III.A.2.t. Conveyance of Acquired Properties (03/14/16)

© HUD Single Family Housing Policy Handbook 4000.1

Included in this section are:

i. Conveyance Timeframe

ii. Condition of Properties

iii. Condition of Title

iv. Notice of Property Transfer

v. Submission of Title Evidence for Conveyance to HUD

vi. Responsibility for Property at Conveyance

vii. Extension of Time for Conveyance

viii. HUD Acceptance of Conveyance

ix. Reconveyance

i. Conveyance Timeframe

The Mortgagee must acquire clear, marketable title and transfer the Property to HUD within 30 Days of the latter of:

• recordation of the foreclosure deed;
• recordation date of a DIL of Foreclosure;
• acquisition of the Property;
• expiration of the redemption period; or
• HUD-approved time extensions.

In cases where the Mortgagee arranges for a direct conveyance of the Property to the Secretary, the Mortgagee must convey the Property to HUD within 30 Days of the end of the Reasonable Diligence Timeframe.

ii. Condition of Properties

(A) Acceptable Conveyance Condition Acceptable Conveyance Condition refers to how at the time of conveyance to HUD, the Mortgagee must ensure that the Property meets all of the following conditions:

• The Property is undamaged by fire, flood, earthquake, hurricane, tornado, boiler explosion (if a condominium) or Mortgagee Neglect.
• The Property is secured and, if applicable, winterized.
• All insured damages including theft and vandalism, if any, are repaired per the scope of work indicated on the insurance documents.
• Interior and exterior debris is removed, with the Property’s interior maintained in Broom-swept Condition, the lawn is maintained, and all vehicles and any other personal property are removed in accordance with state and local requirements.
• The Mortgagee has good and marketable title.

Broom-swept Condition is the condition of a Property that is, at a minimum, reasonably free of dust and dirt and free of hazardous materials or conditions, personal belongings, and interior and exterior debris.

(B) HUD Contact

(1) Mortgagee Compliance Manager HUD’s MCM is the single point of contact to administer Mortgagee compliance functions and property preservation activities.

(2) P260P260 is HUD’s web-based internet portal, which allows Mortgagees to submit requests, notifications, and documents and obtain approvals for pre- and post-conveyance activities.

(C) Mortgagee Property Preservation and Protection Action

(1) Definition Property Preservation and Protection (P&P) actions are maintenance, security, and repair work required by HUD in order to ensure that the Property meets HUD’s conveyance condition standards. Mortgagee Neglect is the Mortgagee’s failure to take action to preserve and protect the Property from the time it is determined (or should have been determined) to be vacant or abandoned, until the time it is conveyed to HUD.

(2) Standard The Mortgagee must preserve and protect Properties securing foreclosed FHA-insured Mortgages. The Mortgagee is responsible for the management, scheduling, and execution of all activities and actions taken to preserve, secure, maintain and protect the Property, regardless of the amount that HUD may reimburse. The Mortgagees may use any qualified individual or business to perform P&P services on Properties that were secured by FHA-insured Mortgages; however, the Mortgagee remains fully responsible to HUD for its actions and the actions of its agents, individuals and firms that performed such services. The Mortgagee remains responsible for property damage or destruction to vacant or abandoned Property resulting from Mortgagee Neglect. Such neglect includes, but is not limited to:

• failure to adequately and accurately verify the occupancy status of a Property;
• failure to complete timely and accurate property inspections;
• failure to promptly and appropriately secure and to continue to preserve and protect all vacant Properties according to HUD standards; and
• failure to promptly notify the Mortgagee Compliance Manager (MCM) of receipt of code violations and demolition notices and/or take appropriate action.

The Mortgagee is not liable for damage to the Property by waste committed by the Borrower, their heirs, successors, or assigns before the Property becomes First-Time Vacant (FTV).

(3) Required Documentation The Mortgagee must:

• take before and after photographs and upload them into P260 for each claimed Property P&P expense; and
• retain in the Claim Review File:
  • all copies of paid invoices or receipts or other documentation supporting all property preservation expenses claimed by the Mortgagee; and
  • a chronology of the Mortgagee’s Property P&P actions.

If documentation is incomplete, inadequate, or not provided, HUD will not accept a Mortgagee’s certification of property condition and may:

• re-convey the Property to the Mortgagee; or
• seek reimbursement from the Mortgagee for HUD’s estimate of the cost of the repairs required to repair and restore the Property to conveyance condition.

HUD will require repayment of all or part of any claim reimbursement if it is determined that expenses claimed and paid were unnecessary or excessive, or that services claimed were not performed or were performed improperly or incompletely.

(4) Property Preservation Allowances

(a) Definition The Maximum Property Preservation Allowance is a pre-approved reimbursement for the aggregate of all property preservation expenses that do not exceed the line item allowable amounts listed in HUD’s Property Preservation Allowances and Schedules.

(b) Standard The Maximum Property Preservation Allowance is $5,000 per Property.

(c) Requests for Exceeding Property Preservation Allowances

(i) Request The Mortgagee must request over-allowable approval from the MCM via P260 when:

• the aggregate of all Property P&P expenses exceed the Maximum Property Preservation Allowance;
• a Property P&P cost will exceed the maximum line item allowance listed in the Property Preservation Allowances schedule; or
• there is no specific line item allowable stated in the schedule for the expense.

When the Mortgagee submits an over-allowable request to exceed the Maximum Property Preservation Allowance, the Mortgagee must demonstrate their incurred P&P costs are at or near the Maximum Property Preservation Allowance.

(ii) Required Documentation The Mortgagee must upload all supporting documentation into P260, including a detailed description of what actions will be or were taken, an itemized list of the repairs and materials that will be or were used, relevant room dimensions, receipts, and photographs, and a chronological listing of all Property P&P expenses incurred before submittal of the over-allowable expense request. The following chart details requirements for over-allowable requests.

