www.hudclips.org _____________________________________________________________________ U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 JUN 23 1987 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 87-20 TO: ALL APPROVED MORTGAGEES SUBJECT: Claims without Conveyance of Title (CWCOT); Bidding Requirements for Foreclosure Sales A final rule published in the Federal Register on January 13, 1987, revises the procedures for the payment of claims under the Single Family FHA Mortgage Insurance program. The purpose underlying this statutory amendment is to provide a feasible system whereby foreclosing mortgagees may receive the benefits of mortgage insurance without conveying properties to HUD, thus reducing the number of single family properties which come into the HUD inventory. This rule implements Section 426 of the Housing and Urban- Rural Recovery Act of 1983, which amended Section 204(a) of the National Housing Act. These amendments to the National Housing Act authorize payment of claims for insurance benefits without conveying title of the foreclosed properties to HUD. The rule provides reasonable encouragement to third parties to acquire properties. The Department requests and encourages mortgagees to do what they can to help HUD make this program successful. Any publicity mortgagees can give the program will be appreciated. The purpose of this Mortgagee Letter is to provide mortgagees with the procedures for bidding and payment of claims under this rule. These procedures are effective for foreclosures initiated on or after August 15, 1987. However, mortgagees may follow these procedures at their option for foreclosures already in process. NOTE: This regulation also provides the mechanics, e.g., bidding procedures, reimbursement which would be used in the event that HUD and mortgagees determine that it would be appropriate to pursue deficiency judgments. Field offices can make use of these procedures in connection with pursuing such judgments even though the final regulations on deficiency judgments have not been issued. _____________________________________________________________________ 2 I. Applicable Mortgages A. Criteria for Applicable Mortgages The regulation (24 CFR 203.368 et. seq.,) applies to all Single Family FHA-insured mortgages for which a conditional commitment to insure was issued, or under the Direct Endorsement program where the property appraisal report was signed by the mortgagee's underwriter, on or after November 30, 1983. However, the mortgagee may elect to file a claim under this new provision for mortgages not meeting these criteria. Election is made by the mortgagee by giving notice of the foreclosure sale to the local HUD Office on Form HUD-91022, Mortgagee Notice of Foreclosure Sale. (See Attachment 1.) B. Phase-in Implementation It is unclear how often these procedures will prove effective in disposing of foreclosed properties without conveyance to HUD. Recognizing that there is a workload involved for both mortgagees and HUD, the Department has decided to implement the program in two phases. Initially mortgagees must use these procedures only with respect to mortgages meeting the criteria described in paragraph I. A., and where the residence is vacant or non-owner occupied. Mortgagees shall identify vacant homes and non-occupant owner(s) through sources such as, loan origination files, property inspections and collector reports. Note that mortgagors who originally purchased as owner occupants and have subsequently become non-occupant owners are included. The rights of mortgagees which do not follow CWCOT procedures because they mistakenly fail to identify a non- occupant owner shall not be adversely affected. However, such mortgagees must be prepared to provide detailed comments regarding the efforts they made to identify non- occupant owner(s). II. Action by Mortgagee A. After a six- to nine-month test period the Department will analyze the results and decide if mortgagees will be required to follow these procedures on all mortgages meeting the criteria in paragraph I. A. A subsequent mortgagee letter will announce our intentions at that _____________________________________________________________________ 3 time. In the interim, at the time of instituting proceedings to foreclose on a single family FHA-insured mortgage meeting the applicable criteria, the mortgagee must identify whether the home is vacant or if the mortgagor is a non-occupant owner. Presuming that these conditions exist, the lender must take the following steps: 1. estimate the foreclosure sale date; 2. prepare the Form HUD-91022, Mortgagee Notice of Foreclosure Sale, Part A (see Attachment 1), 45 days prior to the estimated foreclosure sale date; 3. handcarry or mail the HUD-91022 to the local HUD office Single Family (SF) Loan Management Branch 45 days prior to the estimated foreclosure sale date and label the envelope "CWCOT/Foreclosure Sale"; and 4. confirm the actual date of the foreclosure sale by furnishing a copy of the legal Notice of Sale or other notification of the actual foreclosure sale date to the local HUD office SF Loan Management Branch on or before the date of publication, posting, or other standard legal notice. Insert at the top of this notice: a. the Mortgagee Loan Number, b. FHA Case Number, and c. the Mortgagor's Name. B. When completing the HUD-91022, the mortgagee must: 1. call the Valuation Branch, Assignment Clerk, in the local HUD office which has jurisdiction over the property to obtain the name of a fee appraiser or HUD staff person, if available, to perform the appraisal. 