www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 June 11, 1993 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 93-16 TO: ALL APPROVED MORTGAGEES ATTENTION: Single Family Servicing Managers SUBJECT: 1992 Miscellaneous Amendments to the Single Family Servicing Regulations On October 20, 1992, the regulations governing the servicing of FHA-insured single family mortgages were amended to improve the efficiency of the Single Family Mortgage Insurance Program. A copy of the Federal Register is attached (see Attachment # 1). Although these amendments were effective 30 days after publication of the final rule, some of them are applicable to all mortgages regardless of when they were insured and some of the amendments affect only mortgages insured under firm commitments issued on or after November 19, 1992, or under direct endorsement processing where the credit work sheet was signed by the mortgagee's approved underwriter on or after November 19, 1992. To avoid confusion as to the applicability of the regulations, the amendments will be discussed in two separate sections. 1. Section A of this Mortgagee Letter will discuss those amendments applicable to all mortgages regardless of when the mortgage was insured. 2. Section B of this Mortgagee Letter will discuss those amendments that are applicable only to mortgages insured under firm commitments issued on or after November 19, 1992, or under direct endorsement processing where the credit work sheet was signed by the mortgagee's approved underwriter on or after November 19, 1992. HUD Handbook 4330.4, (FHA Single Family Insurance Claims) was in the process of being printed when this final rule was published. Therefore, the new regulatory amendments discussed in this mortgagee letter are not yet incorporated into the handbook. Until the Handbook 4330.4, is updated, mortgagees must comply with this Mortgagee Letter and the amended regulations. Additionally, the regulatory changes will necessitate a revision to HUD Handbook 4330.1, Rev-3, Administration of Insured Home Mortgages. This revision will also be issued in the near future. The instructions provided by this Mortgagee Letter shall prevail in the event that they conflict with the instructions of either HUD Handbook 4330.1, Rev-3, or HUD Handbook 4330.4. _____________________________________________________________________ 2 Section A. Regulations Applicable To All Mortgages (Regardless of When the Mortgage Was Insured) 1. 203.355 Acquisition of Property (A) All properties - This amendment reduces the time within which foreclosure must be commenced (or other action is taken to acquire the property such as the completion of a deed-in-lieu) from one year from the date of default to nine months from the date of default. 1. In order to avoid imposing a penalty in those cases where all or a portion of the nine month period expired before the effective date of the amendment, interest curtailment will be imposed only in those cases where the date of default is December 1, 1992, or later. 2. The key to relating the effective date of this amendment to the claim form, HUD-27011, is to ensure that foreclosure is initiated (or a deed in lieu is completed) within nine months from the date of default for all cases where Block 8 (Last complete paid installment) reflects October 1, 1992, or later. 3. In the responses to our proposed rule we learned that many mortgagees mistakenly believed that the reduction in this time frame would result in an automatic curtailment, since most of the cases that are ultimately reviewed for assignment are beyond the nine-month time frame when the local HUD Office completes its review. If the notice required by 24 CFR 203.652 (HUD assignment letter No. 2 or No. 3) is issued at least 20 days prior to the expiration of the nine-month time frame, and the Secretary (local HUD Office) receives a timely request to review the case for assignment, the mortgagee will be instructed to delay initiation of property acquisition pending determination of assignment acceptability and will receive an extension of time to initiate foreclosure. 4. Where the mortgagee issues HUD assignment letter No. 3 and the Secretary does not notify the mortgagee within 20 days from that date, the mortgagee may then institute foreclosure ( 203.659(c)(2)). _____________________________________________________________________ 3 (B) Vacant or abandoned property - All insured mortgages are subject to the nine month requirement where the date of default is on or after December 1, 1992, (the date of the last paid installment is on or after October 1, 1992). In addition, where the property became vacant or abandoned (or should have been discovered to be vacant or abandoned) on or after August 1, 1993, the mortgagee may have an earlier time period to meet. (Item 4 provides further detail.) For further clarification, Attachment 2 summarizes this requirement and Attachment 3 provides illustrations of how the commencement date of foreclosure is determined when the property is vacant or