www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 May 26, 1994 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 94-24 TO: ALL APPROVED MORTGAGEES ATTENTION: SINGLE FAMILY SERVICING MANAGERS SUBJECT: Supplemental Claims The Department has received a number of complaints from mortgagees regarding HUD delays in processing supplemental claims. HUD realizes there are delays; however, the very nature of supplemental claims requires that they be reviewed closely before payment. In addition, mortgagees are filing a significant number of supplemental claims. While it is appropriate for supplemental claims to be filed in certain circumstances, the Department has always expected mortgagees to properly review and certify the accuracy of the initial claim submission to avoid the necessity of submitting supplemental claims. Therefore, the processing of supplemental claims is a lower priority than processing the original claims. The Department requires mortgagees to have a quality control plan in place for the submission of Claims for Insurance Benefits. That plan should include a requirement that a thorough review of all receipts and expenses is made before submitting an Application for Insurance Benefits. In addition, the mortgagee's quality control plan must now incorporate the requirements of this Mortgagee Letter. To assist mortgagees, some of the most common errors submitted on the Application for Insurance Benefits are noted in Attachment 1. The processing of supplemental claims has become costly to both HUD and to mortgagees. In an effort to improve the process, this Mortgagee Letter notifies mortgagees and Field Offices that effective 30 days from the date of this Mortgagee Letter, the Department will limit the number of supplemental claims mortgagees may submit to HUD and is improving the method for filing claims for reimbursement of attorney's fees. Efforts on both the mortgagees' and this Department's part to limit the number of supplemental claims submitted will help in processing supplemental claims more quickly. _____________________________________________________________________ 2 ONE SUPPLEMENTAL CLAIM Effective 30 days from the date of this Mortgagee Letter, for new claims submitted, mortgagees are allowed to file only one supplemental claim for additional funds. Remittance of overpayments or any other amounts due HUD are not subject to any limitation. The supplemental claim must be filed within the 6-month period following the date of final settlement for any given HUD case number. As stated in FHA Single Family Insurance Claims Handbook 4330.4, supplemental claims on Part A or B must not be filed before receipt of the final payment of the original claim on Part B except when Part A was overpaid. Any subsequent supplemental claim for additional funds submitted for the same case will be denied UNLESS it meets one of the following exceptions: * Filing approval from the local HUD Office. The Single Family Loan Management Branch having jurisdiction over the property may give the mortgagee written approval to file an additional supplemental claim. * The subsequent supplemental claim concerns hazard insurance adjustments -- no filing approval necessary. * The subsequent supplemental claim concerns deficiency judgments -- no filing approval necessary, or * Supplemental claims previously submitted and returned to the mortgagee for a correction and/or for further information must be received by the Department as soon as possible but no later than 45 days from the Department's request or 6 months from the final settlement date of the original claim, whichever is later. It is the Department's belief that the need for mortgagees requiring the local HUD Offices to review and approve more than the "one" supplemental claim submission for the same case should be few, if any. However, mortgagees requesting local HUD Offices to approve such requests must: * submit the request in writing, * provide thorough justification and documentation to show and support the exceptional situation required for approval of the request, and * maintain a copy of HUD's approval and supporting documentation in the claim review file. _____________________________________________________________________ 3 ATTORNEY FEES The Department is eliminating the requirement that lenders file separate supplemental claims directly to the Office of General Counsel for attorney's fees which exceed the FNMA fee schedule. For routine legal actions, HUD reimburses mortgagees for attorney's fees based on the Federal National Mortgage Association (FNMA) Schedule of Standard Attorney's and Trustee's Fees. Formerly, mortgagees were generally instructed to enter the amount actually paid to the attorney, regardless of whether the fee exceeded the FNMA fee or whether the amounts were reasonable, and the initial claim payment was limited to the allowable amount. Mortgagees must now follow the instructions below regarding what may be claimed for attorney's fees. Generally, mortgagees may enter no more than the FNMA fee for a routine legal action and may enter only reasonable amounts for contested foreclosures, contested evictions, contested bankruptcies, required probate procedures, etc. If the mortgagee complies with this guidance, the need to file a supplemental claim for additional funds for attorney's fees