2. insert in Part A, Block 11 of the Form HUD-91022: a. the name of the appraiser which was assigned from the panel of HUD fee appraisers or, b. "HUD Staff," if HUD staff is performing the appraisal. _____________________________________________________________________ 4 NOTE: If your State or local law or practice requires that a pre-foreclosure appraisal must be made by an independent appraiser such as one employed by the Sheriff's Office, the mortgagee shall submit that appraisal, if it is obtainable, with the HUD-91022 in lieu of requesting the HUD fee appraiser. C. Because mortgagees are "estimating" the foreclosure sale date 45 days prior to the foreclosure sale, when the mortgagee discovers, through receipt of the actual Notice of Sale, or other standard legal notice of the foreclosure sale that they have not sent the HUD-91022, the mortgagee must immediately send the HUD-91022 and the Notice of Sale to the HUD office SF Loan Management Branch. EXAMPLE: - The mortgagee estimated 45 days prior to a foreclosure sale date of July 15 and intends to submit the HUD-91022 on or a few days before June 1. - On May 20, the mortgagee receives the actual Notice of Sale or other notification of the foreclosure sale date set for June 21. - The mortgagee must submit immediately the HUD- 91O22 and the Notice of Sale or other notification on or before the date of the publication, posting, etc. of the June 21 foreclosure sale date. NOTE: Processing of the Form HUD-91022 and receipt of the Notice of Sale shall be monitored by local HUD offices. D. On the same day that the mortgagee submits the HUD-91022 to HUD, the mortgagee must: 1. forward a completed Application for Property Appraisal and Commitment, Form HUD-92800 package including a Uniform Residential Appraisal Report (URAR) to the appraiser or to the HUD Valuation Branch if HUD staff person is to perform the appraisal (URAR not required for HUD staff), and _____________________________________________________________________ 5 2. stamp the top of the HUD-92800, "PROPERTY IN FORECLOSURE". (This will serve as a "flag" to the appraiser as well as the local HUD office as to the disposition of the appraisal report.) The assigned fee appraiser will follow the outstanding instructions which require that within five (5) working days of receipt of the request that the appraiser must send: 1. the completed report to the local HUD office, Valuation Branch, and, 2. a copy of the report to the mortgagee. If a HUD staff person is used, the mortgagee will send the Form 92800 to the local HUD office Valuation Branch. A copy of the completed appraisal will be provided to the mortgagee. E. If the mortgagor reinstates the mortgage after foreclosure has been instituted, the mortgagee must: 1. advise the local HUD office SF Loan Management Branch by telephone and follow up with a letter marked to the attention of the SF Loan Management Branch/CWCOT and include the FHA case number, verifying such action. 2. contact the fee appraiser to cancel the appraisal, or if HUD staff was assigned, so indicate to the SF Loan Management Branch. 3. pass on the cost for the appraisal to the mortgagor as part of the foreclosure expenses as set out in CFR 203.552(a)(9). F. If the mortgagee has any problem in arranging for the appraisal, the mortgagee must call the local HUD office, Valuation Branch advising of the problem. If necessary, HUD may assign another appraiser. _____________________________________________________________________ 6 III. HUD Office Action Upon receipt of the HUD-91022 from the mortgagee, the SF Loan Management Branch will review the form, contact the mortgagee regarding any questions about the form, log and hold the form for receipt of the appraisal report from the Valuation Branch. When the appraisal report on the property has been received from the Valuation Branch, the SF Loan Management Branch will calculate the Commissioner's Adjusted Fair Market Value (CAFMV) of the property and complete Part B of the HUD-91022. The CAFMV is discussed below in item V. The SF Loan Management Branch will provide the CAFMV to the mortgagee no later than five (5) working days prior to the foreclosure sale date. HUD will monitor the date that the CAFMV is mailed to the mortgagee. IV. Advertising Advertising will not be required by mortgagees at this time but will be addressed in a later mortgagee letter. V. Commissioner's Adjusted Fair Market Value (CAFMV) The Commissioner's Adjusted Fair Market Value (CAFMV) is the estimate of the fair market value of the mortgaged property, less adjustments, which may include, without limitation, HUD's estimate of holding costs and resale costs that would be incurred if title to the mortgaged property were conveyed to HUD. When the CAFMV is provided by HUD to the mortgagee, it must be mailed in time to be received by the mortgagee at least five working days prior to the sale. If the written notice of the CAFMV is not received at least five working days prior to the foreclosure sale date, the claims without conveyance procedure has no further application. The provisions of CFR 203.355-367 are applicable instead. However, a mortgagee which receives the CAFMV prior to the foreclosure sale may waive late receipt and elect to follow the claims without conveyance of title provisions. _____________________________________________________________________ 7 The sale shall not be postponed