(d) Appeals of Over-Allowable Request Decisions The Mortgagee may appeal an initial over-allowable decision via P260, for review by the MCM. The Mortgagee may submit an additional appeal to the MCM via P260, who will review the appeal and, at its discretion, approve or deny the appeal or determine if further review by HUD is needed. HUD’s or the MCM’s decision on the second appeal is final and no further appeals will be accepted.

(5) Property P&P Requirements of Authorities Having Jurisdiction

(a) Definition An Authority Having Jurisdiction (AHJ) refers to a state or local government, HOA, or other organization responsible for enforcing the requirements of a property-related code or standard including state law and local ordinance.

(b) Standard Mortgagees are not exempt by HUD policy from adhering to state and local laws relating to the P&P of Properties securing FHA-insured Mortgages. The Mortgagee must review the AHJ requirements, including those relating to occupancy of the Structures, to determine applicability for repair or remediation prior to conveyance of the Property to HUD. Where state or local law inhibits the Mortgagee performing HUD’s required Property (P&P) actions, such as connecting or disconnecting utilities, the Mortgagee must send the MCM notice of the restriction on the Property P&P action and a proposal on how the Mortgagee will otherwise protect the Property from damage. Where the AHJ requires additional or more extensive P&P actions than required by HUD for conveyance, the Mortgagee may submit an over-allowable request via P260. The Mortgagee must upload with its request all documentation supporting the proposed additional work requirements and expenses necessary for compliance.

(c) Required Documentation Where state or local law inhibits the Mortgagee performing HUD’s required Property (P&P) actions, the Mortgagee must note the restriction in the Claim Review File and include a copy of the notice to the MCM, the MCM’s approval or denial of the Mortgagee’s proposal, and the applicable state, local, or AHJ requirement.

(6) Photograph Requirements

(a) Standard The Mortgagee must use digital photography to document:

• the condition of the Property at the FTV Property Inspection and any damage identified; and
• the before and after conditions of the Property when performing Property P&P actions.

The Mortgagee must ensure a date stamp is printed within each photograph and labeled accordingly with a description of the contents of the photograph.

(b) Required Documentation The Mortgagee must take and upload before and after photographs into P260 for each claimed Property P&P expense.

(7) Securing and Maintaining the Property

(a) Standard The Mortgagee must secure the Property to prevent unauthorized entry and protect against weather-related damage, and must visibly display 24-hour emergency telephone contact information in a weather-tight location on a window or door or as otherwise required by an AHJ.

(i) Locksets Where the Property has been conveyed to the Mortgagee after the foreclosure sale, the Mortgagee must:

• ensure that the lockset on the main entranceway remains secured; and
• re-key or replace all locksets on all secondary external entranceways and secure interior doorways, including attached garages and basements.

When rekeying, the Mortgagee must re-set all locksets at the Property to a random identical key code and document the key code in in the “Mortgagee’s comments” of Part A of form HUD-27011. If locksets cannot be replaced or re-keyed or are antique or architectural locksets, the Mortgagee may utilize alternative methods to secure the door and prevent damage to the hardware or door.

(ii) Exterior Doors The Mortgagee must secure all exterior doors. For exterior sliding glass doors, the Mortgagee must latch these doors and install or provide slider locks, anti-lift blocks, security bars, or another secondary security mechanism. The Mortgagee must not brace, nail shut, or otherwise block or damage the door. If no other locking mechanism exists, the Mortgagee must board/secure access doors, pet doors, and other panels providing access to basements and crawl spaces, where permitted by state or local law.

(iii) Garage/Overhead Doors The Mortgagee must secure the garage or overhead doors by:

• using existing locksets at garage/overhead doors if they can be re-keyed to the random identical key code for the Property;
• securing the garage/overhead doors with a padlock and hasp if no other locking mechanism exists;
• repairing or replacing inoperable garage doors; and
• disconnecting automatic garage door openers, if present, and leaving any remote keys or transmitters securely in the Property.

(iv) Outbuildings The Mortgagee must secure sheds and outbuildings by:

• reusing and re-keying existing locksets at sheds and outbuildings to the dwelling key code, if possible;
• securing shed and outbuilding doors with a padlock and hasp if no other locking mechanism exists; and
• boarding/securing the outbuildings, if no doors or other securing mechanism exists. The Mortgagee may convey with boarded/secured outbuildings and sheds without prior approval.

(v) Windows and Glazing The Mortgagee must secure all windows by:

• employing or installing locking mechanisms on all windows;
• removing all broken glass debris from the interior and exterior of the Property; and
• replacing broken or cracked window glazing. Where the AHJ requires replacement of dual-pane, tempered, thermal-sealed or other specialized glazing in kind, the Mortgagee must obtain prior over-allowable approval from the MCM.

The Mortgagee must not brace, nail shut, or otherwise block or damage the windows.

(vi) Boarding/Securing of Property Openings Re-Securing due to Vandalism or Unauthorized Property Access The Mortgagee must re-secure and re-glaze windows, doors, and other access openings when the Property has been vandalized or accessed without authorization. Boarding/Securing Required by the AHJ The Mortgagee may secure windows, doors, and other access openings by boarding/securing if required by an AHJ and may convey with such boarding/securing in place. Boarding/Securing where Unable to Secure by Other Methods The Mortgagee may request approval from the MCM to board/secure openings that cannot be protected by any other method or where an imminent safety hazard exists, and to convey with boarding in place. All boarding/securing materials that are leased or rented for the Mortgagee’s convenience must be removed prior to conveyance of the Property to HUD.

