www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 March 11, 1991 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER MORTGAGEE LETTER 91-16 TO: ALL APPROVED MORTGAGEES SUBJECT: Claims Without Conveyance of Title (CWCOT) - Deficiency Judgment Bidding and Reimbursement Procedures The Claims Without Conveyance of Title (CWCOT) program which was implemented under Mortgagee Letter 87-20, dated June 23, 1987, provided mortgagees with the procedures for bidding and payment of claims under the Single Family FHA Mortgage Insurance program. The CWCOT program was designed to reduce the number of Single Family properties added to the HUD inventory and allow mortgagees to file a claim without conveying title. However, the program was ineffective in its application to vacant and non-owner occupied properties. The Department incurred considerable losses from appraisal and advertising costs as well as from overhead expenses to operate the program. Only six percent of the properties processed through CWCOT were not conveyed to HUD. This Mortgagee Letter provides mortgagees with a modified CWCOT procedure, now limited in its application to instances where a decision has been made to pursue a deficiency judgment (and potentially to other case-by-case determinations by HUD that make use of CWCOT procedures desirable). These procedures are effective for foreclosures initiated two (2) months from the date of this Mortgagee Letter wherein a request or requirement to pursue a deficiency judgment is made by HUD or a recommendation from a mortgagee is approved. The modifications in the CWCOT procedure are indicated below with an asterisk (*). These instructions are general in nature and do not address themselves to particular State legal requirements. They should be implemented to the greatest degree possible within the confines of applicable State law. Finally, you should inform your local HUD Office of any State or local problems regarding deficiency judgments which HUD may wish to share with its Offices in other jurisdictions. * I. Implementation A. The Department has narrowed the scope of the CWCOT procedure to only instances where the decision has been made to pursue a defaulting mortgagor for a deficiency judgment. Use of the CWCOT procedure will be specifically directed or authorized by HUD. Under the deficiency judgment regulation, 24 CFR 203.369, HUD can require mortgagee cooperation on loans insured after 3/28/88. Mortgagees can decline to pursue deficiency _____________________________________________________________________ 2 judgments only in cases involving loans older than 3/28/88. The only conflict that can arise is when a mortgagee declines to pursue a deficiency judgment against a pre-3/28/88 mortgagor, and then also refuses to use CWCOT after being directed to do so by HUD when the loan was insured after 11/30/83, the effective date for the mandatory use of CWCOT at the Department's direction (see diagrammed "time lines", ATTACHMENT 1). The mortgagee's use of CWCOT in such situations preserves HUD's ability to pursue the deficiency judgment itself, once the right to do so has been assigned by the mortgagee to HUD (The Department intends to hold mortgagees to the requirement that they cooperate with any instruction to utilize CWCOT on loans insured after 11/30/83.) * B. Phase-In Implementation The procedure described in the regulation (24 CFR 203.368 et. seq.) can be applied 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 11/30/83. In addition, a mortgagee may elect to file a claim under this provision for mortgages that date from before 11/30/83, provided that the mortgagee has been in contact with HUD and has received approval to use CWCOT procedures based on an individual case determination to pursue a deficiency judgment. In these cases, it is the decision to pursue a mortgagor for a deficiency judgment (either at HUD's initiation or if the mortgagee receives the Department's approval in advance) that activates the use of the CWCOT procedure, and also assures HUD's willingness to reimburse the mortgagee for judgment-related expenses through the claims process. (Refer to Mortgagee Letter 90-8 regarding selection and notification procedures in identifying mortgagors for deficiency judgments and collections thereof.) II. Action by Mortgagee A. Mortgagees must take the following action on loans insured on or after November 30, 1983, and at their election, on older loans when notified that HUD (1) desires that a deficiency judgment be pursued against a defaulting mortgagor, i.e., that the Department is requesting or requiring the mortgagee to obtain a deficiency judgment against the mortgagor if the _____________________________________________________________________ 3 account goes into foreclosure; (2) has approved the mortgagee's request to pursue a judgment; or (3) has directed, for any other purpose, that the case undergo CWCOT procedures instead of claims with conveyance procedures: 1. Estimate the foreclosure sale date. 2. Prepare the Form HUD-91022, Mortgagee Notice of Foreclosure Sale, Part A (see Attachment 2), 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/Deficiency Judgment/Foreclosure Sale". * 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. "Deficiency Judgment Case", b. the Mortgagee Loan Number, c. the FHA Case Number, and d. the Mortgagor's Name. B. When completing the HUD-91022, the mortgagee must request the appraisal: 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, if 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 a package marked "URGENT" containing the HUD-91022 and the Notice of Sale (with the sale date highlighted) to the HUD Office 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-91022 marked "URGENT" 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. * 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 a HUD staff person is to perform the appraisal (URAR not required for HUD staff), and 2. Label the top of the HUD-92800, "PROPERTY IN FORECLOSURE/DEFICIENCY JUDGMENT". (This will serve as a "flag" to the appraiser as well as the local HUD Office regarding the disposition of the appraisal report.) _____________________________________________________________________ 5 NOTE: 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. NOTE: 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/Deficiency Judgment and include the FHA case number, verifying such action. 2. Contact the fee appraiser to cancel the appraisal, or if HUD staff was assigned, the SF Loan Management Branch. 3. The mortgagee may pass on the cost for the appraisal to the mortgagor as part of the foreclosure expenses, as set out in 24 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, Attention: Valuation Branch, advising of the problem. If necessary, HUD may assign another appraiser. 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 until the appraisal report is received from the Valuation Branch. When the appraisal report of 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. _____________________________________________________________________ 6 The SF Loan Management Branch will provide the CAFMV to the mortgagee when notified of the actual foreclosure sale date. * IV. Advertising Advertising is not required. 