abandoned. Regulation 24 CFR 203.355(a)(2) states that the mortgagee must commence foreclosure within the later of 120 days after the date the property become vacant or 60 days after the property is discovered or should have been discovered vacant. The 120 day time frame was determined by adding the standard 60 day allowance to institute foreclosure to the 60 day time frame provided in 24 CFR 203.606(b)(1) which permits mortgagees to foreclose when a property has been abandoned or vacant for 60 days without the delay in foreclosure required to meet the Assignment Program requirements. In essence, HUD added 60 days to the 60 day allowance for properties that had been vacant or abandoned. To simplify the requirements of this regulation, with regard to when to apply the 60-day time frame or the 120-day time frame, the Department has elected to allow lenders the maximum of 120 days in all cases that fail within 203.355(a)(2), since in most cases the later date will be the 120-day time frame. Of course, the Department expects lenders to initiate foreclosure earlier than 120 days whenever possible, however, the mortgagee must initiate foreclosure within 120 days from vacancy. The 120 days starts when the property was discovered vacant or should have been discovered vacant, whichever is verified as earlier. Under this amendment, there is no requirement to initiate foreclosure where the mortgage is current, regardless of how long the property has remained vacant. These requirements deal strictly with monetary defaults. 1. If the mortgage is in default and the property has been determined to be vacant or abandoned, foreclosure must be initiated by the earliest of: (a) nine months from the date of default; or, (b) 120 days after the date the property become vacant, was discovered vacant, or should have been discovered vacant. _____________________________________________________________________ 4 NOTE: The 60-day time frame is still applicable for bankruptcies and reinstitution of foreclosure (See (C) Bankruptcies, page 5). 2. If the property became vacant prior to an inspection, and the mortgagee has knowledge of such vacancy, then the date the property became vacant is the vacancy date. If the mortgagee has no information, or other reasonable means to establish a vacancy prior to an inspection (discovery date), the date the property is discovered vacant through an inspection will be considered the vacancy date. Where the mortgagee is required to inspect in accordance with 203.377, and fails to do so within the time required, and the property is subsequently discovered vacant, the vacancy date will be considered to be the last date the inspection could have been performed within the time requirement. 3. If a required inspection was not performed, the mortgagee will have failed to have taken reasonable action to protect and preserve the property and would have failed to have established the vacancy date for the purpose of initiating foreclosure within the required time frame. 4. If information is available to the mortgagee indicating that the property had become vacant or abandoned at a date earlier than the inspection date, then this earlier date will be considered as the vacancy date. This type of information includes: complaints of an unkempt and apparent vacant condition of the premises, condemnation or other notices requesting that the mortgagee secure the property, notices citing established utility disconnections, or billings from the local jurisdiction for debris removal, snow removal or lawn cuttings resulting from local code violations. These situations usually denote that the property has been left vacant. 5. In order to avoid imposing a penalty in those cases where all or part of the 120-day period expires before the effective date of the amendment, interest curtailment will be imposed only in those cases where; (a) the date of default is on or after December 1, 1992, (the last unpaid installment is on or after October 1, 1992); and, (b) the mortgagee discovers (or should have discovered) the property to be vacant or abandoned on or after August 1, 1993. _____________________________________________________________________ 5 6. For cases where the mortgagee is aware that the property has remained vacant, but the mortgage has been current, the trigger for the 120 day time frame shall be the date of default. Therefore for situations where the property was vacant prior to the date of default, the 120 day time requirement to initiate foreclosure begins on the date of default. 7. The amendment to 203.377, discussed in more detail in the following Item 6, of this Mortgagee Letter, defines the initiation of foreclosure on vacant or abandoned properties as a reasonable action to preserve and protect the property. NOTE: Where the mortgagee was subject to this amendment and failed to initiate foreclosure timely on cases where the property was vacant or abandoned, the mortgagee should identify the date foreclosure should have begun in Block 31 of Form HUD 27011 to self-curtail interest of the subject claim. (C) Bankruptcies - The amended 203.355 (c) also clarifies the effect of a bankruptcy stay on foreclosure initiation. 