(b) Roof Assembly Repair The Mortgagee must ensure that all roof assemblies, including those securing attached garages, porches and patios, detached garages and any secondary structures associated with the origination collateral, and related weatherproofing are free of active leaks or other sources of water intrusion. When a roof assembly leak is discovered, the Mortgagee must immediately repair the roofing system and mitigate further damage. The Mortgagee may provide such temporary repairs as tarping or patching until the permanent repair or replacement can be installed. The Mortgagee must ensure that permanent repairs or replacements, with materials matching or similar in color and material type, have been completed prior to conveyance to HUD. The Mortgagee is not required to obtain prior HUD approval for temporary repairs for which costs do not exceed the temporary roof repair line item allowable amount.

(c) Pools, Hot Tubs and Spas

(i) In-Ground Pools, Hot Tubs and Spas Mortgagees must secure all in-ground swimming pools, hot tubs, and spas as required by local laws, codes and ordinances. The Mortgagee must:

• secure the pool, hot tub, and/or spa with a removable safety cover anchored to the pool deck or, if a cover cannot be anchored to the pool deck, board or otherwise secure the pool, hot tub, and/or spa; and
• secure and repair any fences around the pool, hot tub, and/or spa to restrict access.

The Mortgagee must not drain operational in-ground pools. If the pool is empty, it is not necessary to re-fill the pool. The Mortgagee must drain hot tubs or spas located indoors or outdoors.

The Mortgagee must perform monthly maintenance and chemical treatments for operational pools. Where the Mortgagee must repair or drain the pool to mitigate damage or safety hazards, the Mortgagee must submit an over-allowable request.

(ii) Above-Ground Pools Mortgagees must secure all above-ground swimming pools as required by local laws, codes and ordinances. In addition to local requirements, the Mortgagee must:

• drain the pool;
• secure the pool with a removable cover; and
• secure and repair any fences around the pool in order to restrict access.

Where the above-ground pool is in poor condition or cannot be secured, the Mortgagee must:

• remove the above-ground pool and any built-up decking; and
• remediate any resulting depression in the ground that may constitute a hazard.

(iii) Ponds or Gardens The Mortgagee must drain, if feasible, or cover any small backyard ponds, water gardens, or other water features.

(d) Drainage Systems and Basements The Mortgagee must re-attach, replace, repair and clear of debris existing roof drainage and foundation drainage systems. If no drainage system exists at the time of the FTV Property Inspection, the Mortgagee is not required to provide or install new systems. The Mortgagee must ensure that downspouts provide positive drainage away from the structure and that gutters are cleared and do not prevent drainage. If the FTV Property Inspection reveals basement flooding, the Mortgagee must drain or pump the basement, identify the water sources, and make other such repairs to prevent equipment damage, mold and organic growth, and structural and material damage.

(e) Mold, Fungus, Discoloration and Related Moisture Damage and Organic Growth

(i) Standard When mold or related moisture damage is found in the Property during the FTV Property Inspection, the Mortgagee must mitigate the source of the moisture to prevent further damage. HUD will not reimburse costs related to mold or organic growth abatement if it determines that such mold or organic growth is due to Mortgagee Neglect. The Mortgagee must thoroughly document the condition and scope of the moisture damage at the FTV Property Inspection.

(ii) Over-Allowable Request The Mortgagee must submit an over-allowable request to the MCM for approval in the following circumstances:

• initial efforts to eliminate the mold or organic growth and to remove moisture are ineffective and additional treatments are needed to remove moisture and prevent mold and moisture damage; or
• the mold or organic growth poses a potential health and safety hazard.

Where the mold or organic growth poses a potential health or safety hazard, the Mortgagee must provide with its request:

• a written report and/or any lab reports or other testing data supporting the health or safety hazard determination;
• photographs of the discoloration;
• dimensions of the affected areas;
• a description of the initial mitigation efforts, including the basis for the selection of the method used;
• the proposed scope of work for the abatement; and
• at least two bids from licensed or certified mold remediation or hazardous materials contractors.

(f) Debris Removal, Cleaning, and Minor Repair The Mortgagee must ensure that all interior and exterior debris is removed from the Property, including attics, basements, barns, storage spaces, and outbuildings, and that the Property is in Broom-swept Condition. The Mortgagee may request reimbursement for the storage or disposition of any Personal Property removed from the Property when such storage and disposition is required by the AHJ.

(i) Equipment, Fixtures, and Appliances The Mortgagee must ensure that all equipment, fixtures, and appliances present at the FTV Property Inspection and associated with origination collateral remain in the Property, unless approved by HUD for disposal. The Mortgagee must empty and wipe clean the interior of all refrigerators and freezers. The Mortgagee must secure exterior clothes dryer vents and similar openings to prevent entry of pests. The Mortgagee must ensure that bathtubs, sinks and toilets are cleaned and emptied.

(ii) Graffiti The Mortgagee must remove or cover with similar or matching color all exterior and interior graffiti on all structures and fencing.

(iii) Exterior Debris The Mortgagee must ensure that the Property is free of external debris by removing all vehicles, boats, trailers, any unsafe or hazardous structures, and other Personal Property, as allowed and in accordance with state and local law requirements. The Mortgagee may allow to remain in place affixed Personal Property in sound and usable condition that may add value to the Property, such as fountains, children’s play structures, sheds, ramadas, pergolas, or gazebos.

(iv) Fences The Mortgagee must ensure that fences and gates present at the FTV Property Inspection are maintained in secure and upright condition, with no missing panels or sections.

(v) Pests The Mortgagee must ensure that the Property is free of animals, vermin, and insect infestation and that any dead animals, vermin, and insects are removed from the Property. When the Mortgagee determines the Property is infested with pests and that the infestation and removal may constitute a health or safety hazard, the Mortgagee may obtain professional pest control services; otherwise, the Mortgagee may employ over-the-counter pest control products. When evidence of live wood boring insects is discovered, the Mortgagee must request an over-allowable for an inspection by a professional pest control service, and provide the report and treatment recommendations for over-allowable consideration to abate.

