $375 $400

TX $1,700 $3,000 Varies13 $400 $400

UT $1,700 $925 Varies13 $400 $400

VA $1,700 Varies13 $600 $400

VI $2,650 Varies13 $300 $400

VT $1,600 $3,200 Varies13 $375 $400

WA $1,800 $3,050 Varies13 $450 $400

WI $2,600 Varies13 $400 $400

WV $1,4501,6 Varies13 $400 $400

WY $1,550 Varies13 $500 $400

Footnotes:

(1) The fee covers the combined attorney’s and notary’s fees.

(2) This fee applies to completed foreclosures. If the mortgage loan is reinstated, the maximum fee is the amount 

allowed under applicable law, not to exceed $725 for reinstatements after recording the Notice of Default but 

before mailing the Notice of Sale, or $1075 for reinstatements after mailing the Notice of Sale but before the 

Trustee’s sale. 

(3) An additional $200 will be permitted when the property is sold to a third party and the attorney must perform 

additional work to complete the transfer of title to the successful bidder. 

(4) This fee applies to Strict Foreclosures. If the court orders a Foreclosure by Sale (or a Foreclosure by Market 

Sale on or after January 1, 2015), the fee will be $3,450. 

(5) The fee includes the attorney’s fee, the notary’s fee and the trustee’s commission (or statutory fee). 

(6) [Reserved]

(7) A fee of $10,000 will be permitted for judicial foreclosures in locations other than Honolulu County.

(8) [Reserved]

(9) In New York, an additional $450 will be permitted when the property is sold to a third party and the attorney 

must perform additional work to complete the transfer of title to the successful bidder. In New York the nonjudicial foreclosure process is to be used only in connection with cooperative share loans. The fee includes all 

steps in the foreclosure process including the transfer of the stock and the lease for an occupied cooperative 

unit. 

(10) In addition to the allowable foreclosure fee, USDA will pay a notary fee up to the greater of $250 or one 

percent (1%) of the bid amount on the mortgage being foreclosed. 
HB-1-3555

Attachment 18-C

Page 3 of 3

(03-09-16) SPECIAL PN

Revised (02-09-23) PN 575

(11) The allowable fee for foreclosures in Florida, where judgment is obtained as a result of an uncontested trial, is 

established at $5,200

(12) When a servicer requests reimbursement from USDA for a fee amount based on specified conditions contained 

in a footnote above, the servicer’s reimbursement request must contain a description or sufficient supporting 

documentation to allow USDA to properly evaluate the request. 

(13) This fee assumes that all required procedural steps have been completed. The maximum attorney fee varies 

based on the chapter under which the bankruptcy action is filed.

 

• For Chapter 7 bankruptcies, the maximum allowable fee is $1,500.

1. Motion for Relief is $950

2. Proof of Claim Preparation (if required) is $300

3. Reaffirmation Agreement is $250

• For Chapter 11 bankruptcies, the maximum allowable fee is $2000

1. Proof of Claim Preparation & Plan Review is $950

2. Motion for Relief is $1050

• For Chapter 12 bankruptcies, the maximum allowable fee is $2,550

1. Proof of Claim Preparation & Plan Review is $950 

2. Objection to Plan is $550

3. Motion for Relief is $1050

• For Chapter 13 bankruptcies, the maximum allowable fee is $3,525

1. Proof of Claim Preparation & Plan Review is $950

2. Objection to Plan is $550

3. Motion for Relief is $1050

4. Payment Change Notification (if needed) is $125

5. Notice of Fees, Expenses, and Charges is $150

6. Post-Stipulation Default / Stay Termination is $100 / $200

7. Response to Final Cure Payment Notice is $100 (agreed) / $500 (objection)
HB-1-3555

Attachment 18-D 

Page 1 of 1

ATTACHMENT 18-D 

USDA INDIVIDUAL STATE BASED BIDDING CHART

State

USDA Bid Percentage

(Bid % of Value) State

USDA Bid Percentage

(Bid % of Value)