1. HUD's long-standing policy has been to consider the prohibition to foreclosure due to a bankruptcy stay to be the same as a prohibition to foreclosure due to state law. In both circumstances the mortgagee has had, and continues to have, 60 days following the release of the specific prohibition to institute foreclosure. 2. The same 60-day time frame is also applied to situations where the mortgagee must discontinue the prosecution of foreclosure because the mortgagor(s) filed bankruptcy. Foreclosure must be recommenced within 60 days after the expiration of the time during which foreclosure was prohibited. 2. 203.356 Notice of Foreclosure, Reasonable Diligence Requirement Mortgagees are required by this amendment to exercise reasonable diligence in pursuing foreclosure and in acquiring title and possession of the property. This means that the foreclosure deed must be recorded promptly after foreclosure is completed and that eviction or other possessory proceedings are not to be delayed. This amendment will enable HUD to issue specific time requirements for these actions in the future if the Department determines there is a need to do so. _____________________________________________________________________ 6 (A) HUD considers the acquisition of title to be the recordation of the deed or other instrument that transfers title from the mortgagor (or other person holding title) to the mortgagee, or to the Secretary in the case of a direct conveyance. The instrument could be a deed executed by a trustee, sheriff, commissioner, or other person authorized by state law to convey title. (B) In those states where the issuance of a certificate of sale conveys title without execution of a deed, the recordation of the certificate will be considered acquisition of title. 3. 203.364 Mortgagee's Liability for Property Expenditures This amendment is intended to clarify the continuing regulatory requirement that, in the event of reconveyance of the property, the mortgagee shall reimburse the Secretary for all HUD's expenses incurred in connection with HUD's acquisition and reconveyance of the property. The previous regulation did not indicate the items to be included in the expenses. The amended regulation specifies that, in addition to the insurance benefits, the reimbursement shall include: (A) Interest on the refunded insurance benefits, from the date the insurance benefits were paid to the date of refund, at a rate set in conformity with the Treasury Fiscal Requirements Manual, and (B) The Secretary's cost of holding the property from the date the deed to the Secretary was filed for record to the date of reconveyance. The amount of holding costs is based on the Secretary's estimate of taxes, maintenance and operating expenses of HUD-owned properties and administrative expenses, adjusted for any income received on the property. This amendment covers any reconveyance where the date of the local HUD Office's notification to reconvey the property is dated on or after August 1, 1993. 4. 203.365 Documents and Information to be Furnished to the Secretary; Claims Reviews This amendment establishes in the regulations the current long standing practice relating to documents and information to be furnished to the Secretary, the claim file to be maintained by the mortgagee, and HUD's reviews of claims. The regulation no longer requires the mortgagee to submit receipts or ledger cards unless requested by the Secretary. _____________________________________________________________________ 7 The mortgagee is required to maintain a claim file: (A) for three years after the last claim payment or billing advisement; or, (B) until there is a final resolution of an ongoing claim review (if later). Within 24 hours of a request by the Secretary, a mortgagee must make available for review, or forward to the Secretary, hard copies of identified claim files. If, upon review (which may include statistical sampling), it is found that a claim was overpaid, the mortgagee must reimburse the Secretary. 5. 203.369 Deficiency Judgments This amendment allows HUD to request or require a mortgagee to pursue a deficiency judgment against any defaulting mortgagor, rather than against only certain categories of mortgagors, as was previously provided. Additional instructions will be issued in the future if the Department determines the need to do so. 6. 203.377 Inspection and Preservation of Properties As indicated above, a mortgagee is required by 203.355 to initiate foreclosure of a mortgage in default within 120 days after it discovers or should have discovered that the property is vacant or abandoned. The amendment to 203.377 includes foreclosure within that time frame as a "reasonable action to protect and preserve" the property. If a mortgagee fails to initiate foreclosure within the time frame, it may not only lose a portion of the debenture interest but could also be held responsible for any damage to or destruction of the property due to such failure ( 203.379(a)). The burden of proof will be upon the mortgagee to establish that the mortgagee's failure to timely initiate foreclosure was not a contributing factor to any damage occurring to the property. Any decision with respect to a mortgagee not being held responsible for damage as a result of not meeting the time frame will be made on a case by case basis as determined necessary by HUD. 7. 