www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 November 7, 1989 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER MORTGAGEE LETTER 89-27 TO: ALL APPROVED MORTGAGEES ATTENTION: Servicing Managers (Single Family) SUBJECT: Mortgagee Requirements to Process and Execute A Release From Personal Liability on a Mortgage Note for ANY HUD-Insured One-to-Four Family Mortgage. NEW POLICY - ASSUMPTIONS AND RELEASE FROM PERSONAL LIABILITY PROCEDURES FOR ANY HUD-INSURED SINGLE FAMILY MORTGAGE Effective immediately, HUD is instituting a change in policy which requires mortgagees, upon any written request by the seller, (who has personal liability on the mortgage note), to execute Form HUD-9221O--1, (old FHA Form 2210-1), Approval of Purchaser and Release of Seller, which releases all mortgagors from personal liability on a HUD-insured mortgage note as long as (1) the credit of the purchaser has been approved by HUD or a Direct Endorsement (DE) lender, (2) the purchaser has executed an agreement to formally assume and pay the mortgage debt and become the substitute mortgagor, and (3) in the case of assumption by an investor, the mortgage has been paid down to the appropriate loan-to-value (LTV) ratio. Refer to ML 89-5 for LTV requirements. This policy change applies to all assumption transactions for any HUD-insured mortgage no matter when the mortgage was originated, closed or endorsed. All mortgagors, who have personal liability on a mortgage note, must be released (except as provided for in the next paragraph) and must be listed on Form HUD-9221O-1. Mortgagees may annotate Form HUD-9221O-1 with a statement, such as, "all mortgagors, who precede NAME (last substitute mortgagor, who executed an agreement to assume personal liability and to pay the mortgage debt) are, hereby released from all personal liability on the mortgage note." The last party, who has been approved per HUD's creditworthiness review and has executed an agreement to assume personal liability and to pay the mortgage debt, cannot be released from personal liability until a new substitute mortgagor has completed the requirements established by HUD. _____________________________________________________________________ TIME FRAMES All assumptions and release from personal liability procedures, including forwarding the Form HUD-9221O-1 to the mortgagor being released, are to be completed within 45 calendar days from the date that the lender receives all of the documents necessary to process the creditworthiness package. NOTICE REQUIREMENTS The "Notice" attached to ML 88-2, dated February 5, 1988, is being replaced by the attached "Notice to Homeowner". Mortgagees are required to issue the "Notice to Homeowner" (a) to all applicants for FHA-insured mortgages prior to settlement of the transaction and (b) upon any inquiry by a seller or purchaser for information on HUD's creditworthiness review criteria, or on assumptions or release from personal liability procedures generally. In the case of an Adjustable Rate Mortgage (ARM), mortgagees are required to attach to the "Notice to Homeowner" a copy of the original Disclosure Statement that established the index, margin and the change date. Mortgagees, on their own, may periodically send to mortgagors HUD's creditworthiness review criteria and the assumption and release from personal liability procedures (Notice to Homeowner). ASSUMPTIONS AND RELEASE OF PERSONAL LIABILITY PROCEDURES - FEES* Mortgagees may collect the HUD-authorized fees prior to the completion of these procedures. The authorized fees are as follows: (1) Current Fee Schedule - Mortgagee Letter 88-9, dated April 6, 1988, applies to this mortgagee letter. (2) New Fee - Mortgagees may charge up to $45.00 for the completion and execution of Form HUD-9221O-1, Approval of Purchaser and Release of Seller. (3) Fee CHANGE - The fee for Assumption Transactions that do not involve a release from liability are increased from $45.00 to $125.00; and, property purchased without the purchaser formally assuming the mortgage with Section 235 eligibility processing--a maximum of up to $185.00 from $150.00, if approved, or a maximum of up to $140.00, if not approved for assistance payments. _____________________________________________________________________ * Fees must be based on the mortgagee's actual costs and cannot exceed the maximum amounts authorized by HUD. HUD establishes some fees at a Flat Rate (e.g., simple assumption fees). MISCELLANEOUS (1) Shared Equity Mortgages Shared equity mortgages must comply with the provisions of this mortgagee letter. (2) Co-mortgagors Mortgages with co-mortgagors must comply with the provisions of this mortgagee letter. (3) Transfers of Title Any transfer of a party's interest other than by devise, descent or operation of law would trigger the requirements of this mortgagee letter. (4) Sales Transactions Not Considered A SImple Assumption A Contract for a Deed, Land Contract, Land Sales Agreement or other similar agreement is not considered a property purchase transaction in which the purchaser formally assumes the mortgage. However, in mortgages executed on or after December 1, 1986, these transactions are deemed transfers so as to render the due-on-sale clause applicable. (5) Combined Document Mortgagees may substitute for Form HUD-9221O-1 and the separate agreement stating the substitute mortgagor's assumption of personal liability on a mortgage note and promise to pay the mortgage debt a combined document which incorporates the exact language of Form HUD-9221O-1 with the required language of the agreement. (6) Direct Endorsement (DE) Approval of Substitute Mortgagors The HUD-approved Direct Endorsement (DE) Underwriter who services the mortgage which is being assumed, must have the expressed authority granted by the mortgage note holder (i.e., owner of the mortgage note) to process assumption transactions. Mortgage note holders are responsible for the acts of their agents. _____________________________________________________________________ (7) Co-Insured Mortgages Co-insured mortgages insured under Section 244 of the National Housing Act must comply with the provisions of this mortgagee letter. (8) Assumption Agreement Releases from liability of the previous mortgagor should only be executed upon the verified consummation of an assumption agreement by the present mortgagor. If you have any questions concerning this mortgagee letter, please contact the Single Family Servicing Division, Insured Servicing Branch, at (202) 755-6672.' Sincerely yours, C. Austin Fitts Assistant Secretary Attachment _____________________________________________________________________ REVISED Notice to Homeowner Assumption of HUD/FHA Insured Mortgages You are legally obligated to make the monthly payments required by your mortgage (deed of trust) and promissory note. If you sell your home by letting a purchaser assume your mortgages you are still liable for the mortgage debt unless you obtain a release from liability from your mortgage lender. You may obtain a release from liability by (1) making your request for the release in writing, (2) having the credit of your purchaser approved by HUD/FHA or your lender, (3) requesting that the purchaser of your property execute an agreement to assume and pay the mortgage debt thereby agreeing to become the substitute mortgagor and (4) having your lender complete Form HUD 92210-1 "Approval of Purchaser and Release of Seller." If your mortgage was closed on or after December 1, 1986 and you sell your property but do not obtain a release from liability and if the purchaser assumes responsibility for the debt rather than merely taking title subject to the mortgage, then both you and the purchaser of your property will be liable, both individually and jointly, for any default for a period of 5 years following the date of assumption. After 5 years, only the purchaser will remain liable unless the mortgage is in default at the time the 5 year period expires. If the purchaser takes titIe subject to the mortgage without assuming personal liability for the debt, you will remain liable for the full term of the loan. If you wish to pursue being released from liability, you should get in touch with your mortgage lender. Questions concerning your release from liability should be directed to your mortgage lender or you should get in touch with the Housing Management Staff of your local HUD Office. Your lender can provide you with the address of the HUD Office which has jurisdiction over your property. _____________________________________________________________________ _____________________________________________________________________