8.1

OVERVIEW

This chapter explains the processes by which a lender must service Section 184 loans. In order to service these loans, a lender must meet the qualifications of Chapter 3, Lender Participation.

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8.2

GENERAL SERVICING RESPONSIBILITIES

1. Objectives. All servicing policies are directed toward achieving the following basic objectives:
1. Implementing the national housing goal of "a decent home and a suitable living environment for every American family";
2. Protecting HUD’s interest in the guaranteed loan by minimizing the probability of the mortgage terminating in default and foreclosure and by minimizing HUD’s loss where claims cannot be avoided;
3. Encouraging private investment in HUD guaranteed home mortgages at the lowest effective cost to mortgagors; and
4. Assuring an adequate standard of fair dealing among all participants in a HUD guaranteed mortgage transaction.
2. Mortgagee responsibilities. Mortgagees must consider the comparative effects of their various actions, and must take those actions, which can reasonably be expected to generate the smallest financial loss to the Department. Many complex servicing problems arise from irregular employment, low income, and a general lack of financial management experience. Mortgagees are expected to adopt a flexible servicing program that recognizes differences in mortgagors’ individual characteristics and circumstances in order to minimize any adverse effects of these problems.
3. File Retention. Servicing Mortgagee. All servicing files (including the loan origination documents) must be retained for a minimum of the life of the mortgage plus three years. Upon verbal or written request, the mortgagee shall make available to HUD staff legible hard copies of all servicing information as well as the entire loan origination file within 24 hours.

Documents that must be kept in their original form include:

1. The mortgage note.
2. The mortgage instrument and riders.
3. The loan guarantee certificate.

All other documents can be stored in whatever manner the servicing lender determines. However, all documents must be able to be reproduced into a legible hard copy.

4. Transferring Loan Files. Upon the transfer of servicing and/or the sale of a mortgage, all servicing records are to be transferred to the new servicer or mortgagee. It is the responsibility of the acquiring mortgagee to obtain the complete loan file including all loan origination and servicing records.

Whenever servicing is transferred, the transferring servicer shall notify or arrange to notify the mortgagor in a mailing that reaches the mortgagor no later than 10 days before the due date of the first payment to the new servicer. This notice shall include the name, address, and telephone number of the new servicer and include any special instructions for handling payments during the conversion period.

The mortgagee transferring the servicing of a 184 loan is to notify the Program ONAP of the change in servicer no later than 30 days after the due date of the first payment to the new servicer. A sample format for this notification and the information needed is in Appendix 4, Change in Servicing Lender.

5. Location and Staffing. Servicers are not restricted to geographic areas when servicing Section 184 loans. They must, however, establish adequate facilities to assure that mortgage loan information is promptly made available to mortgagors and HUD staff when needed. The office must be sufficiently staffed with trained personnel competent in all aspects of mortgage servicing. Mortgagors must have access to a toll-free telephone number and/or a collect-calling service.

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8.3

ESCROW ACCOUNTS AND FEES

1. Escrow accounts. Mortgagees must establish escrow accounts and require that mortgagors make monthly payments to ensure that funds will be available to pay taxes (if applicable), special assessments (if applicable) and insurance premiums when they come due. Escrow funds shall be used only for the purpose for which they were collected.

The establishment and maintenance of the escrow account must meet the requirements of the Real Estate Settlement Procedures Act (RESPA). This includes the analysis of the account and annual notification to the mortgagor of the status of the account.