(vi) Floors and Walkways The Mortgagee must ensure that interior walking surfaces are safe or otherwise patched, replaced, or repaired to be free of hazards as follows:

• any floor finishes, including carpeting, sheet vinyl, wood, laminate, ceramic or vinyl tiles, and all tack strips and fittings that are damaged, loose, or otherwise hazardous, must be removed. The Mortgagee is not required to replace these finishes once removed; and
• holes or openings in interior walking surfaces must be patched, replaced, or repaired. Weak or spongy flooring must be inspected and, if needed, repaired to address hazardous conditions with an approved over-allowable.

The Mortgagee must repair damaged or missing handrails or stair treads on elevated exterior porches, patios, decks, and balconies where the distance from the finished floor to the ground surface is greater than 18 inches. If repair is not feasible, the Mortgagee must provide temporary rails, fencing, or other means to prevent or mitigate falls.

(vii) Regulated Hazardous Materials The Mortgagee must handle and dispose of hazardous materials regulated by federal, state, or local law in accordance with those laws. Where removal of hazardous materials exceeds HUD’s reimbursable amounts for debris removal, the Mortgagee must submit an over-allowable request prior to incurring those costs. The Mortgagee must include with the request:

• the relevant code or regulation describing the specific handling or disposal requirements;
• if testing is required to confirm the presence of hazardous materials, detailed reports or test results, with information on the location of the materials, the scope of the work, and recommended methods for removal, abatement or remediation of the materials; and
• at least two bids from licensed or certified hazardous materials contractors.

(8) Yard Maintenance and Snow Removal

(a) Definitions Grass Cuts are the Property P&P actions of mowing, weeding, edge trimming, sweeping of all paved areas, and removing all lawn clippings, related cuttings, and debris.

(b) Standard The Mortgagee is responsible for maintaining lawn and yard areas and trees, shrubs, and vines in compliance with AHJ requirements by performing grass cutting, weeding, edge trimming, sweeping/blowing of all paved areas, and removal of all lawn clippings, related cuttings, and incidental debris removal. The Mortgagee must ensure that yards are maintained as follows:

• Grass must be cut to a maximum of two inches in height.
• Grass and weeds must be cut to the edge of the property line, and trimmed around foundations, bushes, trees, and planting beds.
• Grass, trees, tree limbs, shrubs, and other vegetation that are obstructing the public right of way must be trimmed or removed.
• Desert, xeriscape, or rock scape landscaping maintenance must be maintained through removal or spraying of weeds, grass trimming or cutting, and the removal of related cuttings and incidental debris.
• Dead trees or tree limbs that pose a safety hazard or may potentially damage the Property must be removed or trimmed.

(c) Grass Cuts

(i) Standard The Mortgagee must complete initial and ongoing grass cuts and desert landscaping according to the timelines set in the Grass Cut Schedule. Should a Property require earlier or more frequent grass cuts or desert landscaping maintenance due to specific micro-climate conditions or other property requirements, the Mortgagee must perform such cuts or landscaping. If additional or more frequent grass cuts are required as a result of code violations or neighbor complaints, the Mortgagee must submit to the MCM a request to exceed the allowable amount and documentation supporting the amended timeline.

(ii) Required Documentation Should a Property require earlier or more frequent grass cuts or desert landscaping maintenance due to specific micro-climate conditions or other property requirements, or if additional or more frequent grass cuts are required as a result of code violations or neighbor complaints, the Mortgagee must include in the Claim Review File documentation supporting the Mortgagee’s amended timeline.

(d) Shrubs The Mortgagee must trim shrubs and remove cuttings once in a growing season, between April 1 and October 31.

(e) Snow Removal The Mortgagee must ensure that the Property is safe and accessible throughout the winter season by:

• removing snow from the entryway, public and other front yard walkways, porch and driveway following a minimum three-inch accumulation; and
• complying with local codes and ordinances governing the removal of snow and ice.

(f) HOA Yard Maintenance If an HOA or condominium association provides for the yard maintenance and snow removal actions, the Mortgagee must not order duplicate yard maintenance and snow removal actions.

(9) Winterization Requirements

(a) Timeframe for Winterization The Mortgagee must winterize the Property once, according to the Winterization Schedule. All Properties located in the State of Alaska must be continuously winterized at all times. Where earlier or extended winterization is required due to specific micro-climate conditions or other property requirements, the Mortgagee must perform such winterization and include in the Claim Review File documentation supporting the Mortgagee’s amended winterization timeline. Where the initial winterization is no longer effective, the Mortgagee must re-winterize the Property and include in the Claim Review File documentation demonstrating the need to re-winterize.

(b) Utilities

(i) Standard The Mortgagee must turn all utilities off unless:

• prohibited by state or local law;
• required to remain on per HOA or condominium association requirements;
• the Property is an attached unit or a dwelling with shared systems such as a row house or townhouse;
• required to remain on to protect the Property;
• required to operate equipment such as sump pumps, swimming pools, wells, dehumidifiers, or other equipment or systems required to remain in operation; or
• where the Mortgagee determines that utility disconnection fees and charges make it cost-effective to maintain utility service rather than disconnect the service.

The Mortgagee must ensure that active piping and exposed electrical wiring is capped, valved, or otherwise terminated.

If utilities remain on, the Mortgagee must note in the Claim Review File the reasons for maintaining utility service and, if applicable, include a copy of the state or local requirement for maintaining utility service.

(ii) Condominiums and Attached Dwellings The Mortgagee may permit utilities to remain on in Properties where the utilities are shared with other units or attached dwellings.

