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

March 20, 1991
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 91-17
      TO:   ALL APPROVED MORTGAGEES
      SUBJECT:  Mortgagee Responsibilities Pending Assignment of
                Multifamily Mortgages
 
           We have been made aware that some mortgagees may not be
      taking appropriate actions to protect the Secretary's interest
      during the period from election to assign until the assignment
      is perfected.
 
           All mortgagees are hereby reminded that, upon election to
      assign and pending recordation, the mortgagee is required to take
      necessary actions to protect the Secretary's interest.  This
      includes seeking and assuming mortgagee-in-possession status in
      case of abandonment, waste of assets or equity skimming.  Mortgagees
      must also continue to bill for and accept all payments until
      the mortgage is assigned in the Secretary's name.
 
           If the mortgagor should file a petition under the Bankruptcy
      Code, we request that you take whatever actions are necessary to
      protect your interest as first lienholder and to preserve the
      security.  Those actions would include filing the appropriate
      documents to assure that your interest is adequately protected.
      Please note that project rents are part of the loan security and
      are denoted as cash collateral under the Code.  Therefore, you
      should obtain an Order recognizing your entitlement to the rents
      under the assignment of rents clause and restricting use of the
      rents in accordance with the rules governing cash collateral.  You
      should also be alert to the fact that the mortgagor may not use
      project assets to pay attorney fees for legal service in
      connection with any aspect of the bankruptcy action without HUD
      approval.
 
           This applies to elections due to a default and those made in
      accordance with Section 221(g)(4).
 
           If you have questions regarding this memorandum, please
      telephone Kenneth F. Hannnon at (202) 708-0547.
 
                                          Sincerely,
 
                                          Arthur J. Hill
                                          Acting Assistant Secretary
                                            for Housing-Federal Housing
                                            Commissioner