2. Payment of Bills and Taxes from Escrow Accounts. It is the mortgagee’s responsibility to make disbursements as bills become payable even if it requires the advancing of corporate funds where escrow deposits are inadequate to meet these obligations. Penalties for late bill payments shall not be charged to the mortgagor unless it can be shown that the late payment was the result of the mortgagor’s error or omission. Property taxes are generally not due and payable on trust land. It is the mortgagee’s responsibility to ensure that taxes are not escrowed for on those loans where not applicable.
3. Fees After Endorsement. After the Section 184 loan is endorsed, lenders may find that they have certain operating or administrative expenses. Some of these expenses are permitted to be charged to the borrower. All fees charged after endorsement must be:
1. Reasonable and customary for the area of the country.
2. Based on the actual cost of the work performed (including actual out-of-pocket expenses).
3. Within the maximum amount allowed by HUD.
4. Allowable Fees.
1. Late Charges. Late fees may be charged as allowed by the security instrument.
2. Processing and Reprocessing of Checks. Lenders may charge fees for checks, which have been returned as uncollectible twice.
3. Processing Assumptions. Processing fees for assumptions must be based on the lender’s actual cost. For an assumption with release of liability where a credit check is required, the maximum fee is $500.

   In addition the lender may charge:

   • For the required credit report or verification of employment. The allowable fee is limited to the actual cost for the service provided.
   • To execute additional release of liability forms. If a co-borrower or former borrower requests an additional copy of the Approval of Purchaser and Release of Seller Form (HUD Form 92210.1), a maximum of $45 may be charged. Lenders may not charge for the copy of HUD Form 92210.1 that is completed when credit-worthiness is reviewed. That amount is included in the $500 noted above.

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8.4

ASSUMPTIONS

1. Eligibility. The security instrument utilized by the lender must note that the 184 loan may be assumed by a qualified borrower. Borrowers who wish to assume a guaranteed loan must qualify under the existing Section 184 Loan Guarantee guidelines outlined in Chapter 5 of this guide. At the time of application for such a transaction, the borrower and lender must submit all of the information listed in Chapter 5 to HUD for review. Borrowers may not assume Section 184 loans without prior HUD approval.
2. Release of Liability. All Section 184 loan assumptions include a release of financial liability for the seller. In order to execute this release, HUD’s standard liability release form (HUD 92210.1) may be completed and signed at closing. Lenders may use other formats to execute the release of liability. HUD will not issue a new guarantee certificate; however, the borrower of record will be changed to reflect the new borrower when the closing documents and release of liability are received.

   In addition, the leasehold document must be revised. The lender will provide a copy of the release of liability/transfer of deed and assignment of lease to BIA. The Bureau will record these changes in accordance with current Bureau policies and practices. BIA must provide a copy of an executed approved assignment of the lease to the lender. The lender will submit a copy of the final assumption closing documents to HUD as notification of assumption completion.

3. Tribal Involvement. On tribal trust land, the lease document may require that the tribe approve the assignment of the lease by the new owner. Lenders should not proceed to closing on the assumption until and unless the tribe has assigned the leasehold to the new borrower, and it has been approved by BIA.
4. Down payment. A down payment is not required on assumption if the owner is willing to sell the property for the outstanding indebtedness. If the seller is charging a higher price, the buyer must make up the difference between the purchase price and the outstanding Section 184 debt. Any secondary financing used to make up this gap must be in a second lien position and will be included in the assessment of the borrower’s ability to afford this home.

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8.5

PREPAYMENT AND SALES

1. Prepayment. Prepayment is permitted. No penalty will be charged. The security instrument and any applicable riders utilized by the lender must reflect these provisions.
2. Sales. Under the Section 184 Program, homeowners have the right to sell their property voluntarily at whatever price is offered by a buyer. All increases in value and/or return on equity are the sole possession of the homeowner and no resale restrictions apply to the price of the home. In addition, there are no restrictions regarding the credit and income of the secondary buyer unless that buyer wishes to purchase the property with a Section 184 loan or wishes to assume the existing Section 184 loan.

However, as noted in Chapter 1 of this guide, the sale of properties located on tribal trust land must be approved by the tribe via the leasehold process. In addition, BIA must approve the transfer of the leasehold for tribal trust and then approve the mortgage on individual allotted trust lands.

