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

March 20, 1990
Mortgagee Letter 90-9
TO:  ALL APPROVED MORTGAGEES
ATTENTION:  Servicing Managers (Single Family)
SUBJECT:  Disclosure Requirements of the HUD Reform Act of 1989:
            -- Notice to Homeowner Regarding Mortgage Assumptions
            -- Release from Personal Liability
 
     As a result of the passage of the Department of Housing and
Urban Development Reform Act of 1989, lenders must insert a new
provision into security instruments that pertains to acceleration of
the loan if the subject property is sold or otherwise
transferred to an investor and/or a purchaser not determined to be
creditworthy.  This requirement is contained in Mortgagee Letter 89
31, dated December 26, 1989.  It is therefore necessary to modify the
Notice to Homeowner to make it reflect the new provision now being
included in security instruments governing FHA-insured mortgage
loans.
 
     Because (a) all would-be purchasers covered by the 1989 Act must
be determined creditworthy in order to avoid acceleration of the
loan, and (b) in a previous Mortgagee Letter, 89-27 , a release of the
original mortgagor from personal liability was made mandatory
when the loan obligation was assumed by a creditworthy buyer who
agreed to become the substitute mortgagor, and the original mortgagor
requested the release in writing, a new, mandatory release policy is
being activated for mortgages covered by the 1989 Act.  Lenders shall
complete Form HUD 92210-1 ("Approval of Purchaser and Release of
Seller") for all sales to creditworthy owner-occupants who formally
agree to assume and pay the mortgage debt and thereby become the
substitute mortgagor.  It will not be necessary for an original
mortgagor, whose mortgage is covered by the 1989 Act, to submit a
written request for a release to the lender.
 
     FOR MORTGAGES SUBJECT TO THE 1989 ACT AND SECURITY
INSTRUMENTS CONTAINING THE NEW ASSUMPTION PROVISION, THE ATTACHED
NOTICE TO HOMEOWNERS MUST BE ISSUED (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.
 
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     If you have any questions concerning the contents of this
letter, please contact your local HUD Office or the Single Family
Servicing Division in HUD Headquarters at (202) 755-6672.
 
                          Sincerely yours,
 
                          C. Austin Fitts
                          Assistant Secretary for Housing
                            Federal Housing Commissioner
 
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ATTACHMENT
 
                        NOTICE TO HOMEOWNER
              Assumption of HUD/FHA Insured Mortgages
                   Release of Personal Liability
 
     You are legally obligated to make the monthly payments required
by your mortgage (deed of trust) and promissory note.
 
     The Department of Housing and Urban Development (HUD) has acted
to keep investors and non-creditworthy purchasers from acquiring one
to-four family residential properties covered by certain FHA-insured
mortgages.  There are minor exceptions to the restriction on
investors:  loans to public agencies and some non-profit
organizations, Indian tribes or servicepersons; and loans under
special mortgage insurance programs for property sold by HUD,
rehabilitation loans or refinancing of insured mortgages.  Your
lender can advise you if you are included in one of these
exceptions.
 
     HUD will therefore direct the lender to accelerate this FHA
insured mortgage loan if all or part of the property is sold or
transferred to a purchaser or recipient (1) who will not occupy the
property as his or her principal or secondary residence, or (2) who
does occupy the property but whose credit has not been approved in
accordance with HUD requirements.  This policy will apply except for
certain sales or transfers where acceleration is prohibited by law.
 
     When a loan is accelerated, the entire balance is declared
"immediately due and payable."  Since HUD will not approve the sale
of the property covered by this mortgage to an investor or to a
person whose credit has not been approved, you, the original
homeowner, would remain liable for the mortgage debt even though the
title to the property might have been transferred to the new buyer.
 
     Even if you sell your home by letting an approved purchaser
(that is, a creditworthy owner-occupant) assume your mortgage, you
are still liable for the mortgage debt unless you obtain a release
from liability from your mortgage lender.  FHA-approved lenders have
been instructed by HUD to prepare such a release when an original
homeowner sells his or her property to a creditworthy purchaser who
executes an agreement to assume and pay the mortgage debt and thereby
agrees to become the substitute mortgagor.  The release is contained
in Form HUD-92210-1, ("Approval of Purchaser and Release of Seller").
You should ask for it if the mortgage lender does not provide it to
you automatically when you sell your home to a creditworthy owner
occupant purchaser who executes an  agreement to assume personal
liability for the debt.  When this form is executed, you are no
longer liable for the mortgage debt.
 
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