203.387 Acceptability of Customary Title Evidence This amendment provides that, in the event of a disagreement as to the acceptability of title and title evidence, the Secretary's decision will be final. _____________________________________________________________________ 8 8. 203.391 Title Objection Waiver With Reduced Insurance Benefits The new provision in this regulation gives the Secretary the option to approve a claim payment in a reduced amount if the title is defective. It also clarifies the existing provision that the Secretary may determine the amount of insurance reduction. 9. 203.402 Items Included in Payment - Conveyed and Non-Conveyed Properties The following paragraphs of 203.402 were amended to clarify certain provisions and, in some cases, to permit an increase in the amount paid in insurance claims. 203.402(f) The authorization to reimburse the mortgagee for the consideration paid to mortgagors for execution of a deed-in-lieu of foreclosure is removed from this paragraph and entered in paragraph (p). The new provision eliminates the $200 limit and permits the Secretary to establish the amount to be paid to mortgagors. It also authorizes full rather than two-thirds reimbursement. The Department has taken this position to encourage the acceptance of more deeds-in-lieu. Mortgagees are authorized by this Mortgagee Letter to offer consideration to mortgagors not to exceed $500 for the execution of a deed-in-lieu of foreclosure. Mortgagees will receive full reimbursement on their claim for the amount actually paid to the mortgagor for the execution of the deed-in-lieu up to the $500 limit. Compensation to mortgagors must be entered in Item 305 of HUD-27011, Part D, rather than in Item 307, so that the reimbursement will not be reduced. The amendment also formalizes in the regulations HUD's long-standing policy that the cost of correcting title defects is not reimbursable. 203.402(g) The costs of eviction and removing personal property have been moved to a new paragraph, 203.402(q). _____________________________________________________________________ 9 203.402(k) Failure to meet the new requirements of 203.355 and 203.366 were added to the actions that may cause curtailment of debenture interest. Debenture interest may be curtailed because of failure to initiate foreclosure on vacant or abandoned property within 60 days or because of failure to convey good marketable title to the Secretary. 10. 203.502 Responsibility for Servicing Under this amendment the mortgagee effecting a transfer of servicing must notify the Secretary within 15 days of the transfer. This change (from 30 to 15 days) makes 203.502 consistent with 203.431, which requires that a seller of a mortgage notify the Secretary within 15 days using Form HUD-92080, Mortgage Record Change, which provides for a 15-day notice. Section B. Regulations Applicable Only to Mortgages Insured Under a Firm Commitment Issued On or After November 19, 1992, or Under Direct Endorsement Processing Where the Credit Worksheet Was Signed by the Mortgagee's Approved Underwriter On or After November 19, 1992. 1. 203.359 Time of Conveyance to the Secretary (A) This amendment is intended to clarify the requirement of the existing regulation relating to the transfer of the property to the Secretary. For mortgages insured under a Firm Commitment issued on or after November 19, 1992, or under Direct Endorsement processing where the credit worksheet was signed by the mortgagee's approved underwriter on or after November 19, 1992, the mortgagee must acquire good marketable title and transfer the property to the Secretary within 30 days of the later of: (1) Filing for record the foreclosure deed (recording the f/c deed); (2) Recording date of deed-in-lieu of foreclosure; (3) Acquiring possession of the property; (4) Expiration of any redemption period; or (5) Such further time as the Secretary may approve in writing. _____________________________________________________________________ 10 (B) At the time of transfer, the mortgagee must have good marketable title and must convey good marketable title to the Secretary ( 203.366). If there is a title defect that must be cured, or other valid cause, the mortgagee may request the field office to extend the time for conveyance. As noted previously, however, the costs of correcting title defects are not reimbursable ( 203.402(f)). (C) In cases where the foreclosure deed or the deed-in-lieu of foreclosure conveys title directly to the Secretary, some of the above requirements may not be relevant, since the mortgagee never holds title. The amended regulation requires that in such cases the property must be transferred to the Secretary within 30 days after the reasonable diligence time frame for completion of foreclosure and acquisition of title and possession specified in 203.356. (D) Paragraph 203.359(a), Time of Conveyance to the Secretary, will continue to apply to those mortgages insured under a Firm Commitment issued prior to November 19, 1992, or under Direct Endorsement processing where the credit worksheet was signed by the mortgagee's approved underwriter prior to November 19, 1992. 