2.1

OVERVIEW

This chapter highlights roles and responsibilities of the Indian tribe for the participation in the Section 184 Indian Loan Guarantee Program. While this guidebook contains procedures only for the Section 184 program, in conjunction with the One Stop Mortgage initiative, please note this chapter also references other insurance programs sponsored by the U. S. Department of Housing and Urban Development (HUD), U. S. Department of Agriculture’s Rural Housing Service (RHS) and U. S. Department of Veterans Affairs (VA). The Federal Agencies noted have prepared this document as a guide to aid Indian tribes in obtaining the approval of the Agencies for participation in each of their programs. A list of approved tribes under Section 184 can be obtained from the Program ONAP or at www.codetalk.fed.us/loan184.html.

General. Due to the unique legal status of Indian trust land and restricted land, it has been difficult for Native Americans to achieve homeownership utilizing financing provided by private lending institutions. In general, trust land means land in which the title is held in trust by the United States for the benefit of an Indian or Indian tribe, and it is inalienable. Trust lands also include lands to which the title is held by an Indian tribe subject to a restriction against alienation imposed by the United States. Because of the difficulty in obtaining a security interest in individual plots, conventional mortgage lending practices have not traditionally operated in this forum. This has resulted in a reluctance of financial institutions to offer their mortgage loan products where Indian trust land is involved. This same reluctance has also applied to restricted land where the title is held by an individual Indian or tribe and which can only be alienated or encumbered by the owner with the approval of the Secretary of the Interior.

1. Legal and Administrative Framework. For tribal members to participate in the federal government sponsored mortgage loan programs, the tribe must demonstrate that a legal and administrative framework exists that is sufficient to protect the interests of the borrower, the lender, and the federal agency, which will guarantee or insure the mortgage loan. To establish this legal and administrative framework, tribes must have adopted foreclosure, eviction, and priority of lien procedures that will apply to these loans whenever the tribal court has legal jurisdiction.

   The legal and administrative framework addresses four key procedures: (1) foreclosures, (2) evictions, (3) priority of lien procedures, and (4) leasing procedures for tribal trust land. Appendix 2 provides model tribal mortgage lending ordinances, which may be utilized by a tribe or may serve as a guide. Use of this model will be deemed acceptable for program compliance by all of the federal agencies noted above. If a tribe adopts a legal and administrative framework which differs from these model documents, it will be necessary for the tribe to seek approval, in a separate process, from each of the Federal agencies noted.

2. Tribal Commitment to Enforcement. A tribe with tribal court jurisdiction must also demonstrate its support of one (or more) of these programs by notifying at least one of these federal agencies, that the tribe has enacted the required legal procedures and that it will enforce these procedures. (See Paragraph 2.2a. below.)

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2.2

FORECLOSURE AND EVICTION PROCEDURES

Foreclosures and evictions will be processed through the legal system having jurisdiction over the mortgage loans. This may include federal, state, local, or tribal courts.

1. Enactment of Tribal Procedures. A tribe may enact foreclosure and eviction procedures via tribal council resolution or any other recognized legislative action. To be considered valid, these procedures must be legally enforceable.
2. Required Provisions. To preserve tribal autonomy in the governing process, the federal agencies noted above will not prescribe a format or specific wording for foreclosure and eviction procedures. However, all foreclosure procedures must enable the lender and/or the Federal agency which has made, insured or guaranteed the mortgage loan, to take possession of the property in the event that three or more complete monthly mortgage installments are due and unpaid, or the Borrower has failed to perform any obligation under the Mortgage. All eviction procedures must allow for expedited removal of the delinquent household residents from occupancy.
3. Sample Documents. A tribe that does not currently have foreclosure and eviction procedures may utilize the model language, which is attached, or may contact other tribes to obtain procedural options.
4. Failure to Enforce. Each of the Federal Agencies noted above has different authority to take action in the case of a Tribe, which does not enforce its established eviction and foreclosure requirements. For information on the action to be taken, contact the appropriate Federal Agency directly.

