III.A.3.b. Assumptions (03/14/16)

Owned by Kacey Olson
Nov 25, 2018
3 min read

© HUD Single Family Housing Policy Handbook 4000.1

Included in this section are:

i. Assumability of FHA-Insured Mortgages

ii. Notice to Homeowner

iii. Fees for Assumptions

iv. Notification to HUD of Changes

v. Exercise of Due-on-Sale Clause

vi. Acceleration of the Mortgage

vii. Contacting Borrowers Regarding Assumptions

viii. Reporting of Defaults on Assumed Mortgages to Consumer Reporting Agencies

i. Assumability of FHA-Insured Mortgages

All FHA-insured Mortgages are assumable. The Mortgagee must not impose, agree to, or enforce legal restrictions on conveyances or assumptions after closing except when:

  • specifically permitted by HUD regulations; or
  • the restriction had been specified in a junior lien granted to the Mortgagee after settlement.

The Mortgagee must review the mortgage documents to determine what restrictions have been placed on the Mortgage.

ii. Notice to Homeowner

The Mortgagee must send the applicable Notice to Homeowner: Release of Personal Liability to:

  • all applicants for FHA-insured Mortgages, before settlement; and
  • sellers or buyers who request information on HUD’s creditworthiness review criteria or procedures for assumptions or releases from personal liability.

iii. Fees for Assumptions

(A) Allowable Charges Separate from Assumption Processing Fees The Mortgagee may charge the Borrower additional reasonable and customary fees for the following items in connection with an assumption, when not included in the processing fee:

  • non-refundable fees for credit reports and verifications of employment; and
  • up to $45.00 for fees for the preparation and execution of release of liability forms (form HUD 92210.1, Approval of Purchaser and Release of Seller), where a Borrower requests an executed release of liability form as evidence that the Borrower was released during a previous creditworthiness review.

(B) Refund of Assumption Processing Fees In the event a Mortgage is not assumed, Mortgagees must refund one-half of its processing fees if the assumptor’s credit is approved, but assumption does not occur for reasons beyond the control of the assumptor.

(C) Change of Hazard Insurance The Mortgagee may not assess a fee for processing the assumptor’s request to change hazard insurance coverage when the existing policy has not yet expired.

(D) Section 143 of the Internal Revenue Code of 1986The Mortgagee must not charge the Borrower any additional fees for ensuring that assumptions of mortgage revenue bond Mortgages comply with requirements of the Internal Revenue Code (IRC).

iv. Notification to HUD of Changes

The Mortgagee must notify HUD via FHA Connection (FHAC) of assumptions:

  • within 15 Days of any change of Borrower; or
  • within 15 Days of the date the Mortgagee receives actual or constructive knowledge of the transfer of ownership.

v. Exercise of Due-on-Sale Clause

When a prohibited sale or transfer of the Property occurs, the Mortgagee must enforce the due-on-sale clause by:

  • requesting approval from the National Servicing Center (NSC) via fax to accelerate the Mortgage, provided that acceleration is permitted by law; and
  • accelerating the Mortgage if approval is granted.

vi. Acceleration of the Mortgage

(A) Requests for Acceleration The Mortgagee may request approval from the NSC to accelerate Mortgages for assumptions made:

  • without credit approval; or
  • where HUD assumption requirements are not met and the Borrower cannot or will not comply with HUD’s requirements at the time the assumption is discovered.

(B) Acceleration not Permitted The Mortgagee may not accelerate for the assumptions when:

  • acceleration for assumption without credit approval is prohibited by state law;
  • the seller retains an ownership interest in the Property; or
  • the transfer is by devise or descent.

vii. Contacting Borrowers Regarding Assumptions

Upon any inquiry by a seller regarding HUD’s assumption requirements or upon learning that an assumption has occurred, the Mortgagee must:

  • attempt to obtain the forwarding address of the selling Borrower; and
  • advise the selling Borrower to update the mailing address as needed.

viii. Reporting of Defaults on Assumed Mortgages to Consumer Reporting Agencies

If an assumed Mortgage goes into Default, the Mortgagee must not report these Defaults to consumer reporting agencies for former Borrowers, whether those Borrowers remain legally liable for the mortgage debt or have been released from liability. The Mortgagee should notify any Borrowers that remain liable for the mortgage debt that the assumed Mortgage is in Default.