www.hudclips.org 


U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D. C. 20410-8000

May 1 , 1990
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 90-15
      TO:  ALL APPROVED MORTGAGEES
      ATTENTION:  SERVICING MANAGERS (SINGLE FAMILY)
      SUBJECT:  Pursuing Collection of Funds from Mortgagors Whose
                   Mortgages Have Been Foreclosed Upon to Offset
                   Lender's Mortgage Losses
 
            This Mortgagee Letter is to advise all HUD-approved lenders
      that it is a violation of HUD regulations (24 CFR 203.351(a)(4),
      203.360 and 203.368(i)(2)) for any mortgagee to collect (or
      attempt to collect) from mortgagors any money that your company
      may have lost in connection with the default/foreclosure of an
      FHA-insured mortgage.  The losses to which we refer are those for
      expenses or costs incurred by the lender for which that lender is
      unable to obtain reimbursement when filing a claim with HUD.  The
      collections to which we refer are those that have been initiated
      and pursued at the sole discretion of the mortgagee without HUD's
      knowledge or consent for differences between the amount
      collectible under the mortgage instrument (i.e., the principal,
      mortgage interest, late fees, attorney fees, etc.) and the maximum
      amount of insurance benefits paid by HUD.
 
            This Department recognizes that the losses incurred by a
      mortgagee on FHA-insured mortgages can be considerable, especially
      when the mortgagee has a large FHA-insured portfolio.  However,
      these prohibitions against the collection of such funds as
      previously described are a part of the mortgage insurance contract
      (24 CFR 203, Subpart B) and the lender should have been aware of
      them at the time the loans were originated.  24 CFR 203.360
      applies to claims made after the foreclosure and conveyance of the
      property to HUD.  24 CFR 203.368(i)(2) applies to claims filed
      pursuant to the claims without conveyance regulations when title
      is not conveyed to HUD.  24 CFR 203.351(a)(4) applies to claims
      filed in connection with the assignment of mortgages to HUD.  All
      of these provisions are identical in providing that the mortgagee
      must assign to HUD all claims which the mortgagee has against the
      mortgagor arising out of the mortgage transaction, and (except for
      24 CFR 203.351(a)(4)) claims arising from the foreclosure
      proceedings.
 
           Therefore, any mortgagee that is pursuing (or has pursued in
      the past), the collection of funds (mortgage losses) from the
      (foreclosed) mortgagor as described in the first paragraph of this
      Mortgagee Letter must immediately take the following corrective
      action in order to rectify this violation of HUD regulations.
 
_____________________________________________________________________
 
                                                                     2
 
      (1)   If a legal process was used to adjudicate the collection
            of funds by the establishment of a debt (i.e.,
            deficiency judgment process) then the mortgagee must
            immediately assign this judgment along with all monies
            collected to date to the Secretary of HUD.  The
            judgment or other evidence of debt must be sent to the
            local HUD Office that has jurisdiction over the
            mortgage.
 
      (2)   If a legal process was not used to adjudicate the
            collection of funds by the establishment of a debt, the
            mortgagee must:
 
            (a)  stop any collection efforts currently in progress;
 
            (b)  refund to the mortgagors all monies collected to
                 date;
 
            (c)  void and return to the mortgagors any executed
                 notes or loan agreements obligating them to
                 reimburse your company for its losses; and
 
            (d)  remove from the mortgagors' records all information
                 supplied to the credit bureau agencies which
                 reflect this debt.
 
                 NOTE!   This will also include the removal of all
                         information pertaining to this unauthorized
                         collection action that may have been
                         reported to the credit bureau agencies at
                         the time the mortgagee reported the
                         foreclosure action of the FHA-insured
                         mortgage.
 
      Compliance with this directive will be verified at the time
of the next on-site mortgagee review of your company performed by
Headquarters and/or field staff or by the agents of the
Headquarters Claims Division.
 
      Any questions pertaining to this Mortgagee Letter are to be
addressed to the Loan Management Branch 6f the local HUD Office
which has jurisdiction over the foreclosed mortgage.
 
                           Sincerely yours,
 
                           C. Austin Fitts
                           Assistant Secretary for
                             Housing-Federal Housing Commissioner