3. Notice to HUD. In the event of a sale and/or loan payoff, the lender must notify the Program ONAP in writing.

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8.6

DELINQUENT SERVICING

1. Collection Activities. The purpose of all collection efforts is to bring a delinquent mortgage current in as short a time as possible, to avoid foreclosures to the extent possible, and to minimize losses. A successful servicing strategy treats each delinquent mortgagor individually; and based on the circumstances involved, custom tailors a foreclosure prevention workout plan that will be successful in curing the delinquency and preventing a foreclosure.

An early determination of the reason for the delinquency gives the servicer and the mortgagor time to arrange an acceptable method for curing it. Prompt action is required at all stages after a delinquency has occurred. Mortgagee staff should also review each loan in default to determine which available loss mitigation strategy is appropriate.

2. Definitions.
1. Payment Due Date. Payments on Sections 184 mortgages are always due on the first day of the month.
2. Delinquent Account. When a payment is not made on or before its due date, the account is considered delinquent. It remains delinquent as long as one payment remains due but unpaid.
3. Default. Default occurs when a borrower is 30 days past due on his/her mortgage payments or construction loan agreement.
4. Date of Default. The exact date of default is calculated by determining the due date of the oldest unpaid installment after all partial payments have been applied. The date of default is 30 days after the due date of the oldest unpaid installment.
3. Partial Payments. A "partial payment’ is a payment of any amount less than the full amount due under the mortgage at the time the payment is tendered, including late charges and amounts advanced by the lender on behalf of the borrower (such as for the payment of taxes).
1. Default. If the borrower pays a portion of an unpaid installment, the date of assignment and/or foreclosure action is advanced. For example, if installments are unpaid for January, February, and March and the borrower makes a partial payment on the January installment, three complete and unpaid installments will not occur until the April payment is due and unpaid.
2. Acceptance of Partial Payments. The lender shall accept any partial payment and either apply it to the borrower’s account or identity it with the borrower’s account and hold it in a trust account pending disposition.

When partial payments held for disposition aggregate to a full monthly installment (after deduction of amounts due the lender for such things as late charges and refunds of borrower advances), they shall be applied to the borrower’s account, thus advancing the date of the oldest unpaid installment but not the date on which the account first became delinquent.

NOTE: While the date of default is advanced by the application of partial payments aggregating full monthly installments, the date on which the delinquency began remains constant unless the account is subsequently brought completely current.