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2.3

LIEN PROCEDURES

Mortgages guaranteed under the following programs must have a first lien position on the property. Those programs are: HUD Section 184, HUD Section 248, and USDA Section 502 Guaranteed. Under the USDA Section 502 Direct program, the loan may be subordinated under certain circumstances (contact the USDA’s Rural Housing representative for further information) enforcement will be processed through the appropriate federal, state, local or tribal system. The lender responsibility is only to verify that the Tribe has adopted the model procedures and is approved by the Federal Agency guaranteeing or insuring the mortgage.

1. Enactment of Tribal Lien Procedures. To ensure that each direct, guaranteed or insured mortgage holds a first lien position, each tribal government must enact a law that provides either:
1. For the satisfaction of HUD, VA, or USDA direct, guaranteed or insured mortgages before other obligations (except tribal leasehold taxes assessed after the property is mortgaged); or
2. That state law shall determine the priority of liens against the property. If a reservation spans two or more states, the state in which the property is located is the applicable state law.
2. Format. The federal agencies noted above will not prescribe a specific format for adopting lien requirements.
3. Failure to Enforce. If any of the Federal Agencies issuing loans, guarantees or insurance within the jurisdiction of an approved tribe determines that the tribe does not enforce adopted lien enforcement or eviction procedures, that Agency will notify the other Federal Agencies of such non-enforcement. Each Federal Agency will take appropriate action in accordance with paragraph 2.2d, above.
4. Recordation. On tribal trust or other federally restricted land, liens shall be recorded by filing with the Land Titles and Records Office at the BIA and may also be recorded with the tribe in accordance with local ordinances/resolutions if appropriate. Section 248 requires recording with the State (if available). On fee simple land, liens shall be filed with the State or County recording system having jurisdiction over the property.

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2.4

LEASING TRIBAL TRUST LAND

To receive a loan guarantee/insurance on tribal trust lands, the borrower must establish a leasehold interest in the land on which the home will be located.

1. Leasehold Documents. Appendix 2 provides a standard lease form that has been approved by the BIA, HUD, USDA and VA for use on tribal trust land. This sample lease form contains certain provisions that are required to be included in leases for trust and restricted land used as collateral for the loan programs administered by these agencies.
2. Lease Modifications. The tribe may request modification to the lease. Modifications to the standard lease form are made by rider and require the approval of BIA and the federal agency, which is proposed to make, guarantee, or insure the loan. No lease modification may serve to obstruct the right of any of the Federal Agencies or the lender to evict the borrower or foreclose on or sell the property in the event of default.
3. Parties to the Lease. The lease must be executed by the tribe (Lessor) and borrower (Lessee) and approved by the Secretary of the Interior prior to issuance of a firm commitment/lender approval.
4. Leasehold Payments. The amount of the lease rental is negotiable between the Indian tribe (Lessor) and borrower (Lessee) subject to the approval of the Secretary of the Interior.
   1. The lease rental and provisions for increases in the rent will be a consideration of the lender in determining the mortgage amount for which the borrower qualifies.
   2. The tribe must notify the lender of lease rental payments and/or taxes. Except for mortgages insured under 248, the lender may require that the lease payments be made through the lender, as is typically done with local property taxes. If the tribe wishes, tribal tax liens resulting from that portion of the unpaid leasehold payments applicable to tribal taxes may be recorded in the state recording system. The tribe may also intervene in any foreclosure proceeding to ask that the taxes be paid.
5. Lease Transfers and Assignments. The tribe must approve all transfers or assignments of the leasehold interest, except at foreclosure and as otherwise provided in the lease.
6. Lease Status at Foreclosure. The Federal Agency, which made, insured or guaranteed the mortgage loan, or the lender may assume title to the leasehold interest without tribal approval of such transfer. However, anyone who subsequently purchases or rents the leasehold property must be approved by the tribe, except as otherwise provided in the lease.
7. Termination. The lease may not be terminated while the federal loan, guarantee or insurance is in effect without the approval of the applicable Federal Agency. Likewise, in the event of foreclosure, the lease will not be subject to any forfeiture or reversion and will not be otherwise subject to termination.

