18.3 MINIMUM REQUIREMENTS [7 CFR 3555.301] (07/02/18)

© RHS HB-1-3555 SFH Guaranteed Loan Program Technical Handbook

When a borrower’s account becomes past due, the servicer must, at a minimum, take the collection efforts described below. Each delinquency should be treated individually using collection techniques that fit the individual circumstances. Additionally, the Agency recommends making personal contact with a delinquent borrower until the HB-1-3555 18-2 delinquency is cured. Debt collection efforts may be suspended when applicable laws restrict creditor action to collect a debt or take action. An example that may be a violation of an applicable law is if the commencement of debtor’s bankruptcy case occurs.

A. Initial Contact The servicer must attempt to make verbal or written contact with the borrower on or before the day an account becomes 20 days past due. The servicer must send a letter to the borrower if it is unable to reach the borrower by telephone. This contact must solicit enough information to evaluate the borrower’s ability to cure the default and to help determine the additional servicing actions to take. At a minimum, the servicer must attempt to establish and document the following:

The borrower's current mailing address and telephone number;
The reason for the default;
Whether the reason is temporary or long-term;
The borrower's attitude toward the debt;
The borrower's present income and employment status;
The borrower's current monthly expenses and debt obligations; and
A realistic and satisfactory arrangement for curing the default.

B. Notify Credit Repository The servicer must provide an accurate and complete file of the status of mortgages in its Agency-guaranteed loan portfolio to a minimum of three credit repositories each month with the goal of avoiding disputes that could arise from inaccurate or inconsistent reporting.

C. Send Certified Letter to the Borrower Before an account becomes 60 days past due and the borrower has not made arrangements for payment, the servicer must send a certified letter to the borrower. The letter should emphasize the importance of meeting the debt obligation, negative impact of non-repayment on the borrower’s credit history, and request an interview with the borrower for the purpose of resolving the past due account and avoiding foreclosure.The information required at the initial contact should be requested in the certified letter if initial contact was not made.

D. Inspect the Property Before a delinquent account becomes 60 days past due and before initiating a liquidation action, the servicer must take the following steps:

Occupancy-Assess the physical condition of the property and determine the occupancy status of the dwelling and use reasonable judgement to determine if the property is vacant or abandoned. For all inspections, servicers shall be required to document the general condition of the property and identify any actions required to adequately protect and preserve the property.
Abandoned property- In all cases, the servicer shall take all necessary actions to protect the property from waste, damage, and vandalism. The servicer should document the servicing file outlining the determination using indicators such as property condition, posted for sale signs, presence of personal property or vehicles, yard condition, last known mailing address, or absence of a power meter. If the loan is delinquent, expedite foreclosure by referring the loan for acceleration within 15 days of the date of the inspection report confirming the property was abandoned. Additional guidance regarding management methods and activities of custodial properties can be found at Paragraph 19.2.A of Chapter19 of this Handbook.
Inspections-The servicer should make an inspection of the mortgaged property at least monthly to verify occupancy and ensure the property is being adequately maintained. Generally, curbside inspections are inadequate for making these determinations and are acceptable to the Agency only if there is danger to the inspector or there are legal restrictions preventing access to the property. Inspection records must be retained in the mortgage file, and address at a minimum, the condition of the property, occupancy status and any necessary repairs to protect an abandoned property, the date of inspection, and who performed the inspection.

E. Proceed with Liquidation When the account becomes 90 days past due and the borrower has been nonresponsive or has declined all available foreclosure prevention options, the servicer must initiate liquidation proceedings by accelerating the loan and, if necessary, foreclose as long as any applicable notice and waiting period under state law is met.