3. When Return of Partial Payments is Permitted.
1. If the mortgage is not in default , any partial payment may be returned to the mortgagor with a letter of explanation.
2. Mortgages in Default . If the mortgage is in default except as provided in Paragraph 8.6c(4), a partial payment may be returned to the mortgagor with a letter of explanation only under the following circumstances:
   • When the payment represents less than half of the full amount then due;
   • When the payment is less than the amount agreed to in an oral or written forbearance plan;
   • When the property is occupied by a rent-paying tenant and the rents are not being applied to the mortgage payments;
   • When foreclosure has been started;
   • When the following conditions have occurred and it is 14 days or more after the lender has mailed the borrower a statement of the full amount due, including late charges, which advises that it intends to refuse to accept future partial payments:
   • Four or more full monthly installments are due but unpaid; or
   • A delinquency of any amount has continued for at least six months since the account first become delinquent.
4. When Partial Payments Rules on a Defaulted Mortgage Need Not Be Enforced. The rules cited are not intended to provide borrowers with an opportunity to evade their obligations, but, rather, to assist owner-occupants who are actually having temporary problems in making their payments. A possible exception in which the rules cited above in Paragraphs 8.6c(l), (2) and (3) on accepting partial payments on a defaulted mortgage need not be enforced is when the borrower has demonstrated a general disregard for the obligations created by the mortgage contract (i.e., a situation where the account has been delinquent for up to 6 months on at least two consecutive occasions, been reinstated, then reverts back to a delinquent status which continues for 6 additional months).
4. Counseling. Indian families who are Section 184 homebuyers are eligible for counseling by HUD-approved counseling agencies. If the property is in a location where there is no HUD-approved counseling agency within a reasonable distance to the mortgagor, the lender may contact the Tribe or HA and determine if the HA has a staff member trained in housing counseling. If this is available, the mortgagor may be referred to the HA staff to satisfy this requirement. Lenders may not begin the foreclosure process or request that HUD accept assignment of a defaulted Section 184 mortgage unless and until the lender can document that it has met the requirements of this paragraph.
5. Notices to the Homebuyer. Lenders are expected to follow standard, conventional market practices for reminder notices to borrowers regarding late mortgage payments. At a minimum, lenders must provide:
1. The Borrower Information Packet is sent to the borrower between the 35th and the 45th day of delinquency. The packet indicates the mortgage status and describes the actions necessary for the borrower to cure the default. This packet provides the borrower with: (1) an 800 number the borrower may contact to get a list of counseling agencies; or (2) a list of such agencies. The Borrower Information Packet contains:
• The Borrower Information Packet Cover Letter (see Appendix 4) or you may design your own initial letter containing the same basic information including a toll free number for homeowners to contact the lender.
• How to Avoid Foreclosure pamphlet HUD PA-426 (May 1997)
• The toll free number for Housing Counseling Agencies (1-800-569-4287), TDD number (1-800-877-8339)
2. If telephone calls by the lender fail to be effective, the lender will send a written notice requesting/arranging a face-to-face interview with the borrower to discuss the mortgage status. See section 8.6f below.