AK 80% MT 80%

AL 71% NC 72%

AR 73% ND 64%

AZ 80% NE 80%

CA 80% NH 80%

CO 80% NJ 69%

CT 78% NM 80%

DC 80% NV 72%

DE 72% NY 80%

FL 78% OH 76%

GA 78% OK 80%

GU 77% OR 80%

HI 80% PA 72%

IA 69% PR 77%

ID 78% RI 80%

IL 66% SC 68%

IN 71% SD 80%

KS 74% TN 78%

KY 72% TX 80%

LA 80% UT 80%

MA 80% VA 79%

MD 77% VT 51%

ME 78% WA 80%

MI 75% WI 78%

MN 80% WV 78%

MO 76% WY 78%

MS 74%

(03-09-16) SPECIAL PN

Revised (05-17-17) PN 498
HB-1-3555

Attachment 18-E 

Page 1 of 6

ATTACHMENT 18-E 

MAXIMUM PROPERTY PRESERVATION ALLOWANCES

A. PROPERTY PRESERVATION ALLOWANCES

CLAIM SUBMISSION AND DOCUMENTATION COSTS

Maximum Property Preservation 

Allowance

$5,000

Cash for Keys Maximum $2500 can be paid to the borrower in order 

to avoid eviction and maintain marketability of the 

property. (provide signed agreement)

Photographs Maximum $30 per property

Local Requirements (Vacant Property 

Registration)

Actual cost to register and comply with all VPR 

ordinance requirements (provide supporting 

documentation)

INSPECTIONS

Initial Inspection $20/$15 per each additional unit

Occupancy Inspections $20/$15 per each additional unit

Vacant Inspections (Ongoing)

• Initial Vacant Property Inspection 

(One time)

• Ongoing Inspections

$35/$15 per each additional unit

$20/$15 per each additional unit

SECURING THE PROPERTY

Emergency Contact Information Posting

Emergency Contact Posting including 

Address Posting

$10 one time reimbursement

Lockbox, including duplicate HUD coded keys $40 one time reimbursement

Locksets

Lockset replacement – Front or Main 

Entranceway

$60 per door/door set

Lockset replacement - other than above $20 each

Re-keying $10 per keyhole

Padlock/Hasp Installation $40 each

Doors

Replace Exterior Door – Pre-Hung Steel $800 each

Replace Overhead Door $800 single bay door

$1,000 double bay door

Repair Overhead Door $100 maximum per property

Glazing/Windows

(03-19-16) SPECIAL PN

Added (04-30-20) PN 536
HB-1-3555

Attachment 18-E

Page 2 of 6

Re-Glazing $1.50 per United Inch (U.I.)

(Length (in.) of one side + Width (in.) of one side

= Total U.I.)

Window Lock Replacement $5 each; maximum $50 per property

Door slider lock, anti-lift blocks, security bars $25 each

Boarding/Securing of doors and windows

Boarding/Securing Materials $.90 per U.I.

Swimming Pools, Spas, and Hot Tubs

Swimming Pool Securing – In-ground Maximum $1,250 for all work, including cover 

installation

Swimming Pool Securing -Above ground Maximum $500 for all work, including cover installation

Spa and Hot-tub Securing Maximum $50 for all work, including cover installation

Swimming Pool Draining Maximum $300 per property

Above Ground Swimming Pool Removal Maximum $500 per property

Swimming Pool Maintenance Maximum $100 monthly

Winterization

Dry Winterization Maximum $100 each unit

Wet/Steam Winterization Maximum $150

Wet/Steam Winterization – additional unit Maximum $90

Radiant Winterization Maximum $250

Radiant Winterization – additional unit Maximum $125

Reduced Pressure Zone (RPZ) Valves Maximum $150, where required by state or local law