(iii) Sump Pumps The Mortgagee must ensure that all installed or required sump pumps are in-place, operational, and working at all times, where state or local law permits electricity to remain on. The Mortgagee must repair or replace any non-functioning or missing equipment.

(iv) Utility Accounts The Mortgagee must retain all utility accounts in its name until conveyance of the Property to HUD. In states where utilities should remain on, if there is any reason to believe that a Borrower may abandon a Property, the Mortgagee must contact the utility company to request notification of non-payment of utilities so that utilities can be transferred to the Mortgagee’s name if the Borrower vacates the Property.

(v) Propane and Oil Systems In those jurisdictions requiring heat to remain on, the Mortgagee must put a “KEEP FULL” contract on with a local supplier when the Property has a propane or oil heating system. Otherwise, the Mortgagee must ensure that active piping is capped, valved, or otherwise terminated and all fuel tanks are emptied.

(vi) Domestic Water The Mortgagee must not cut water lines or remove water meters, unless required by the AHJ.

(vii) Wells If the water supply is a private well, the Mortgagee must:

• turn off the well at the breaker panel;
• secure the breaker;
• disconnect and cap, valve, or otherwise terminate the water supply line between the Property and pressure tank;
• install a hose bib on the pressure tank side of the breaker, tagging the hose bib “For Water Testing;”
• drain all pressure tanks;
• drain pump housing if the pump is surface-mounted;
• disconnect the check valve and drain all pump, suction, and discharge pipes, if the pump is submersible; and
• winterize all fixtures.

(viii) Water, Plumbing, and Heating Systems The Mortgagee must:

• shut off or disconnect the domestic water supply at the curb; for private wells the Mortgagee shall turn off the well at the breaker panel and disconnect the water supply line between the Property and pressure tank;
• drain all plumbing and heating systems; and
• ensure that all toilets are cleaned and emptied.

Where a toilet or other plumbing fixture has been compromised by an unauthorized entry or wastewater backflow, the Mortgagee must complete re-winterization and cleaning.

(c) Winterization of Swimming Pools During the winterization period, the Mortgagee must drain all lines and filters and secure and maintain operational swimming pools to prevent damage.

(d) Additional Winterization Requirements for Properties located in Alaska In addition to the winterization requirements described above, the Mortgagee must ensure that for all properties located in the State of Alaska:

• the heat remains on, with the thermostat set at 55 degrees Fahrenheit; and
• all utilities remain connected and in working order, where permitted by state or local law.

(e) Responsibility for Damage Due to Freezing The Mortgagee is responsible for any damage to plumbing and heating systems, sump pumps, and wells caused by untimely, inadequate, or improper maintenance or winterization. HUD will consider any damage caused by freezing and not documented at the FTV Property Inspection to be the responsibility of the Mortgagee and not reimbursable by HUD.

(10) Demolition If the Mortgagee proposes to demolish or remove a primary dwelling structure, a significant section of the structure or a secondary structure that is associated with the origination collateral, the Mortgagee must request approval from the MCM to demolish and convey as a vacant lot. The Mortgagee is not required to request HUD approval to demolish damaged or unusable sheds and outbuildings that were not included in the property value at origination. For requests to demolish a primary dwelling structure, the Mortgagee must submit to the MCM:

• a BPO analysis estimating the value of the Property as-is and as a vacant lot;
• proposed demolition costs; and
• a detailed chronology of the servicing and Property P&P activities related to the Property, including all efforts to address any damages or violations.

Where a local jurisdiction mandates demolition of a Property after foreclosure, the Mortgagee must provide the following to the MCM immediately upon discovery of the demolition order:

• copies of all notices pertaining to demolition orders and hearings; and
• inspection reports and photographic documentation establishing the condition of the Property when the Mortgagee first entered or took possession of the Property.

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

(a) Requests Less than Five Business Days before Conveyance The MCM will reject any requests received less than five business days before the end of the timeframe to convey to HUD, unless the Mortgagee can demonstrate that it had received the demolition notification with insufficient time to make a request by the five business day deadline.

(b) Cost of Demolition The cost of demolition is not included in the maximum cost limit per Property.

(c) Damage due to Mortgagee Neglect If HUD determines that the damage to the Property is due to Mortgagee Neglect, the Mortgagee is responsible for the cost to demolish the Property. The MCM will determine the acceptance of the vacant lot.

(D) Conveyance of Damaged Properties

(1) Conveyance without Prior HUD Approval The Mortgagee may convey Properties without prior written approval when:

• the Property is in conveyance condition, with no Surchargeable Damage; and
• the aggregate of all allowable Property P&P expenses does not exceed the Maximum Property Preservation Allowance and claimed P&P costs do not exceed the line item Property Preservation Allowances.

(2) Conveyance Requiring HUD Approval

(a) Request to HUD The Mortgagee must request and obtain approval from the MCM before conveyance under any of the following circumstances:

• conveyance of a Property damaged while under the control of the Mortgagee or as a result of Mortgagee Neglect;
• conveyance of a Property with unrepaired insurable damage and insurance repair proceeds;
• conveyance of a Property as-is with unfinished renovations, violations, liens, or other outstanding state law and local code compliance issues; and
• demolition and/or conveyance of a vacant lot.

(b) Required Documentation for Request In its request to convey the damaged Property, the Mortgagee must include the following documentation:

• the date of vacancy;
• evidence validating the property condition at vacancy;
• supporting documentation including inspection reports, photographs, repair bids, and receipts;
• a chronology of actions performed by the Mortgagee to preserve and protect the Property;
• for damaged Properties with approval to convey with insurance proceeds, all related damage reimbursement funding, including insurance deductibles, recoverables, and depreciation; and
• for Properties with unfinished renovations, violations, liens, or other outstanding state and local law compliance issues:
  • the BPO showing the value of the Property as-is and the value with repairs completed;
  • copies of violations, liens, or relevant state or local law;
  • hazard insurance claim information;
  • a detailed description of the reason(s) that the Mortgagee cannot feasibly repair or secure the Property, proposed actions or actions taken, and a detailed repair estimate of the damages; and
  • a detailed estimate of cost to repair the Property.

