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U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000

September 28, 1993
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
MORTGAGEE LETTER  93-30
     TO:  ALL APPROVED MORTGAGEES
     ATTENTION:  Single Family Servicing Managers
     SUBJECT:  Allowable Attorney's and Trustee's Fees
                 Mortgagees May Charge to Mortgagors
 
          This Mortgagee Letter provides guidance and clarification
     regarding attorney's and trustee's fees which mortgagees may
     charge to a mortgagor's account and, in addition, serves as a
     reminder to mortgagees of the proper use of escrow account funds.
 
          With respect to foreclosure-related fees and expenses which
     may be charged to the mortgagor in the event the loan is
     reinstated, 24 CFR 203.552(a)(9) allows the mortgagee to collect
     reasonable and customary fees and charges from the mortgagor
     after insurance endorsement for attorney's and trustee's fees and
     expenses actually incurred after the mortgagee has made a decision
     to foreclose, i.e., the mortgagee has sent the HUD-1 letter;
     has completed the management review of the case; and is prepared
     to send the HUD-2 or 3 letter.
 
          With respect to non-foreclosure fees and expenses,
     including bankruptcy, in accordance with 24 CFR 203.552(a)(13) the
     mortgagee may collect reasonable and customary fees and charges
     from the mortgagor after insurance endorsement, where permitted
     by the security instrument, for attorney's fees and expenses
     actually incurred in the defense of any suit or legal proceeding.
     This is true whether or not the mortgagee has made a decision to
     foreclose prior to incurring the expenses.
 
          Please note the following change in procedure concerning
     fees for foreclosure, reinstatement and for bankruptcy-related
     services which can be charged to the mortgagor.  Effective 30
     days from the date of this mortgagee letter, the Department
     will allow the mortgagee to charge the mortgagor fees for
     foreclosure, reinstatement and bankruptcy-related services in
     accordance with the Federal National Mortgage Association
     (FNMA) Schedule of Standard Attorney's and Trustee's Fees in
     effect on the date the legal action is instituted.  This modifies
     the Handbook guidance under Chapter 4, Paragraph 4-8 in that
     the attorney's and trustee's fees shall be established by
 
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     the FNMA fee schedules not the local Field Office.  The
     Department considers the FNMA fee schedules to be reasonable
     and customary.
 
          With respect to the payment of insurance benefits, the
     mortgagee may continue to claim all costs related to the payment
     of foreclosure expenses even if some of the expenses were made
     prior to the decision to foreclose.  However, as before, no
     attorney's fee may be charged to the mortgagor or may be claimed
     for insurance benefits for the services of the mortgagee's or
     servicer's staff attorney or for the services of a collection
     attorney other than the attorney handling the foreclosure,
     bankruptcy, etc.
 
          Finally, mortgagees are reminded that Handbook 4330.1,
     REV-3, Administration of Insured Home Mortgages, Paragraph 2-5,
     provides that escrow funds shall be used only for the purpose
     for which they were collected and are subject to audit and
     examination by HUD.  Late charges, attorney's fees, inspection fees,
     mortgage delinquencies or refunds of overpaid subsidy, etc.,
     shall never be collected by deducting the amount from the
     mortgagor's escrow account.
 
          In reviewing a mortgagor's payment history, some Field
     Offices have cited the mortgagee for using the mortgagor's escrow
     funds for paying attorney's and trustee's fees.  However, our
     review disclosed that the mortgagee had actually advanced
     corporate funds for the payment of these fees.  We remind you that
     escrow funds are to be used only for the purpose for which they
     were collected and are subject to audit and examination by HUD.
     Mortgagees must ensure that all foreclosure or bankruptcy-related
     attorney's and trustee's fees are identified as non-escrow items.
 
          Any questions regarding this matter should be directed to
     the local HUD Office's Single Family Loan Management Branch.
 
Sincerely yours,
 

 
Nicolas P. Retsinas
Assistant Secretary for Housing
- Federal Housing Commissioner
 
                                           *U.S. G.P.O.:1993-301-054:80201