Swimming Pools and Spas Maximum $200 per property per 12-month period

Re-winterization $50 each occurrence

Utilities, Power Supply, Water Supply, Gas Supply

Electricity, Gas, Oil, Propane, Water and Sewer Actual cost - one time shut off/transfer fee as assessed 

by local utility entities

Water well closing and disconnection $80 for all work required – one time shut-off per 

property

Initial water line pressure testing $20

Wire Capping $1 each; maximum $25 per property

Water, Sewer, or Gas Capping $15 each; maximum $90 per property

Smoke Detectors – when required by AHJ $15 each

CO2 Monitor – when required by AHJ $25 each

Roof Assembly Repair

Temporary Roof Repair/Tarping Maximum $600 per property
HB-1-3555

Attachment 18-E

Page 3 of 6

Permanent Roof Repair/Patching Maximum $1,000 per property

Chimney Capping Maximum $100 each

Foundation Drainage Systems and Basements

Basement Water Pumping Maximum $500 per property

Gutter Cleaning and Repair $1 per linear foot (LF); Maximum $100 per 

property

Gutter Replacement (missing sections only) $4.70 per LF; Maximum $400 per property

Molds, Fungus, Discoloration and Related Moisture Damage and Organic Growth

Dehumidifier Purchase and Installation Maximum $250 each

Absorbent Moisture Desiccants $20 each; maximum $100 per 12 month period

Mold Treatment including Medium Removal, 

mold inhibitor chemicals, mold inhibiting paints

$300 Maximum per property

Sump Pumps

Sump Pump Replacement/Installation Maximum $300 per property

Sump Pump Repair Maximum $50

Debris Removal, Cleaning, and Minor Repair

Debris Removal, Interior and Exterior Maximum $1,250

Debris Removal, Interior and Exterior –

additional waste

$50 per cubic yard (CY)

Broom Swept Cleaning $50

Refrigerator and Freezer Cleaning $50

Toilet Cleaning $50

Clothes Dryer Vent Cover Installation $ 20 each

Pest Extermination (professional services with 

documented need)

Maximum $300 (provide payment evidence)

Pest Extermination (Over-the-counter 

products)

$30 each; maximum $90 per 12 month period

Dead Animal Removal $50 per occurrence

Vehicle/Boat Removal Maximum $210 per vehicle

Fencing Repair $300 for all work required

Handrails $10 per lineal foot (LF) Maximum $200 per 

property

Carpet Removal including removal of tack 

strips

$.20 per square foot (SF) Maximum $400 per 

property

Demolition of Dilapidated/Unsafe 

Outbuildings and Sheds

$1.00 per square foot; Maximum $400 per 

property

Professional reports (Hazardous material 

identification and testing) - Reimbursement 

for positive results only

Maximum $1,100 per property

(03-19-16) SPECIAL PN

Revised (05-21-20) SPECIAL PN
HB-1-3555

Attachment 18-E 

Page 4 of 6

Police and Fire Reports $20 each

Personal Property Storage

Storage and disposition Maximum $300 per property

MAINTENANCE

Yard Maintenance

Initial Desert Landscaping Maintenance Maximum $300

Re-Cut Desert Landscaping Maintenance Maximum $200 per 12 month period

Grass Cuts Refer to Section C of this attachment 

Tree Trimming Maximum $250 per 12 month period

Shrub Trimming Maximum $200 per 12 month period

Snow Removal

Snow/Ice Removal Maximum $75 per occurrence

Utilities

Utility Costs Actual costs as invoiced by power and utility 

entities

B. WINTERIZATION SCHEDULE

Required Winterization Period State or Territory

All Year Alaska

September 1 through April 30 Colorado; Connecticut; Idaho; Illinois; Indiana Iowa; 

Maine; Massachusetts; Michigan; Minnesota; Montana; 

Nebraska; New Hampshire; New Jersey; New York; 

North Dakota; Ohio; Oregon; Pennsylvania; Rhode 

Island; South Dakota; Vermont; Washington; 

Wisconsin; Wyoming

October 1 through March 31 Alabama; Arizona; Arkansas; California; Delaware; 

Florida; Georgia; Kansas; Kentucky; Louisiana; 

Maryland; Mississippi; Missouri; Nevada; New Mexico; 