If no documentation or inadequate documentation is received from the Mortgagee, HUD will attribute all damage to the Mortgagee.

(3) Mortgagee Failure to Obtain Required HUD Approval If the Mortgagee fails to obtain HUD approval when required, prior to conveying a damaged Property, HUD may:

• reconvey the Property;
• require a reduction to the claim for insurance benefits:
  • the hazard insurance recovery or HUD’s estimate of the cost of repairing damage; or
  • the cost to repair and restore the Property to required conveyance condition; or
• take other such action as permitted by regulation.

(4) Appeal of Surchargeable Damage Decision The Mortgagee may appeal a surchargeable request decision via P260. The Mortgagee may submit an additional appeal to HUD via P260. The second appeal decision is final and no further appeals will be accepted.

(E) Hazard Insurance Recovery The Mortgagee must take all appropriate action to recoup all available hazard insurance proceeds, including recoverable depreciation.

(1) Extension of Time to Convey Title to HUD Where conveyance of title to HUD jeopardizes the Mortgagee’s ability to receive hazard insurance proceeds, the Mortgagee must request an extension of time from the MCM, providing a specific reason why the extension is warranted.

(2) Reimbursement for Recoverable Depreciation The Mortgagee must seek reimbursement for any recoverable depreciation after repairs have been completed; all damages must be repaired prior to conveyance.

(3) Recovery for Vandalism or Theft

(a) Standard If there is evidence of vandalism or theft resulting in damage or missing built-in appliances, equipment, or fixtures, the Mortgagee must file a claim to obtain all available insurance proceeds for damages to the Property. Unless the Mortgagee obtains HUD approval to convey with unrepaired insurable damage and insurance repair proceeds, the Mortgagee must use these insurance proceeds funds or corporate funds to fully repair or replace the structures, appliances, equipment, or fixtures damaged.

(b) Required Documentation The Mortgagee must document in the Claim Review File all relevant claim correspondence with the insurance company.

(F) Requests for Pre-Conveyance Inspection

(1) Definition A Pre-Conveyance Inspection is an inspection performed by HUD, at the Mortgagee’s request, before conveyance to determine if a Property meets HUD’s conveyance standards.

(2) Standard The Mortgagee may request a Pre-Conveyance Inspection of a Property that has sustained damage due to Borrower neglect or Surchargeable Damage, and not Mortgagee Neglect.

(3) Submission of Pre-Conveyance Inspection Request The Mortgagee may submit a request for a Pre-Conveyance Inspection to the MCM before the deed to HUD is recorded or sent for recording and before the submittal of a claim.

(4) HUD Review of Request The MCM will review the request to determine whether a Pre-Conveyance Inspection is needed and may consider the following criteria in its decision:

• The Property has completed over-allowable repairs exceeding $10,000.
• The Property is affected by re-occurring vandalism and the Mortgagee is requesting approval to convey the Property as-is to HUD.
• The Property has code violations and the Mortgagee is requesting approval to convey the Property as-is to HUD.
• The Property is located in a PDMDA and has completed repairs exceeding $10,000.
• The Property has an insurable claim with completed repairs exceeding $5,000.
• The Property has unrepaired Borrower neglect damage affecting mechanical, electrical, plumbing, or structural system integrity.
• The Property has uninsurable and unfinished renovations and the Mortgagee is requesting approval to convey the Property as-is to HUD.

(5) Pre-Conveyance Inspection If the request for the Pre-Conveyance Inspection is approved, the MCM will order the Pre-Conveyance Inspection from HUD’s Field Service Manager (FSM), who will contact the Mortgagee to coordinate the inspection. Upon completion of the inspection, the FSM will provide an inspection report indicating:

• whether the Property is in conveyance condition; or
• which further actions the Mortgagee must take to place the Property into acceptable conveyance condition.

The Mortgagee must ensure that all required actions identified on the Pre-Conveyance Inspection report are completed before conveyance to HUD.

iii. Condition of Title

The Mortgagee must convey good and marketable title to the Secretary.

HUD regulations list certain specific and common exceptions to title to which HUD will not object. HUD may waive additional objections, based on local practice and the general marketability of title clouded by those objections, or if the Mortgagee is willing to accept a reduced claim for mortgage insurance benefits.

(A) Junior Liens HUD will not accept title subject to junior liens, other than the following.

(1) IRS Liens HUD will not object to title where there is a lien in favor of the IRS, regardless of its position, if the following conditions are met:

• The IRS has been notified of the foreclosure.
• The IRS lien was established after the date of the mortgage lien.
• The Mortgagee bid at least the full amount of the indebtedness plus the cost of foreclosure.

(2) Section 235 Liens HUD will accept title subject to a junior lien securing the repayment of Section 235 assistance payments.

(B) Payment of Taxes

(1) Taxes at Conveyance

(a) Standard Prior to the conveyance of a Property to HUD, the Mortgagee must obtain and pay from taxing authorities all available tax bills:

• due prior to conveyance; and
• due within 30 Days after the date of conveyance.

(b) Required Documentation The Mortgagee must:

• certify that all available tax bills due at conveyance and within 30 Days of conveyance are paid as of the date of conveyance;
• document such payment and identify the most recent period for which taxes were paid in Item 32, “Schedule of Tax Information,” of form HUD-27011, Part A; and
• upload to P260 documentation, such as a paid receipt or a copy of the Mortgagee’s tax payment history screen, validating that such payment was made.