6. Face-to-Face Interview. Before the borrower has missed 3 monthly installments and prior to beginning any foreclosure or assignment activity, the lender must have a face- to-face interview with the borrower, or make a reasonable effort to arrange such a meeting. The purpose of this meeting is to ascertain the causes of the late payments, provide the household with information about its mortgage status, and determine what — if any — actions will be possible in order to restore the status of the mortgage. It is preferable that the face-to-face meeting occurs early in the delinquency, giving the borrower sufficient time to contact the counseling resources offered to him/her. Under no circumstances may the lender request assignment or initiate foreclosure unless the borrower has had at least fifteen (15) business days from the date of the face-to-face interview to contact the listed counseling resources.
1. A reasonable effort to arrange the face-to-face meeting must include at least one trip to see the borrower at the mortgaged property if the property is not more than 200 miles from the lender, its servicer, or a branch office of either.
2. The lender must document that it has made at least one telephone call and sent one letter to the borrower for the purpose of trying to arrange or confirm a face-to-face interview. Such letters must be sent certified mail (or other comparable method).
3. The lender may appoint an agent to perform the services of arranging and conducting the meeting. The agent may be either a private contractor or a qualified staff person from the IHA or Tribe.
4. Face-to-face interviews are not required when:
1. The mortgagor does not live in the mortgaged property;
2. There is no office (or branch office) of the mortgagee or servicer within 200 miles of the mortgaged property and no agent or staff member from the IHA/TDHE is available for that area;
3. The mortgagor will not cooperate; or
4. If an agreement has been reached on a repayment plan by mail (or telephone) and payments under the plan are current or are less than 30 days delinquent.
5. The mortgagor is an Indian Housing Authority or an Indian Tribe.
5. During the face-to-face interview, the lender/holder of the certificate must:
1. Advise the borrower that information regarding the loan will be given to credit bureaus.
2. Advise the borrower of the availability of homeownership counseling as required by section 106(c)(5) of the Housing and Urban Development Act of 1969 (12 USC 1 70/x(c)(5)). Provide a list of counseling agencies located within the area. If the area is rural, and no counseling agencies exist, the lender may refer the household to the nearest metropolitan area with such assistance or to a trained counselor at the IHA/TDHE, if available.
3. Advise the borrower of other available assistance including any assistance available from the borrower’s tribe or IHA/TDHE.
4. Notify the borrower that if the mortgage remains in default for more than 90 days, the lender will ask HUD to accept assignment of the mortgage or will initiate foreclosure proceedings.
5. Notify the borrower of the qualifications for forbearance relief from the lender. HUD strongly encourages the lender to enter into a forbearance arrangement in order to cure the default (see Repayment Plans below).
6. Notify the borrower of their ability to sell their home to avoid foreclosure. HUD 184 does not have a structured pre-foreclosure sale program; however, the option to do a short sale is available on a case-by-case basis with Program ONAP approval.
7. Loan Modification. The lender may evaluate the borrower’s ability to enter into a loan modification plan to cure the default. The Program ONAP must approve any loan modification.
8. Repayment Plans. The lender must evaluate whether the borrower has the capability to reinstate the mortgage and must discuss the possibility of a repayment plan with the borrower. If the lender’s analysis indicates that the delinquency is a short-term problem, the lender is strongly encouraged to arrange a repayment plan with the borrower. While the lender is not required to accept or develop such a plan, HUD’s review of a mortgage assignment will consider whether the lender has made a good faith effort to assist the borrower to cure the default.