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2.5

MORTGAGING ALLOTTED TRUST LANDS

1. General. Unless otherwise approved by the applicable Federal Agency, owners of undivided interests cannot mortgage trust property.
2. Mortgages on Allotted Trust Land. The allottee or owner of the individual trust may choose to mortgage the land and consequently risk permanent loss of the land in the case of default and subsequent foreclosure. Allottees or owners of an individual trust are permitted to mortgage properties with the approval of BIA. If foreclosure occurs on mortgaged allotted trust land, the title to the land is removed from trust status. In general, Mortgages/Deeds of Trust must be approved by the BIA, and should include a 483b rider (for Section 184 it should include a Section 184 Rider (See Appendix 4) for allotted land when no lease is involved). The HUD Section 248 program is not available on allotted trust lands.
3. Fractionated Ownership. It is common for allotted trust lands to be owned by several individuals. If a prospective borrower proposes to use trust or restricted land in which he or she owns an interest, he or she must acquire a lease from all of the co-owners (this action may require the individual to pay a rental to the co-owners) and approval of the lease by the Secretary of the Interior.

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2.6

TRIBAL APPLICATION AND APPROVAL

Before a lender may process a mortgage loan application where a guarantee/insurance is proposed under a program sponsored by either HUD, USDA or VA, or a Federal Agency may process a direct loan application, a tribe with tribal court jurisdiction over that property must provide the applicable Federal Agency with a copy of its foreclosure, eviction and priority of lien ordinances and its lease. If an Agency approves the tribe’s ordinances and lease, it will execute a Memorandum of Understanding (MOU) with the tribe (Appendix 2). A copy of this MOU will be furnished to the other agencies. If a tribe’s documents do not follow the basic intent and requirements of the model documents, which are contained in Appendix 2, the tribe will need to seek approval of HUD, VA and USDA individually, in order to participate in each of their mortgage loan programs.

1. Notice Content. Appendix 2 includes a checklist of those items necessary in order to receive Agency approval. To obtain approval, the tribe’s submission must provide evidence that it:
1. Will ensure that the Federal Agencies and private lenders have access to tribal lands for the purpose of servicing and evaluating properties securing direct, guaranteed or insured mortgages.
2. Has enacted foreclosure procedures.
3. Has enacted eviction procedures.
4. Understands that if eviction and foreclosure procedures are not enforced, all of the Departments noted may cease making, guaranteeing or insuring new loans within their area of jurisdiction pursuant to paragraph 2.2d of the Model Procedures.
5. Has adopted procedures giving the Federal Agency first lien priority (where applicable) or otherwise ensuring that the direct, guaranteed, or insured loan will be satisfied before all other property debts (excepting tribal taxes); or has adopted legislation stating that it will abide by applicable state or local laws with respect to lien priority.
2. Notification Process:
1. Tribe sends to either HUD, USDA or VA, the items noted in the checklist at Appendix 2.
2. It is not necessary for a tribe to obtain approval from the applicable Federal Agency for each new direct, guaranteed or insured loan once a tribe has executed a Memorandum of Understanding (MOU) with that Federal Agency. Any Federal Agency initially approving a tribe will provide copies of the executed MOU to the other Federal Agencies. The tribe’s executed MOU will be kept on file by each of the Agencies.
3. Upon receipt of a borrower application, lenders may call the Program ONAP or visit our website to determine whether a given tribe is ready to participate in the loan program(s). The lender should also ask the tribe to submit a land status form, which will provide the lender and Department with confirmation of the land status (tribal trust, allotted trust or fee simple within the tribe’s jurisdiction).

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2.7

LAND STATUS NOTIFICATION

When the lender requests a Section 184 case number from HUD, the lender must provide HUD the land status (trust, allotted or fee simple) and the court system (tribal or state) that has jurisdiction over the property. Lenders may contact the Program ONAP for assistance.