2. 203.363 Effect of Noncompliance With Regulations The new paragraph (b) of this regulation provides that if a mortgagee reapplies for insurance benefits after reconveyance by the Secretary because of noncompliance with regulations, the mortgagee will not be reimbursed for any expenses incurred in connection with the property after reconveyance and will not be paid any debenture interest for the period after the date of reconveyance or the deadline date for conveyance as required by 203.359, whichever is earlier. (A) This amendment also provides that any reduction in the Secretary's estimate of value from the time of reconveyance to the time of reapplication will be deducted from the insurance benefits. The reconveyance provisions are incorporated into 203.366 (conveyance after correction of title defects) and 203.379 (conveyance after repair of damaged property). _____________________________________________________________________ 11 (B) A prudent mortgagee will first determine that it has complied with all of the regulations relating to claim procedures, title condition and property condition before conveying the property to the Secretary and applying for insurance benefits. In some cases a mortgagee may avoid curtailment of debenture interest by conveying the property before it has determined that it complied with the regulations; however, it may risk losing a larger amount if a title defect or other regulatory requirement has been overlooked. (C) If the noncompliance results in reconveyance, the mortgagee will lose not only debenture interest but also property expenses and any depreciation in value as well. 3. 203.366 Conveyance of Marketable Title The new paragraph (b) of this regulation provides that if the title to a property conveyed to the Secretary is not good and marketable, the mortgagee will be required to correct the defect within 60 days after receiving notice from the Secretary or within such further time as the Secretary may approve in writing. In this case, the mortgagee may retain the insurance benefits already paid, but it will not be reimbursed for any costs involved in correcting the title ( 203.402(f)). (A) If a title defect is not corrected within 60 days after receiving notice (or within an approved extension of time), the mortgagee will be required to reimburse the Secretary for holding costs and interest on the paid insurance benefits at a rate set in conformity with the Treasury Fiscal Requirements Manual from the date of the notice to the date the defect is corrected or to the date the Secretary reconveys the property. (B) If the defect is not corrected within a reasonable time, the Secretary will reconvey the property and the mortgagee will be required to reimburse the Secretary as provided in 203.363 and 203.364. The Department will determine on a case by case basis as to what will constitute "reasonable time" for purposes of correcting title defects. (C) The contract of mortgage insurance (Subpart B of 24 CFR Part 203) stipulates that the mortgagee, not HUD, must bear the cost of correcting title defects and property expenses pending correction, because HUD did not participate in obtaining or maintaining the mortgage lien nor in acquiring title to the property. (HUD accepts responsibility only where the Secretary had sold the mortgage or the property with the senior adverse interest that causes the title defect ( 203.390).) _____________________________________________________________________ 12 4. 203.378 Property Condition The Federal Register omitted a passage of 12 words belonging in paragraph (c)(3) of this section. After the word "property" the following should be inserted: "has sustained while in the possession of the mortgagee if the property". This correction was issued in Vol. 58, No. 108 of the Federal Register, dated June 8, 1993. A copy of which is included in Attachment # 1. Under the new paragraph (c)(3), the mortgagee is responsible for any damages, the property has sustained while in the mortgagee's possession if the property was conveyed without prior notice to and approval by the Secretary of such damage as provided in the amended 203.379. 5. 