The Mortgagee must also retain invoices, paid bill receipts, or other proof of payment in the Claim Review File.

(2) Tax Penalties When late fees and/or interest penalties are incurred a result of the Mortgagee’s failure to pay taxes prior to conveyance, HUD will not reimburse the Mortgagee for late fees and/or interest penalties paid by the Mortgagee, and the Mortgagee must reimburse HUD for any late fees and/or interest penalties paid by HUD.

(3) Mortgagee Failure to Pay Taxes, Late Fees, and/or Interest Penalties Where taxes, late fees and/or interest penalties are owed to the taxing authority when a Property is conveyed to HUD, HUD may elect to:

• Reconvey the Property back to the Mortgagee; or
• refuse to accept the conveyance.

(C) Payment of HOA/Condominium Fees

(1) Definitions A Homeowners’ Association (HOA)/Condominium Assessment is a periodic payment required of property owners by an HOA or condominium association. HOA/Condominium Fees include HOA/Condominium Assessments plus interest, Late Charges, collection/attorney fees, and other penalties.

(2) Standard Prior to the conveyance of a Property to HUD, the Mortgagee must pay HOA/Condominium Fees that are due and that become due within 30 Days of the date of conveyance. While the payment of Condominium and HOA Fees is the Borrower’s responsibility, Mortgagees must ensure that Properties conveyed to HUD have clear title. The Mortgagee must take the following actions:

• provide notice of foreclosure proceedings to HOAs/condominium management companies;
• unless prohibited by state law, ensure that outstanding HOA/Condominium Fees are included as part of the foreclosure proceedings in the event that the HOA/condominium management company does not pursue these amounts in foreclosure;
• negotiate the amount required to obtain a release of outstanding HOA/Condominium Fees;
• obtain a release of outstanding HOA/Condominium Fees;
• ensure that the HOA/condominium lien, if any, is removed from the title to the Property prior to conveying the Property to HUD; and
• pay the HOA/Condominium Assessment required under applicable law before conveyance to HUD, where HOA/Condominium Fees do not survive foreclosure or result in a lien on the Property.

(3) Required Documentation The Mortgagee must document the payment of all final bills and pre- and post-foreclosure liens for HOA/Condominium Fees in the “Mortgagee’s Comments” section of form HUD-27011, Part A. Within 15 Days of conveyance, the Mortgagee must upload to P260 the paid HOA/condominium invoice and any other documentation necessary to verify that the Mortgagee made such payments prior to conveyance, and, if applicable, document any common area requirements associated with gaining access to the Property.

(4) Lack of Information on HOA or Condominium Association Assessments and Fees

(a) Standard On a case-by-case-basis, at its sole discretion, HUD may accept conveyances where the Mortgagee has requested and has been unable to obtain sufficient information on HOA/Condominium Fees to resolve them prior to conveyance.

(b) Required Documentation The Mortgagee must request a variance through HUD’s MCM by submitting:

• a certification stating that the Mortgagee has exhausted all methods of obtaining and paying the outstanding HOA/Condominium Assessments; and
• documentation evidencing its attempts to obtain and pay these assessments and fees as follows:
  • at least three phone calls;
  • certified mail notices to HOA/condominium contacts from the Mortgagee’s attorneys; and
  • documentation validating the pursuit of available legal remedies and evidencing the resolution or final decisions resulting from arbitration or court proceedings.

(D) Payment of Water and Sewer Bills and Other Assessments

(1) Standard The Mortgagee must retain utility accounts including electricity, gas, home heating oil, water, and sewer in its name until conveyance of the Property to HUD. Prior to the conveyance of a Property to HUD, Mortgagees must research, obtain, and pay all available utility bills that may become a lien attached to a Property after foreclosure as follows:

• In states where utilities are not required to remain on to protect the Property, Mortgagees must obtain and pay a final bill up to the date of conveyance.
• In states where utilities are required to remain on, Mortgagees must pay:
  • all available bills that are due prior to conveyance; and
  • within 60 Days after the date of conveyance, the final bill calculated to the Day on which utilities are transferred to HUD.

(2) Required Documentation For Properties in states where utilities are not required to remain on to protect the Property, no later than 60 Days after conveyance, the Mortgagee must upload to P260 the paid invoice and any other documentation necessary to verify that the Mortgagee made such payments. For Properties in states where utilities are required to remain on, the Mortgagee must upload to P260 the paid invoices and any other documentation necessary to verify that the Mortgagee made the payment for the final bill.

(3) Failure to Pay Utility Bills If the Mortgagee fails to pay utility bills, HUD, at its sole discretion, may:

• issue a Notice of Non-Compliance and demand payment from the Mortgagee in an amount sufficient to satisfy any liens or encumbrances, including penalties and interest, which prevent or delay a sale; or
• Reconvey the Property to the Mortgagee.

iv. Notice of Property Transfer

The Mortgagee must notify the Commissioner on the date the deed to the Secretary is filed for recording, by:

• filing form HUD-27011 in FHAC; and
• submitting a copy to HUD’s MCM.

v. Submission of Title Evidence for Conveyance to HUD

(A) Submission of Title Evidence to the MCM

(1) Standard The Mortgagee must submit to HUD’s MCM via P260 the following documentation reflecting ownership vested in the name of the Secretary no more than 45 Days after the date the deed is filed for record:

• original title evidence;
• a copy of form HUD-27011, Part A;
• a copy of the mortgage instrument, containing a complete legal description of the Property; and
• a copy of the recorded deed.

(2) Extension to the Deadline to Submit Title Evidence To request an extension to the deadline to submit title evidence, the Mortgagee must:

• submit a request for an extension via P260 before the expiration of the 45-Day timeframe; and
• provide documentation supporting the reason for the request.