North Carolina; Oklahoma; South Carolina; Tennessee; 

Texas; Utah; Virginia; West Virginia; Washington, DC

Winterization not required Hawaii; Guam; Northern Mariana Islands; American 

Samoa; Puerto Rico; U.S. Virgin Islands
HB-1-3555

Attachment 18-E 

Page 5 of 6

C. GRASS CUT SCHEDULE

State or Territory Initial Cut

(1 - 10,000 sf)

Initial Cut

(10,001 sf - 

20,000 sf)

Re-cuts

(1 - 10,000 sf)

Re-cuts

(10,001 sf - 

20,000 sf)

NOTE: Add $25 for each additional 10,000 sf for properties greater than 20,000 sf

ALL YEAR: ONCE PER MONTH

Arizona $75 $95 $70 $90

Nevada $90 $110 $85 $105

New Mexico $85 $105 $80 $100

ALL YEAR: TWICE PER MONTH

California $100 $120 $95 $115

Florida $85 $105 $80 $100

Hawaii $110 $130 $105 $125

Guam, MP, AS $110 $130 $105 $125

Puerto Rico $110 $130 $105 $125

U.S. Virgin Islands $85 $105 $80 $100

APRIL 1 TO OCTOBER 31: ONCE PER MONTH

Colorado $85 $105 $80 $100

State or Territory Initial Cut

(1 - 10,000 sf)

Initial Cut

(10,001 sf - 

20,000 sf)

Re-cuts

(1 - 10,000 sf)

Re-cuts

(10,001 sf - 

20,000 sf)

Utah $85 $105 $80 $100

Wyoming $85 $105 $80 $100

APRIL 1 TO OCTOBER 31: TWICE PER MONTH

Arkansas $70 $90 $65 $85

Connecticut $100 $120 $95 $115

Delaware $95 $125 $90 $120

Idaho $100 $120 $95 $115

Illinois $85 $105 $80 $100

Indiana $85 $105 $80 $100

Iowa $85 $105 $80 $100

Kansas $85 $105 $80 $100

Kentucky $85 $105 $80 $100

Maine $100 $120 $95 $115

Maryland $100 $120 $95 $115

Massachusetts $100 $120 $95 $115

Michigan $85 $105 $80 $100

Minnesota $85 $105 $80 $100

Missouri $85 $105 $80 $100

Montana $85 $105 $80 $100

(03-19-16) SPECIAL PN

Revised (05-21-20) SPECIAL PN 
HB-1-3555

Attachment 18-E 

Page 6 of 6

Nebraska $85 $105 $80 $100

New Hampshire $100 $120 $95 $115

New Jersey $100 $120 $95 $115

New York $100 $120 $95 $115

North Carolina $85 $105 $80 $100

North Dakota $85 $105 $80 $100

Ohio $85 $105 $80 $100

Oklahoma $85 $105 $80 $100

Oregon $100 $120 $95 $115

Pennsylvania $95 $115 $90 $110

Rhode Island $100 $120 $95 $115

South Dakota $85 $105 $80 $100

Tennessee $85 $105 $80 $100

Vermont $100 $120 $95 $115

Virginia $95 $115 $90 $110

Washington $100 $120 $95 $115

West Virginia $95 $115 $90 $110

Wisconsin $85 $105 $80 $100

Washington DC $95 $115 $90 $110

State or Territory Initial Cut

(1 - 10,000 sf)

Initial Cut

(10,001 sf - 

20,000 sf)

Re-cuts

(1 - 10,000 sf)

Re-cuts

(10,001 sf - 

20,000 sf)

MARCH 1 TO NOVEMBER 30: TWICE PER MONTH

 

 

Alabama $70 $90 $65 $85

Georgia $85 $105 $80 $100

Louisiana $85 $105 $80 $100

Mississippi $85 $105 $80 $100

South Carolina $85 $105 $80 $100

Texas $85 $105 $80 $100

JUNE 1 TO SEPTEMBER 30: TWICE PER MONTH

Alaska $100 $120 $95 $115