203.379 Adjustment for Damage or Neglect The amendment to 24 CFR 203.379 resulted in a reorganization of the paragraphs in that section. Therefore, in the 12/84 version of the claim form, the regulatory references to paragraphs 203.379(a) and (b) will now appear to be incorrect for item 25 of Part A, Form HUD-27011. (A) Pending HUD's revision of Form HUD-27011; (1) the reference to 203.379(a) in Item 25(a) will be considered to be a reference to the new paragraph 203.379(a)(1); and, (2) the reference to 203.379(b) in Item 25(b) will be considered to be a reference to the new paragraph 203.379(a)(2). (B) If the damage to the property is due to one of the circumstances identified in either: (1) 24 CFR 203.378(c)(1) fire, flood, earthquake or tornado; or, (2) 24 CFR 203.378(c)(2) failure to preserve and protect the insured property if the property was insured on or after January 1, 1977 ; and the mortgagee chooses to repair the property prior to conveyance, then no prior notification is required. Additionally, the mortgagee shall not be entitled to any reimbursement for these repairs. _____________________________________________________________________ 13 (C) However, mortgagees continue to be required to obtain HUD's prior permission if they would like to convey a damaged property (without repair). If HUD's permission is obtained, the mortgagee may convey the property without repair and reduce the claim by the greater of HUD's estimate of the cost of repairs or the insurance recovery where the type of damage was due to: (1) 24 CFR 203.378(c)(1) fire, flood, earthquake or tornado; or, (2) 24 CFR 203.378(c)(2) failure to preserve and protect the insured property if the property was insured on or after January 1, 1977 ; (D) HUD is deferring implementation of the notification requirement identified in the new paragraph 203.379(b)(damage by events "other" than: (1) 24 CFR 203.378(c)(1) fire, flood, earthquake or tornado; or, (2) 24 CFR 203.378(c)(2) failure to preserve and protect the insured property if the property was insured on or after January 1, 1977). The new requirement would affect only those mortgages insured under a Firm Commitment issued on or after November 19, 1992, or under Direct Endorsement processing where the credit worksheet was signed by the mortgagee's approved underwriter on or after November 19, 1992. Since relatively few mortgages are included in this universe, a delay in implementation will not adversely affect either HUD or mortgage lenders. (E) HUD will issue implementing procedures for the new requirement of 24 CFR 203.379(b) in a future Mortgagee Letter. Until that time, mortgagees shall continue to follow the requirements of Chapter 9, HUD Handbook 4330.1, Rev-3, dated April 17, 1992, concerning the condition of conveyed properties. 6. 203.380 Certificate of Property Condition This amendment to the mortgagee's certifications relating to damage. If the Secretary authorized conveyance in a damaged condition, the mortgagee must attach a copy of the authorization to the claim. _____________________________________________________________________ 14 7. 203.402 Items Included in Payment - Conveyed and Non-Conveyed Properties Several paragraphs of 203.402 were amended to permit or limit reimbursement in claims where the mortgage was insured under a firm commitment issued on or after November 19, 1992, or under direct endorsement processing where the credit work sheet was signed by the mortgagee's approved underwriter on or after November 19, 1992. 203.402(g) The mortgagee will not be reimbursed for the cost of protecting, operating, preserving or inspecting the property or removing debris from the property after the deadline for conveyance required by 203.359 unless the mortgagee has an approved extension of time to convey on Form HUD-50012. 203.402(j) The amendment to this paragraph authorizes reimbursement for the cost of repairs required by the Secretary in cases where the mortgagee is not held responsible for the damage, as provided in 203.379. 203.402(k) Failure to initiate foreclosure within the required time frame ( 203.606(b)(1)) and failure to convey marketable title within the required time frame ( 203.366) are added to the events that may cause curtailment of debenture interest. 203.402(r) The mortgagee will not be reimbursed for any expenses incurred in connection with the property after reconveyance by the Secretary. Questions related to this Mortgagee Letter should be directed to the appropriate local HUD Office. Generally, your questions relating to any action which must be taken up to and including the date the property is conveyed may be answered by the Single Family Loan Management staff. The Property Disposition staff generally handles issues which arise after the date the property has been conveyed. Very sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing - Federal Housing Commissioner Attachments _____________________________________________________________________ Attachment 1 (regulations governing the servicing of FHA-insured single family mortgages) can be found in the FR database. (Federal Register date: Tuesday, October 20, 1992.) _____________________________________________________________________ ATTACHMENT # 2 COMPLIANCE TO 24 CFR 203.355 1. IS THE DATE OF DEFAULT PRIOR TO 12/1/92? IF YES - THEN FORECLOSURE MUST BE INITIATED WITHIN 12 MONTHS FROM THE DATE OF DEFAULT. IF NO - THEN THE FORECLOSURE MUST BE INITIATED WITHIN 9 MONTHS FROM THE DATE OF DEFAULT UNLESS THE PROPERTY IS VACANT OR ABANDONED. 