should be eliminated in all but very few cases. However, as before, if the mortgagee believes it is entitled to more than the amount HUD actually reimbursed in the initial claim payment, the mortgagee may file a supplemental claim for attorney's fees. However, as indicated above, mortgagees may now file only one supplemental claim, so any claim for additional attorney's fees must be included in that one supplemental claim. In addition, supplemental claims for attorney's fees should no longer be sent to the Home Mortgage Division, Room 9258, as had been previously directed by Paragraphs 1-10 and 7-7 of HUD Handbook 4330.4. If a supplemental claim for attorney fees is filed, it may include other items notwithstanding HUD Handbook 4330.4, Paragraph 7-7. To support the additional fees, the supplemental claim must include a complete Form HUD-27011 (supplemental); a copy of the Parts A and B of the original Form HUD-27011 and Parts C, D, and E as applicable; a copy of the final advice of payment letter; the mortgagee's comments on the necessity for the increased fee; and copies of documentation necessary to support the additional claimed amount. Mortgagees are expected to maintain adequate documentation in the claim review files to support all attorney's fees. This will be subject to verification during the post claim review. If a mortgagee's claim is more than the amounts allowed by the following instructions, it will be considered a monetary finding and the mortgagee will be billed for the statistically calculated overpayment for all claims within the review period. _____________________________________________________________________ 4 Reimbursement for attorney's fees may be claimed by entering the amount of the fee in the following Items in Part D of Form HUD-27011: Item 305 - Mortgagees may enter in Item 305 an amount up to the maximum FNMA fee for routine evictions and reasonable attorney's fees for contested evictions. Item 306 - Mortgagees may enter in Item 306: * a maximum of the FNMA fee for attorney's fees incurred in any completed routine foreclosure and reasonable and customary fees for a contested foreclosure. * a maximum of 75% of the FNMA fee incurred for a routine foreclosure which was not completed because: o the mortgagor filed a bankruptcy petition. o a deed-in-lieu of foreclosure was accepted after the foreclosure was initiated. o HUD directed the mortgagee to terminate foreclosure in order to permit assignment consideration, provided the foreclosure was properly initiated. (See HUD Handbook 4330.1 Rev-4, Paragraph 8-7 F.) * a maximum of the FNMA fee for attorney's fees incurred for specific legal services such as "proceedings subsequent" for a Torrens title in Minnesota. * a maximum of the FNMA fee for attorney's fees incurred for a deed-in-lieu of foreclosure. * reasonable attorney's fees incurred in preparing assignment of a mortgage to HUD. Item 307 - Mortgagees shall not enter attorney's fees in Item 307. Item 310 - Mortgagees may enter in Item 310 an amount up to the FNMA fee for attorney's fees actually incurred for each bankruptcy and reasonable and customary attorney's fees incurred when the bankruptcy was not routine. Mortgagees may not claim attorney's fees for defending "cramdowns" in bankruptcy. _____________________________________________________________________ 5 The Department fully expects mortgagees to reconcile their claims and make all adjustments with a single supplemental claim submission. The number of supplemental claims that warrant local HUD Offices to review and approve should be few. Questions pertaining to this Mortgagee Letter may be directed to the Single Family Mortgage Insurance Claims Branch at (202) 708-1086 or the Single Family Insured Servicing Branch at (202) 708-1719. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing - Federal Housing Commissioner Attachment _____________________________________________________________________ PLEASE ATTACH THIS ATTACHMENT TO MORTGAGEE LETTER 94-24, dated May 26, 1994 ATTACHMENT 1 MOST COMMON ERRORS THAT CAUSE SUPPLEMENTAL CLAIMS ON THE PART A CLAIM: 1. Entering the incorrect date in item 9, Date of Possession and Acquisition of Marketable Title. 2. Entering the incorrect date in item 11, Date of Foreclosure Proceedings (a) instituted or (b) Date of Deed-in-Lieu. 3. Not entering a date in both item 11(a) and 11(b) when the mortgagee accepts a deed-in-lieu of foreclosure after initiation of foreclosure. 4. Not entering the date of foreclosure initiation in item 11 when properly instituted. 5. Entering the incorrect/or no date in item 19, Expiration Date of Extension to Foreclosure/Assign. 6. Entering the incorrect/or no date in item 20, Date of Notice/Extension to Convey. 7. Entering the incorrect/or no date in item 18, Date of Firm Commitment. (Note: Firm Commitment date is not applicable on Direct Endorsement cases.) 8. Entering the incorrect date in item 31, Mortgagee Reported Curtailment Date. ON THE PART B CLAIM: 1. Mortgagees do not claim all expenditures at the time they file Part B. 2. Mortgagees claim disbursements on inappropriate lines. 3. Mortgagees claim eviction costs as foreclosure/acquisition costs. This causes HUD to generate a payment for eviction costs of two-thirds instead of 100 percent. Eviction costs should be entered in item 111, total disbursement.