III.A.2.n. Non-Monetary Default (03/14/16)

Owned by Kacey Olson
Nov 25, 2018
2 min read

© HUD Single Family Housing Policy Handbook 4000.1

By executing the deed of trust and Note for an FHA-insured Mortgage, the Borrower agrees to submit the monthly Mortgage Payment by the first of each month and to adhere to the uniform covenants listed in the deed of trust and Note. The following provides guidance associated with the Borrower’s failure to adhere to these covenants.

Included in this section are:

i. Definition

ii. Mortgagee Cure

iii. Hazard Insurance

iv. Taxes, Assessments and Government or Municipal Charges

v. Homeowners’ Association Fees

vi. Code Violations

vii. Demolition Orders

viii. Due-on-Sale Clause

i. Definition

Non-Monetary Default is a Default where the Borrower fails to perform obligations, other than making monthly payments, contained in the mortgage security instrument for a period of 30 Days.

ii. Mortgagee Cure

When the Non-Monetary Default may be cured or otherwise resolved by Mortgagee action without resorting to foreclosure action, the Mortgagee must advance and charge to the Borrower all amounts due for servicing activities, as defined in the mortgage agreement, if:

  • the Borrower fails to make required payments or charges;
  • the Borrower fails to perform any other covenants and agreements contained in the security instrument; or
  • there is a legal proceeding that may affect the Mortgagee’s rights in the Property.

iii. Hazard Insurance

If the Borrower fails to maintain hazard insurance coverage when it is stated as an obligation in the Mortgage, the Mortgagee may advance funds or force-place insurance as follows.

(A) Mortgagee Advances The Mortgagee may advance the funds to pay the renewal premiums. The Mortgagee must renew the same type of policy and the same coverage carried previously by the Borrower.

(B) Force-Placed Insurance If Borrowers fail to renew hazard insurance coverage when required, the Mortgagee may force-place hazard and/or flood insurance where consistent with federal regulations. While the Mortgagee may, at its discretion, obtain more coverage than is necessary to protect the Mortgagee’s interest, HUD limits its reimbursement of these premiums.

iv. Taxes, Assessments and Government or Municipal Charges

The Mortgagee may advance funds and charge the Borrower when the Borrower fails to pay taxes, assessments, water rates, and other governmental or municipal charges, fines, or impositions not included in the Borrower’s monthly Mortgage Payment.

v. Homeowners’ Association Fees

If the Borrower fails to pay Condominium/HOA Fees, the Mortgagee must take any action necessary to protect the first-lien position of the FHA-insured Mortgage against foreclosure actions brought by a condominium/HOA or any other junior lien holder.

vi. Code Violations

If the Borrower fails to address a code violation notice from the municipality where the Property is located, the Mortgagee must perform activities necessary to preserve and protect the Property, as authorized under the security instruments. See Mortgagee Property Preservation and Protection.

vii. Demolition Orders

The Mortgagee must forward copies of all notices pertaining to demolition orders and hearings to HUD’s MCM immediately upon discovery.

The MCM will advise the Mortgagee as to whether to proceed with the demolition or to postpone the demolition until after conveyance to HUD.

viii. Due-on-Sale Clause

The Mortgagee must review the Mortgage’s legal documents to determine any covenant restrictions pertaining to assumption. See Change of Borrowers (Assumptions) for more information.