because of non-receipt of the CAFMV from HUD. The mortgagee simply bids as it chooses. It is expected that the mortgagee will generally bid enough to protect its investment in the property in the event it is outbid by a third party bidder. VI. Foreclosure Sale Bidding A. Where the CAFMV is provided at least five working days prior to the foreclosure sale, the mortgagee must bid that amount if it wishes to retain the option to retain or convey title to HUD and file a claim for the insurance benefits. If the mortgagee bids an amount in excess of the CAFMV, it is deemed to have made an election not to file a mortgage insurance claim with conveyance of title to the Department. NOTE: In some jurisdictions that have extraordinarily high transfer taxes, some mortgagees customarily commence the bidding at nominal amounts. Where mortgagees intend to convey title of the property to HUD, mortgagees may continue this practice. However, in the face of competing bids, mortgagees must, if necessary, bid up to the CAFMV or risk not being able to file a claim. Mortgagees are cautioned that if the property is not to be conveyed to HUD so that a Claims Without Conveyance of Title is filed, i.e., title is retained by the mortgagee, purchased by a third party bidder or redeemed, the mortgagee must bid as a minimum the CAFMV. B. There may be special circumstances, such as when the mortgagee may be required under State law to bid in excess of the CAFMV, which will justify a mortgagee's bid in excess of the CAFMV. Under such circumstances, the mortgagee should not be deprived of its ability to convey title to the property to HUD. In such case, the mortgagee must call the HUD SF Loan Management Branch, immediately after but no later than five days after the foreclosure sale, to obtain approval to convey title to the property to HUD. The SF Loan Management Branch shall verify such approval in writing to the mortgagee. The Department will waive the provisions requiring the bidding of the CAFMV and allow _____________________________________________________________________ 8 the mortgagee to convey title to the property to HUD and file a claim for the insurance benefits. The mortgagee must indicate that it received the field office approval and the date of the approval in the "Mortgagee's Comments Section" on the Claim for Insurance Benefits, Form HUD- 27011. A copy of the field office approval letter must be maintained in the mortgagee's Audit File. C. If the minimum bid required under State law is less than the CAFMV, the mortgagee will bid the CAFMV. D. If the foreclosure sale is postponed, the appraisal and the CAFMV are effective for six months. During this period, the mortgagee must notify immediately the HUD SF Loan Management Branch if its inspection of a vacant property indicates any damage to the property. The SF Loan Management Branch will advise the mortgagee accordingly. (Also, refer to page 11, item IX below regarding damaged properties.) If sales are postponed and rescheduled within the six months effective time period of the CAFMV, mortgagees need not notify HUD of the new sale date. However, if the newly scheduled foreclosure sale date is set for more than six months from the date of the CAFMV, the mortgagee must contact HUD to obtain an appraiser to arrange to get an updated appraisal and CAFMV. The mortgagee must follow the same time requirements used to get the first appraisal and add to the top of the HUD-92800 that it is an "UPDATED APPRAISAL, PROPERTY IN FORECLOSURE." VII. Acquisition of Title at Foreclosure Sale At the foreclosure sale, either the mortgagee or a third party will be the successful bidder. Also, the mortgagor or a third party may redeem the property. A. If the mortgagee is the successful bidder: 1. Where the mortgagee is the successful bidder for an amount equal to the CAFMV, the mortgagee may elect to either retain title to the property, or convey title of the property to HUD. a. When the mortgagee retains title, it must file its claim within 30 days after acquiring good, marketable title to the mortgaged property. The mortgagee may file a claim for insurance benefits as computed in CFR 203.401(b). _____________________________________________________________________ 9 b. When the mortgagee conveys title of the property to HUD, the mortgagee must transfer the property to HUD within 30 days after acquiring good marketable title to and possession of the mortgaged property, or within such further time as may be approved by the local field office. The mortgagee may file a claim for insurance benefits as computed in CFR 203.401(a). 2. Where the mortgagee is the successful bidder for an amount in excess of the CAFMV, the mortgagee is deemed to have elected to retain title to the property, and cannot convey title of the property to HUD. The mortgagee is limited to filing a claim for the insurance benefits computed as provided in CFR 203.401(b), which will be calculated on the basis of the bid amount. However, if the local HUD office approved the mortgagee's justification for having bid an amount in excess of the CAFMV as discussed on page 7, item VI B. above, HUD would waive this provision and allow the mortgagee to convey title to HUD if it so chooses. The mortgagee would file a claim for the insurance benefits computed as provided in CFR 203.401(a). Whether the mortgagee retains the property or receives approval to convey the property as set forth in item VI B. above, the mortgagee has 30 days after acquisition of good marketable title to submit its claim for insurance benefits to HUD (if any) on Form HUD-27011, Single Family Application for Insurance Benefits. If the mortgagee receives approval to convey the property as set forth in item VI B. above, "possession of" the property, as well as good marketable title, shall apply. 