   If the borrower defaults under a repayment plan arranged other than by a personal interview, the lender must have a face-to-face interview or attempt to arrange such a plan. This meeting must occur within 30 days after the default and at least 30 days before assignment is requested or foreclosure initiated.

   The actions listed above represent the minimum level of information that must be provided to the borrower. Lenders are strongly encouraged to provide delinquent borrowers with on-going and complete information through a variety of mechanisms (letters, phone calls, in-office meetings, etc.). If a given lender uses a standard default notification system/ methodology that significantly differs from the one presented herein, that lender may contact the Program ONAP for review and approval of the system prior to sending any information to a delinquent household.

9. Notice to HUD. The lender must provide written notice to the Department when a borrower has missed 3 complete monthly installments. A sample format of the information to be reported is in Appendix 4, 90 or More Days Delinquent Notice. This notice should be sent to the attention of the Director, Office of Loan Guarantee, Program ONAP.
10. End of Quarter Reporting. A Section 184 servicing lender is required to submit to HUD’s Program ONAP (or their designated representative), the following information on each 184 loan within two (2) working days after the end of each quarter (January, March, June and September):
1. Borrower’s Name
2. 184 Case Number
3. Unpaid principal balance as of the end of the quarter
4. Next payment due date (for example, if current as of December 31, the next payment due date would be January 1)
11. Notice of Intent to Foreclose (NOI)/Acceleration Notice. If the borrower is unable to enter into a forbearance agreement with the lender, is unable to cure the default and does not wish to pursue the sale of the property or other loss mitigation, the lender will issue an NOl (the borrower must have missed at least 3 complete installments). This notice must be sent whether the mortgage will be assigned to HUD for foreclosure or the lender will foreclose. The NOI must be delivered by certified mail and regular mail. If the NOI expires without the default being cured, the lender may proceed. If the property is located on trust land, the lender must review the lease document to ensure (if required under the lease) the Right of First Refusal Letter has been sent to the Lessor and the time frame for exercising this option has expired. The lender may then proceed with foreclosure and/or assignment, as applicable.
12. Claim Options. If the borrower is unable to cure the default the lender/holder of the certificate may initiate foreclosure proceedings in a court of competent jurisdiction or per the terms of the Deed of Trust or, the holder of the certificate may assign the mortgage to the Department for a full 100 percent payment of the pro rata portion of the amount guaranteed plus reasonable fees and expenses as approved by the Secretary.

    It is the lender/holder of the certificate’s decision whether to initiate foreclosure or request assignment of the mortgage to HUD; however, the Department may request the lender to proceed with foreclosure when the property is located on fee simple land. Both options are outlined in Paragraphs 8.8, 8.9 and 8.10.

13. Credit Bureau Reporting. Ensure that the account has been accurately reported to the National Credit Information repositories in accordance with FNAM’s guidelines. Claims are to be reported to the Credit Alert Interactive Voice Response System (CAIVRS). If the lender is pursuing a foreclosure, upon completion, they will also be required to report the claim to CAIVRS.

