www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 91-14 TO: ALL APPROVED MORTGAGEES ATTENTION: Single Family Servicing Managers SUBJECT: Allowable Attorney Fees and Foreclosure and Acquisition Costs on FHA Single Family Claims This mortgagee letter defines HUD's policy with respect to allowable attorney fees and foreclosure and acquisition costs, as well as notifies mortgagees that inappropriate costs on claims will be disallowed if claimed for reimbursement. HUD Regulation 24 CFR 203.402 (f) authorizes reimbursement of two-thirds or $75, whichever is greater, of the foreclosure costs or costs of acquiring a property otherwise (including costs of conveying and evidencing title to the Secretary). Such costs must be actually paid by the mortgagee and must be approved by HUD. HUD Regulation 24 CFR 203.402 (g) authorizes reimbursement of up to 100 percent of reasonable costs incurred in evicting occupants from HUD insured properties. Such costs must be actually paid by the mortgagee and must be approved by HUD. HUD Regulation 24 CFR 203.404(a) authorizes reimbursement of up to 100 percent of costs which the Commissioner finds are properly incurred for the assignment of the mortgage. Such costs must be actually paid by the mortgagee and must be approved by HUD. When HUD requests or requires that a deficiency judgment be pursued, HUD regulation 24 CFR 203.402(o) authorizes reimbursement of 100 percent of the reasonable and customary costs that are in excess of those for foreclosure. If a deficiency judgment cannot be obtained by a non-judicial foreclosure, judicial foreclosure costs are reimbursable at the rate of 100 percent. All the costs and fees addressed in this mortgagee letter are reimbursed at the rate of two-thirds except for eviction costs in jurisdictions where court procedures require a separate eviction action, costs related to the assignment of the mortgage, and where HUD requires or requests that a deficiency judgment be pursued. _____________________________________________________________________ 2 A complete listing of allowable and unallowable costs would not be practical because procedural requirements and terminology vary in different jurisdictions. Generally HUD will reimburse a mortgagee for: Generally Allowable Costs and Fees 1. Fees and costs which must be paid to public officials such as sheriffs, clerks or court, tax collectors or public trustees. 2. Fees and costs which are required by law such as service of process, required publication or certified copies of documents. 3. Attorney fees which are necessarily incurred and are reasonable and customary in the area. These costs may vary in different jurisdictions because of procedural requirements and custom in the area. HUD considers attorney's fees currently established by FNMA for acquisition of title, eviction and bankruptcy as reasonable and customary. 4. Other fees and costs such as title policy, document stamps, required advertising. These costs may vary in different jurisdictions because of procedural requirements and custom in the area. Costs and Fees Not Reimbursable HUD will not reimburse a mortgagee for: 1. Attorney fees which exceed reasonable and customary fees for the area. If a fee exceeds the customary fee for the area for adequate reason, such as a contested foreclosure or eviction, the excess may be paid on appeal. 2. Costs which are unnecessarily incurred. Costs to expedite mail, such as courier service or express mail when the attorney or mortgagee should have had sufficient time to use regular mail and there was no legal requirement for special mail service. Reimbursement to attorneys for property inspections. _____________________________________________________________________ 3 3. Costs which are overhead items for the attorney or the mortgagee such as postage, telephone, duplicating, or collection services. The attorney's or trustee overhead costs should be included in their fee. The mortgagee's overhead costs are not reimbursable. 4. Extra costs incurred in the foreclosure as a result of a defect in the mortgage transaction or a defect in title which existed at or prior to the time the mortgage was filed for record. These costs are reimbursable only if the mortgage was sold by the Secretary or was executed in connection with the sale of the property by the Secretary after August 1, 1969. 5. Compensation for services paid to a salaried employee of the mortgagee. Claiming Attorney Fees for Reimbursement On the Form HUD-27011, Single Family Application for Insurance Benefits, mortgagees must separate attorney fees into five categories to permit HUD review and payment. 1. Fees Related to Acquisition of Title or Assignment - These fees relate to the assignment of the mortgage, the foreclosure action or a deed-in-lieu of foreclosure and are shown in item 306. Allowable costs paid by the attorney and reimbursed by the mortgagee are shown in item 307. These fees are subject to two-thirds reimbursement. if the attorney bills the mortgagee for unallowable costs, they should not be listed in either item. 2. Fees Related to Eviction or Gaining Possession - A separate fee is permitted only in jurisdictions where court procedures do not enable the foreclosing party to obtain possession as a part of the foreclosure action and a separate eviction action must be taken. The fee for eviction should not be shown in item 306 and the costs should not be shown in item 307 because the costs of _____________________________________________________________________ 4 eviction are fully reimbursable, not limited to two-thirds as in foreclosure costs. The eviction costs should be shown in item 305. 3. Fees Related to Bankruptcy Proceedings - Fees related to bankruptcy should be separately stated and shown in item 310. These fees are subject to two-thirds reimbursement. They are not to be included in item 306. 4. Fees for Special Services Such as Contested Actions, Litigation, Etc. - If attorney fees exceed those normally charged in the area because of special services, the mortgagee may appeal the amount HUD pays on the initial claim and file, a supplemental claim. The appeal must include a copy of the Advice of Payment Letter, a copy of the original claim submitted, a copy of Part D of the original claim, documentation to support the additional amount claimed, and a separate sheet (list) explaining the necessity and justifying the excess fee. The appeal should be sent to: Office of General Counsel Department of Housing and Urban Development, ATTN: John Witsil Home Mortgage Division 451 7th Street, S.W. Washington, D.C. 20410 Note that extra costs incurred in the foreclosure as a result of a defect in the mortgage transaction or a defect in title may not be reimbursable as discussed earlier. 5. Fees related to Deficiency Judgments - If the local HUD Office requests or requires pursuit of a deficiency judgment, the extra costs must be separately stated and shown in item 409. Sincerely yours, Arthur J. Hill Acting Assistant Secretary for Housing-Federal Housing Commissioner