(B) Title Evidence The Mortgagee must provide one of the following types of title evidence of recorded title to the Secretary. The Mortgagee may also submit similar evidence of title that conforms to the standards of a supervising branch of the federal, state, or territory government.

(1) Fee or Owner’s Title Policy The Mortgagee may submit:

• a fee or owner’s policy of title insurance, in the name of the Secretary and inuring to the benefit of the Secretary’s successors in office;
• a guaranty or guarantee of title; or
• a certificate of title, issued by a title company, duly authorized by law and qualified by experience to issue such instruments.

(2) Mortgagee Policy of Title Insurance The Mortgagee may submit a Mortgagee’s policy of title insurance supplemented by an Abstract and an Attorney’s Certificate of Title covering the period after the Closing Date. The Mortgagee must ensure that, under the terms of the policy, the liability of the title company will continue in favor of the Secretary after title is conveyed to them.

(3) Abstract and Legal Opinion The Mortgagee may submit:

• an abstract of title, prepared by an abstract company or individual engaged in the business of preparing abstracts of title; and
• a legal opinion as to the quality of the title. The Mortgagee must ensure that this legal opinion is prepared and signed by an attorney experienced in examination of titles.

(4) A Torrens or Similar Title Certificate The Mortgagee may submit a Torrens or similar title certificate.

(C) Title Evidence for Manufactured Housing

(1) Standard In title evidence for Manufactured Housing, the Mortgagee must include evidence that:

• the Manufactured Home is attached to the land;
• the Manufactured Home is classified and taxed as real estate; and
• the title to the Manufactured Home has been surrendered or purged in accordance with the jurisdictional requirements.

(2) Required Documentation The Mortgagee must:

• upload the title evidence into P260 on or before the filing date of form HUD-27011, Part A; and
• certify in the “Mortgagee’s Comments” section of form HUD-27011, Part A that the required additional title work has been completed and uploaded.

(D) HUD Review of Title Evidence The MCM will review the title evidence and notify the Mortgagee of its approval or rejection of the title evidence or if additional information is needed. If the Mortgagee does not receive a response from the MCM regarding its title evidence submission within five business days and title evidence is later rejected, the Mortgagee may request that the Government Technical Representative (GTR) grant an extension of time.

(E) HUD Requests for Additional Title Information If HUD requests additional title information, the Mortgagee must provide this information within 10 Days of the request to avoid rejection of the title evidence. If title evidence is later approved after the submission of additional information, HUD will provide the Mortgagee with a title approval letter showing the “Date Title Received” as the date the Mortgagee resubmitted the complete title evidence.

(F) Return of the Original Title Evidence to the Mortgagee If there is a title defect in the initial title package, the Mortgagee may request the return of the original title package from the MCM so that the title company may reissue a corrected policy.

vi. Responsibility for Property at Conveyance

The Mortgagee is responsible for the Property until all HUD regulatory requirements leading to conveyance have been complied with, including:

• filing for record the deed to the Secretary of HUD; and
• filing form HUD-27011 in FHAC for claim processing and payment.

The Mortgagee remains responsible for the Property and any loss or damage thereto should the claim be suspended due to the need for review or correction of a hard edit error, notwithstanding the filing of the deed to the Secretary.

(A) Damage at Inspection at or after Conveyance HUD will presume that any damage discovered during HUD's first inspection of the Property after conveyance occurred while the Mortgagee had possession, unless the Mortgagee is able to provide evidence to the contrary.

(B) Expenses Incurred at or after Conveyance Without the express written approval of the MCM, the Mortgagee must not incur expenses for P&P of the Property or for eviction of the occupant on or after the date the deed is filed for record. HUD will not reimburse P&P or property-related expenses incurred after the deed has been recorded in HUD’s name, other than payment of certain utility bills or HOA payments.

(C) Cancellation of Hazard Insurance The Mortgagee must request the hazard insurance be canceled as of the date the deed is filed for record. The Mortgagee may calculate the amount of the return premium due on a short-rate basis.

vii. Extension of Time for Conveyance

(A) Standard To request an extension to the deadline to convey the Property to HUD, the Mortgagee must:

• submit a request for an extension via P260 before the expiration of the timeframe; and
• provide documentation supporting the reason for the request.

(B) Required Documentation The Mortgagee must maintain a copy of the written response from the HUD representative in the Mortgagee’s Claim Review File.

(C) Appeal of Extension Decision The Mortgagee may appeal a decision on a request for an extension via P260 for review by the MCM. The Mortgagee may submit an additional appeal via P260 for review by HUD. HUD’s decision is final and no further appeals will be accepted.

viii. HUD Acceptance of Conveyance

HUD considers a Property conveyed by the Mortgagee to HUD when:

• the Mortgagee has deeded the Property to HUD; and
• HUD accepts conveyance of the Property, as evidenced by the payment of Part A of the claim from HUD to the Mortgagee. For suspended claims, the Mortgagee remains responsible for the Property, and any loss or damage thereto, notwithstanding the filing of the deed to the Secretary for record, and such responsibility is retained by the Mortgagee until HUD regulations have been fully complied with.

ix. Reconveyance

(A) Definition A Reconveyance is a conveyance of a Property from HUD back to the Mortgagee due to the Mortgagee’s failure to comply with HUD’s conveyance requirements.

(B) Standard If a Mortgagee fails to fully comply with the terms of the insurance contract, including HUD’s conveyance requirements, HUD may:

• Reconvey title to the Mortgagee; and
  • cancel the Mortgagee’s claim for insurance benefits; and
  • request reimbursement for expenses incurred for acquisition, holding and Reconveyance, less any income received from the Property, from the date the deed to HUD was filed for record to the date of Reconveyance; or
• enter into a Reconveyance Bypass Agreement with the Mortgagee.

The Mortgagee may reapply for insurance benefits.