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8.7

PRESERVATION AND PROTECTION OF PROPERTY

The lender is responsible for taking reasonable actions to protect the value of the security until title can be conveyed to HUD or the mortgage assigned to HUD.

1. Lenders are expected to exercise the same level of diligence and prudence to protect and preserve 184 loan guaranteed properties that would be provided if they could look only to the security for recovery. Reasonable action must be taken to protect and preserve properties again potential damage or to stop progressive deterioration until conveyance or assignment to the Department, if such action does not constitute illegal trespass. If a property is damaged because of the lender’s failure to take reasonable action to preserve and protect or initiate foreclosure, the lender can be held accountable.
2. Responsibility for Damage. A vacant property must be preserved and protected while it is in the possession of the lender so that it will not be damaged at the time of conveyance or assignment. A prudent mortgagee will preserve and protect a vacant property to avoid potential damage to the property and avoid potential surcharges to the claim. The Department will reimburse the lender for required preservation and protection cost, customary for the region, when these expenditures are adequately documented and properly completed.

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8.8

LENDER INITIATED FORECLOSURE

1. Commencement of Foreclosure Proceedings. Foreclosure (or assignment) proceedings may not begin until at least 3 complete monthly installments due on the mortgage are unpaid and the NOl and/or Right of First Refusal Notice have expired. For example, if a borrower misses his/her payment in January, February and March, the lender will not begin foreclosure or assignment proceedings until the day after the March payment was due (March 2nd) and the subsequent NOI and/or Right of First Refusal have expired. In addition, foreclosure may not begin until the lender has made a reasonable effort to work with the borrower to clear the default and has provided the borrower the required counseling. See paragraph 8.6 for more information.

The holder of the certificate must initiate the foreclosure action in the court of competent jurisdiction or nonjudicially, if applicable.

1. Court of Competent Jurisdiction. On tribal trust or allotted lands where a tribal court system exists, that court system will typically have jurisdiction. On fee simple land, the court of jurisdiction will typically be the state. On tribal trust/allotted land without a tribal court system, as well as fee simple land, lenders should refer to the land status form filed at the time of the initial application. In addition, the lender/holder of the certificate may wish to contact the tribe, Program ONAP or private legal counsel for additional information and advice.
2. Action Upon Final Court Order. Upon final court order authorizing foreclosure, the lender/holder of the certificate may either: (1) resell the property and use said proceeds to extinguish the mortgage debt; or (2) convey title to the Department and submit a claim for a 100 percent payment on the pro-rata amount remaining under the guarantee.
2. Resale After Foreclosure. Resale of the property is subject to the non-alienation policy outlined in paragraph 1.3g. The holder of the certificate is free to resell the property at whatever sales price is negotiated, if a suitable purchaser is found. The method of this sale is left to the discretion of the lender and/or court system overseeing the foreclosure (i.e. individual sale, auction, etc.). On tribal trust land, lenders should consult with tribes prior to executing a foreclosure sales contract in order to ensure that the necessary leasehold documents will be approved.
1. The resale proceeds must be used to pay off the outstanding Section 184 guaranteed mortgage debt. Upon receipt of the resale proceeds, the lender/holder of the certificate must send a letter to the Department and the settlement statement from the sale in order to close out the Section 184 guarantee certificate. This information should be submitted to the Department within ten (10) days of closing the sale. If the proceeds of sale are insufficient to cover the existing Section 184 mortgage debt plus the lenders reasonable fees and expenses related to the foreclosure, the lender should submit a claim to the Department for the remaining debt and 100 percent payment of such costs under the guarantee. Upon payment of such costs by the Department, the loan guarantee is extinguished.
2. Any excess proceeds (amounts above and beyond that which is needed to extinguish the Section 184, and all other mortgage/property debt) due to the foreclosure sale shall be the sole property of the lender/holder of the certificate and shall not be restricted as to its use. Subject to state or tribal laws, neither the Department nor the borrower shall have a claim upon these funds.
3. Under this option, the lender is responsible for ensuring that the defaulted household is evicted under an order from a court of competent jurisdiction.
3. Conveyance of Property After Foreclosure Action. Rather than selling the property itself, the lender may elect to convey title to the property to the Department after the foreclosure action is complete and marketable title is obtained. The Department will make a payment to the lender and HUD will be responsible for selling the foreclosed property to the subsequent homebuyer.
1. Amount of Payment. The Department will pay the lender/holder of the certificate 100 percent of the remaining portion of unpaid obligation under the loan agreement. In addition, the Department will reimburse the lender/holder of the certificate for reasonable fees and expenses incurred during the foreclosure action as approved by the Secretary. Foreclosure action by the servicer must be timely to ensure full payment on the guarantee. If foreclosure is not completed within one year of default, an extension must be approved by the Program ONAP to avoid curtailment of interest on the claim.
2. Process. The lender must convey the property to the Secretary within 30 days after acquiring possession of marketable title to the property and submit the following to the Program ONAP in order to receive payment on the certificate. Any time extension must be approved by the Program ONAP:
• Request for Payment of Claim. The Single Family Application for Insurance Benefits (HUD 27011) must be completed and submitted with supporting documents. Items that reference "FHA’ or Mortgage Insurance Premium (MIP) should be substituted with ONAP and Loan Guarantee Fee (LGF). 100% of eligible expenses will be paid; therefore, debenture interest is not applicable on these items. All items applicable to submission of the claim request must be completed. The forms and items listed below must be submitted to: The Program Office of Native American Program, 1999 Broadway, Suite 3390, Denver, CO 80202, Attention: 184 Office of Loan Guarantee.
• Original guarantee certificate
• Original recorded Deed to Secretary of Housing and Urban Development
• Original Owners Title Insurance Policy to Secretary of Housing and Urban Development
• Original note and mortgage or deed
• Copies of Leasehold documents, if applicable
• Receipts for any expenses incurred
• Documentation of existing indebtedness on the property including pay history
• Servicing history