3. Where the mortgagee is the successful bidder for an amount which is less than the CAFMV, the mortgagee can only obtain the insurance benefits by conveying title to the property to HUD. If the mortgagee retains title to the property, the mortgagee would not be able to file a claim. _____________________________________________________________________ 10 If the mortgagee elects to convey title to HUD, the mortgagee must transfer the property to HUD within 30 days after acquiring good marketable title to and possession of the mortgaged property. The mortgagee may file its claim for insurance benefits in accordance with CFR 203.401(a), 4. If the mortgagee retains title to the property, HUD will not pay for any of the following costs incurred by the mortgagee: - Costs to maintain the property after the forclosure - sale, - Eviction costs, or - Costs to sell the property. B. If a third party is the successful bidder: 1. Where a third party is the successful bidder at the foreclosure sale for an amount equal to or greater than the CAFMV, the mortgagee must submit its claim for insurance benefits (if any) on Form HUD-27011, Single Family Application for Insurance Benefits, within 30 days after the date the third party acquires good marketable title to the property. When the claim is calculated, the proceeds of the sale shall be deducted from the principal balance of the mortgage which was unpaid on the date of the foreclosure proceedings. 2. Where a third party is the successful bidder at the foreclosure sale for an amount which is less than the CAFMV, the mortgagee will not be able to file a claim. C. If the mortgagor or a third party redeems the property: Where the mortgagor exercises the right of redemption and redeems the property or a third party redeems the property pursuant to the mortgagee or a third party bidding and acquiring title to the mortgaged property for an amount not less than the CAFMV, the mortgagee must submit its claim (if any) within 30 days after the property is redeemed. The redemption amount will be deducted from the principal balance of the mortgage when the claim is calculated. _____________________________________________________________________ 11 D. If a third party sale falls through, State laws govern disposition, i.e., readvertising the property, reverting next highest bidder, etc. Since the deed would not have been filed for record, acquisition of good marketable title would not have been obtained. The mortgagee would still have 30 days from the date where such title is obtained to file the claim. (Also, refer to page 8, item VI D. regarding postponement of a foreclosure sale.) E. Where there are third party purchases, HUD will not reimburse the mortgagee for eviction costs. Also, HUD will not reimburse the mortgagee for expenses incurred to preserve and protect the property after the foreclosure sale. VIII. Extension Requests If the mortgagee is unable to meet a time frame where an extension is allowed, the extension must be requested in writing, prior to the deadline, from the local HUD office having jurisdiction over the property, Attention: Single Family Loan Management. Extension requests will not be granted arbitrarily by HUD. The mortgagee must show sufficient justification for an extension request. IX. Damaged Properties If the mortgaged property has been damaged by fire, flood, earthquake, or tornado or for mortgages insured on or after January 1, 1977, the property has suffered damage due to mortgagee neglect, (i.e. vandalism) as set forth in 24 CFR 203.378, title must be conveyed to HUD. The mortgagee must follow the requirements for damaged properties at 203.379 and the claim for insurance benefits instructions. X. Deed in Lieu of Foreclosure Where title is acquired by the mortgagee through a deed- in-lieu of foreclosure, the property must be conveyed and the claim will be paid in accordance with normal conveyance procedures. An appraisal shall neither be requested nor reimbursed. _____________________________________________________________________ 12 In cases where a deed-in-lieu of foreclosure is accepted after foreclosure has been instituted, the mortgagee should cancel the appraisal. If the appraisal has already been done, the mortgagee may claim the cost when filing the claim. XI. Reporting Requirements The information collection requirements in this Mortgagee Letter have been approved by the Office of Management and Budget (OMB) and assigned OMB control numbers: 2502-0347 (HUD-91022), 2535-0093 (HUD- 27011) and 2535-0055 (HUD-2344). XII. Claim Instructions for Insurance Benefits for Claims Without Conveyance of Title. A complete set of instructions for submission of a claim without conveyance of title are attached along with applicable changes for conveyance claims. XIII. Form supplies Form HUD-91O22 has been printed and is being distributed to local HUD offices. The form may be reproduced or obtained from the local HUD office in your jurisdiction. If you have any questions regarding this letter, contact your local HUD office. Sincerely yours, Thomas T. Demery Assistant Secretary Attachments _____________________________________________________________________