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

April 25, 1991
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 91-21
 TO:  ALL APPROVED MORTGAGEES
 SUBJECT:   A. - Procedures for Reconveyance
            B. - Procedures for Reimbursement to Lenders on Uninsured Cases
 
       This Mortgagee Letter is being issued to advise mortgagees of policy
 changes due to the Department's concerns with respect to conveyances with
 title defects or property damage and reimbursement where uninsured cases
 have been conveyed.
 
       As provided for in 24 CFR 203.366, mortgagees are required to
 "tender to the Commissioner, a satisfactory conveyance of title and
 transfer of possession of the property."  Mortgagees have not always
 followed this requirement.  Many titles to properties which have been
 conveyed to HUD are found to contain serious title defects that often
 hamper HUD's efforts to market and sell properties by causing delays in
 settlements or cancelled sales.  24 CFR 203.377 requires mortgagees to
 take reasonable action to protect and preserve vacant or abandoned
 properties until conveyance to the Department.  Unfortunately, properties
 are occasionally conveyed damaged which delays the sale of the property
 and causes additional holding costs to be incurred by the Department.
 
       Although the Department uses reconveyance sparingly to resolve
 problems on conveyed properties, we have revised those guidelines as
 indicated below to speed up the process when it is determined reconveyance
 is in HUD's best interest.
 
 SECTION A - PROCEDURES FOR RECONVEYANCE
 
       Effective immediately, Field Offices will send mortgagees a 30-day
 preliminary notice to correct problems when properties are conveyed to HUD
 with defective titles.  A 90-day notice will be sent by Field Offices when
 either damage caused by mortgagee neglect or property damaged by fire,
 flood, earthquake or tornado is conveyed without HUD's authorization and
 the Field Office has determined other options to reconcile the problems
 are not appropriate.  Should lenders determine during the course of
 correction that additional time is needed to correct the problem, a
 written request should be made within the above time frame.  Field Offices
 are authorized to grant one 30-day extension on a case by case review.
 
_____________________________________________________________________
       If the problem is not corrected within the stated time frame or
should mortgagees fail to respond or cooperate, local offices have been
instructed to take steps to reconvey the property back to the lender.  A
request for recovery of any insurance benefits claim paid on the property
as well as any expense incurred by the Department will be made.  In the
event HUD's request for payment is not received within 30 days of the
original request, the Department will provide a Notice of Intent to Collect
by Administrative Offset as stipulated under 24 CFR 17.102.  If the debt is
not collected by the 31st day, the Department will exercise its rights
under 24 CFR 17.111 and accomplish the offset.  After funds are received, a
quitclaim deed will be forwarded to the mortgagee.  At that time, the
mortgagee becomes fully responsible for the preservation and protection of
the property.
 
SECTION B. - RECONVEYANCE AND REIMBURSEMENT TO LENDERS ON UNINSURED CASES
 
      On occasion claims are submitted on properties that were not insured
by HUD.  If the error is discovered while the property is still in HUD's
inventory, Field Offices will place the property in a hold off market
status until it is determined if any insurance benefits claim was paid by
HUD.  If no claim was paid, the Field Office will prepare a quitclaim deed
to reconvey the property back to the mortgagee.
 
      If the property has been sold, as no mortgage insurance claim can be
paid, HUD will remit to the mortgagee the property's sales price less HUD's
sales and other expenses.  Upon receipt of the mortgagee's acceptance of
HUD's offer, the Field Office will process that amount for payment.
 
      If mortgagees have any questions regarding this letter, they should
contact the Field Office having jurisdiction over the property.
 
                               Very sincerely yours,
 
                               ___________________________________
                               Arthur J. Hill
                               Assistant Secretary
                                 for Housing-Federal Housing Commissioner