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 is conveyed to HUD. The CAFMV shall be provided by HUD to the mortgagee at least five (5) working days prior to the sale. * If the CAFMV has not been received by the mortgagee at least five (5) working days prior to the foreclosure sale, the mortgagee is requested to contact the local HUD Office Loan Management Branch to ascertain the reason for the delay in receipt of the CAFMV. * There may be occasions when the local HUD Office will authorize a mortgagee to postpone a foreclosure sale to enable completion of the appraisal process and to calculate the CAFMV. This is a change from the previous instructions when postponement was not acceptable. If a mortgagee incurs repeated unsuccessful attempts to contact the local HUD Office to obtain the bid amount, it should proceed with the sale and bid as it chooses, but clearly document such circumstances for HUD monitoring purposes. However, this situation is not likely to occur because the Department, in most instances, will be either requesting or requiring the deficiency judgment and will have an interest in expediting the necessary steps. VI. Foreclosure Sale Bidding A. When the CAFMV is provided, the mortgagee must bid that amount if it wishes to reserve 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, and HUD may refuse to reimburse the mortgagee for the deficiency judgment-related expenses. _____________________________________________________________________ 7 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 Claim 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 cases, 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 confirm such approval in writing. The Department will waive the bidding requirement of the CAFMV and allow 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 provide the date of the approval letter 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 continue in effect for four months from the date of the appraisal. 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. (Refer to page 11, item IX below regarding damaged properties.) _____________________________________________________________________ 8 If the sale is postponed and rescheduled within four months of the date of the appraisal, the mortgagee need not notify HUD of the new sale date. However, if the newly scheduled foreclosure sale date is set for more than four months from the date of the appraisal, the mortgagee must contact HUD to obtain an appraiser to update the appraisal and receive an updated 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/DEFICIENCY JUDGMENT." 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 to 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 provided in 24 CFR 203.401(b). b. When the mortgagee conveys title to 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 provided in 24 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 to the property to HUD. The mortgagee is limited to filing a claim for the insurance benefits computed as provided in 24 CFR 203.401(b), which will be calculated on the basis of the bid amount. _____________________________________________________________________ 9 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 as provided in 24 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. NOTE: If the mortgagee bids an amount in excess of the CAFMV, and is subsequently penalized for such action, this does not excuse the mortgagee from its duty to assign to HUD any deficiency judgment if the mortgagee intends to file for any reimbursement permitted under the insurance claims procedures. 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. 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 24 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: a. Costs to maintain the property after the foreclosure sale, b. Eviction costs, or c. Costs to sell the property. _____________________________________________________________________ 10 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. D. If a third party sale falls through, State laws govern disposition, e.g., re-advertising the property, reverting to 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 when such title is obtained to file the claim. (Also, refer to page 7, item VI D. regarding postponement of the foreclosure sale.) E. In the event of a third party purchase, 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. _____________________________________________________________________ 11 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: SF Loan Management Branch. Extension requests will not be granted arbitrarily by HUD. The mortgagee must show sufficient justification for an extension request and document the files accordingly for audit purposes. * Extensions will be granted, as necessary, beyond the twelve-month deadline for filing supplemental claims for reimbursement of expenses directly related to deficiency judgments only. Mortgagees that are able to include deficiency judgment-related expenses on Part B of their initial claim within the customary 45-day deadline after filing the deed for record are expected to do so. * IX. Damaged Properties When 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 A deed-in-lieu of foreclosure shall not be considered by a mortgagee in cases where a decision has been made by HUD to pursue a deficiency judgment. 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. As stated in Mortgagee Letter 90-8, Implementation of Deficiency Judgment Activities Department-Wide, mortgagees must refer to the existing instructions for completing and submitting the HUD-27011 claim form. Code 3 must be entered in Item 29 of Part A, to designate that a deficiency judgment was pursued, or the _____________________________________________________________________ 12 entire claim will be rejected by the automated system. Deficiency judgment-related expenses, which are fully reimbursable, are to be entered in Item 410 of Part E of the claim form, which amount must be transferred to Line 131, Part B of the claim form. As indicated previously, mortgagee cooperation is crucial to the success of the Deficiency Judgment program and the Department appreciates your commitment to help us accomplish important objectives. If you have any questions regarding this letter, contact your local HUD Office. Very Sincerely yours, Arthur J. Hill Acting Assistant Secretary for Housing-Federal Housing Commissioner Attachments _____________________________________________________________________ Attachment 1 ML 91-16 ************************************************************** * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * ************************************************************** Page 1 of 1 _____________________________________________________________________ Attachment 2, Page 1 ML 91-16 ************************************************************** * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * ************************************************************** Page 1 of 1