2. FOR CASES WHERE THE DATE OF DEFAULT IS ON OR AFTER 12/1/92 AND THE PROPERTY BECAME VACANT/ABANDONED BEFORE 8/1/93. THEN - THE FORECLOSURE MUST BE INITIATED WITHIN 9 MONTHS FROM THE DATE OF DEFAULT. 3. FOR CASES WHERE THE DATE OF DEFAULT IS ON OR AFTER 12/1/92 AND THE PROPERTY BECAME VACANT/ABANDONED (OR SHOULD HAVE BEEN DISCOVERED TO BE VACANT OR ABANDONED) ON OR AFTER 8/1/93 - THEN THE FORECLOSURE MUST BE INITIATED BY THE EARLIER OF: (A) NINE MONTHS FROM THE DATE OF DEFAULT; OR, (B) 120 DAYS FROM THE DATE THE PROPERTY BECAME VACANT OR ABANDONED (OR SHOULD HAVE BEEN DISCOVERED TO BE VACANT OR ABANDONED). NOTE: WHERE THE MORTGAGEE HAS PRUDENTLY SERVICED THE MORTGAGE INCLUDING PERFORMING ALL REQUIRED INSPECTIONS, THE DATE THE MORTGAGEE DISCOVERS THE PROPERTY TO BE VACANT WILL BE THE SAME DATE THAT THE PROPERTY IS CONSIDERED VACANT. _____________________________________________________________________ ATTACHMENT # 3 COMPLIANCE TO 24 CFR 203.355 (a)(2) WHERE THE MORTGAGED PROPERTY BECAME VACANT OR ABANDONED. 1. Date of first payment 01/01/93 Date of last payment 04/01/93 Date of Default 06/01/93 Date of inspection 06/20/93 (property discovered vacant) Account paid completely current 06/30/93 Date of inspection 06/30/93 (property discovered occupied) Date of last payment 10/01/93 Date of Default 12/01/93 Date of inspection 11/12/93 (property now vacant) 9 months from date of default 09/01/94 120 days from the date the date property was discovered vacant through an inspection 3/12/94 A. When must foreclosure be initiated? 3/12/94 B. WHY? Although an inspection found the property vacant on 6/20/93, the mortgagor cured the default and the account remained current for several more months. The mortgagee diligently followed up when the mortgagor failed to make the 11/1/93 payment and had an inspection performed promptly. Foreclosure must be initiated by 3/12/94 which is 120 days from the date the property was discovered vacant and is earlier than nine months from the date of default (9/1/94). _____________________________________________________________________ 2. Date of first payment 12/01/92 Date of last payment 05/01/93 Date of Default 07/01/93 Date of Bankruptcy 07/02/93 (Mortgagee maintained close contact with the mortgagor's attorney during bankruptcy - mortgagor telephoned mortgagee repeatedly making promises to pay throughout bankruptcy mortgagor continued to occupy the property.) No payments were made during bankruptcy Date of Bankruptcy Dismissal 12/29/93 Date of inspection 12/30/93 (Property discovered vacant) 120 days from the date the date property was discovered vacant through an inspection 04/29/94 A. When must foreclosure be initiated? 04/01/94 B. WHY? Because 4/1/94 is nine months from the date of default. Nine months from the date of default is earlier than the 120 days from the date of vacancy (4/29/94). 3. Due date of last payment made 07/01/92 Date of Default 09/01/92 -mortgagee had no communication with the mortgagor Date of first inspection 01/10/93 (property found vacant) Property should have been inspected by 09/30/92 120 days from date property should have been discovered vacant 01/28/92 120 days from date property discovered vacant 05/10/93 _____________________________________________________________________ A. When must foreclosure be initiated? 09/01/93 B. WHY? The new regulations are only applicable to cases where the date of default is on or after 12/1/92. Therefore, the new regulations do not apply to this case. However, the mortgagee would be held responsible for any damage to the property as a result of its failure to properly preserve and protect the property. 4. Date of first payment 12/01/92 Date of last payment 03/01/93 Date of Default 05/01/93 Date of inspection 08/30/93 Property should have been inspected prior to 05/31/93 120 days from date property discovered vacant 12/29/93 120 days from date property should have been discovered vacant 09/28/93 A. When must foreclosure be initiated? 09/28/93 B. WHY? The mortgagee did not inspect the property as required. Vacancy in this case is fixed as of the date by which the mortgagee was required to perform the initial inspection. 5. Date of first payment 03/01/93 First payment not made Date of default 04/01/93 property should have been inspected prior to 04/30/93 Date property discovered to be vacant ((First & only) inspection) 07/07/93 No Documented communication between mortgagee and mortgagor from March 1, 1993 to present. _____________________________________________________________________ A. When must foreclosure be initiated? 08/28/93 B. WHY? The mortgagee did not timely perform the required property inspections. Vacancy in this case is fixed as of the date by which the mortgagee was required to perform the initial inspection. (4/30/93). (120 days from 4/30/93 = 8/28/93) *U.S. G.P.O.:1993-342-362:80125