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8.9

NO FORECLOSURE OPTION

1. Under this option the holder of the guarantee may submit to HUD a request to assign the obligation and security interest to HUD in return for payment of the claim under the guarantee. HUD may accept assignment of the loan if HUD determines that assignment is in Department’s best interest. Upon assignment, HUD will pay to the holder of the guarantee the pro rata portion of the amount guaranteed, including necessary fees and expenses. Refer to Paragraph 8.10 below. If assignment is not completed within six months of default, an extension must be approved by the Program ONAP to avoid curtailment of interest on the claim.

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8.10

ASSIGNMENT OF THE MORTAGE TO HUD
(NO FORECLOSURE OPTION)

1. Statutory Authority. Authority to accept 100% payment is permitted under Section 184 if the Secretary has determined assignment to be the best interest of the United States.
2. Current Policy. The Department has determined that it is in the government’s interest to accept assignment and make 100% payment of the outstanding balance of the loan, including necessary fees and expenses. The lender needs to follow delinquent servicing procedures, (paragraph 8.6) which includes the issuance and expiration of the Notice of Intent to Foreclose/Acceleration and Right of First Refusal Letter (if applicable), and a face-to-face interview with the borrower.
3. Policy Option. The Department reserves the right to reevaluate this policy at a later date, based upon the Program ONAP’s default and underwriting history. All Section 184 guaranteed mortgages closed prior to official publication of any change in this policy will be accepted for assignment and 100% payment if they meet the above criteria.
4. Notice to Homeowner. The lender must inform the borrower in a letter delivered by certified mail or other similar method if the lender assigns the Mortgage to the Department and must provide the borrower with the Program ONAP’s address and phone number.
5. Assignment Claim Process
1. Management. The lender must have a system in place for management review of loans to assure that appropriate decisions were made and steps taken to minimize the risk of default and foreclosure, and loss to the government. The management review must take place before the NOI is issued.
2. Timing. The lender cannot proceed with assignment until all servicing requirements in Paragraph 8.6 have been complied with up to the expiration date of the NOl and/or Right of First Refusal letter. Within 30 days after the expiration of the NOI and/or Right of First Refusal Letter, the lender must submit the following to the Program ONAP in order to receive payment on the certificate. Time extensions must be approved by the Program ONAP.
• Single Family Application for Insurance Benefits, HUD Form 27011 (see paragraph 8.8c(2)
• Original guarantee certificate
• Receipts for all expenses claimed
• Previous 2 years servicing history including face-to-face interview documentation
• Pay history
• Copy of NOI and evidence of indebtedness at time of claim
• Copy of Right of First Refusal Letter, if applicable under the lease document
• Original Note endorsed to Secretary of Housing and Urban Development
• Original Recorded Deed of Trust or Mortgage
• Assignment to Secretary of Housing and Urban Development (sent for recording or recorded)
• Copy of leasehold documents, if applicable
• Original Title Policy or Title Status Report
• Lender must notify hazard insurance company that the Secretary of Housing and Urban Development is first loss payee
• Lender must notify taxing authority of the assignment to the Secretary of Housing and Urban Development, if applicable.
• Other servicing information may be requested as necessary to complete the foreclosure
3. Noncompliance. HUD cannot deny assignment due to noncompliance during the initial underwriting by lenders, if such errors were made in good faith. However, HUD will impose sanctions as necessary and permitted. See Chapter 3, paragraph 3.2 for more information.

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8.11

FORECLOSURE BY THE SECRETARY

After a property has been assigned to the department, HUD may initiate foreclosure proceedings with respect to any mortgage received under this section in a court of competent jurisdiction or non-judicially if applicable. If the borrower remains in the property following foreclosure, HUD may seek an eviction order from the court of competent jurisdiction. From an administrative perspective, such foreclosures will be handled as much as possible in the same manner as the foreclosure of other HUD-owned mortgages.

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8.12

PROPERTY DISPOSITION

After a property is in default and it is determined that the current homeowner will be unable to carry the mortgage and remain in the home, there are two options for property disposition. Under option one, the homeowner finds a secondary purchaser to buy the property prior to completion of the foreclosure. The purchaser qualifies to assume the existing mortgage or obtains other financing and the defaulted household moves out. Under the second option, the foreclosure process is completed and the defaulted borrower is evicted. The lender or HUD may then sell the property to a subsequent homebuyer. Requirements for each type of property disposition are provided below.

In the event that an acceptable buyer cannot be found, the tribe may propose a renter. However, title to such properties will remain with the Department and/or lender unless an acceptable sale can be arranged whereby the tribe or IHA purchases the property.

1. Assumption of Defaulted Property. A defaulted Section 184 property may be purchased and the mortgage assumed by any borrower meeting all of the eligibility criteria stated in Chapters 5 and 6 of this guide. Section 184 guaranteed loans may not be assumed by non-Native Americans. All of the information listed in Chapters 5 and 6 of this guide must be submitted to HUD for approval prior to the assumption.
2. Sale of Foreclosed Property. After a defaulted Section 184 property receives a foreclosure order, the Department and/or lender will also endeavor to sell the property to an eligible buyer.
1. Tribal Trust Land. As noted in paragraph 1.3g, HUD and/or the lender may not sell the property to anyone other than a Native American, Indian housing authority, or the tribe. The lease document will require tribal consent and BIA approval on the subsequent sale. HUD expects that tribes will not reject eligible borrowers except as permitted under the leasehold instrument and tribal law.
2. Allotted Trust Land. On allotted trust land, HUD and/or the lender must comply with the alienation policies stated in paragraph 1.3g and thus will only sell the defaulted property to a Native American, Indian housing authority, or tribe. The tribe may propose (although not necessarily select) the subsequent homebuyer.
3. Fee Simple Land. HUD and/or the lender may sell defaulted fee simple land to anyone. Where possible, the Department and/or the lender will consult with the tribe about the selection of the homebuyer.