III.A.2.r. Foreclosure (03/14/16)

Owned by Kacey Olson
Nov 25, 2018
15 min read

© HUD Single Family Housing Policy Handbook 4000.1

When a Borrower with a Mortgage in Default cannot or will not resume and complete their Mortgage Payments, the Mortgagee must take steps to acquire the Property or see that it is acquired by a third party. Before starting foreclosure, the Mortgagee must review its servicing record to be certain that servicing has been performed in accordance with HUD guidance. When foreclosure is appropriate, Mortgagees must initiate and complete foreclosure in a timely manner.

Included in this section are:

i. Mortgagee Action Before Initiation of Foreclosure

ii. Conduct of Foreclosure Proceedings

i. Mortgagee Action Before Initiation of Foreclosure

The Mortgagee must exercise reasonable diligence in collecting past due Mortgage Payments by:

  • utilizing Early Delinquency Servicing Workout tools;
  • determining eligibility of HUD’s Loss Mitigation Program when appropriate;
  • performing the first legal action to initiate foreclosure, to acquire title and possession of the Property, when necessary;
  • ensuring that the Mortgage has been accurately reported to consumer reporting agencies in accordance with applicable federal law; and
  • ensuring that any former Borrower, co-Borrower and/or co-signer personally liable for payment of the mortgage debt has been notified, as appropriate.

(A) Assignments for Special Mortgages The Mortgagee must not foreclose on Mortgages insured pursuant to Sections 203(q), 247, and 248 of the National Housing Act. The Mortgagee must comply with HUD’s collection communication requirements and may then assign the Mortgage to HUD as follows:

  • Section 203(q) Mortgages: may assign the Mortgage to HUD, after the Mortgage has been in Default for 90 Days.
  • Section 247 Mortgages: may assign the Mortgage to HUD, after the Mortgage has been in Default for 180 Days.
  • Section 248 Mortgages: may assign the Mortgage to HUD, after the Mortgage has been in Default for 90 Days.

(B) Timeframe for Utilization of Loss Mitigation or Initiation of Foreclosure The Mortgagee must utilize a Loss Mitigation Option or initiate foreclosure within six months of the date of Default. FHA considers the Mortgagee to have satisfied this requirement if, within the six-month timeframe, the Mortgagee takes one or a combination of the following actions:

  • enter into an SFB-Unemployment Agreement;
  • complete a refinance of an insured cooperative housing Mortgage;
  • complete an assumption;
  • execute a Trial Payment Plan Agreement for a Loan Modification or an FHA-HAMP Option;
  • execute a PFS Approval to Participate;
  • execute a DIL agreement; or
  • initiate the first legal action to begin foreclosure.

(C) When to Initiate Foreclosure After at least three consecutive full monthly Mortgage Payments are due but unpaid, a Mortgagee may initiate a foreclosure for monetary Default if one of the following conditions is met:

  • The Mortgagee has completed its review of the Borrower’s loss mitigation request, determined that the Borrower does not qualify for a Loss Mitigation Option, properly notified the Borrower of this decision, and rejected any available appeal by the Borrower.
  • The Borrower has failed to perform under an agreement on a Loss Mitigation Option, and the Mortgagee has determined that the Borrower is ineligible for other Loss Mitigation Options.
  • The Mortgagee has been unable to make a determination of the Borrower’s eligibility for any Loss Mitigation Option due to the Borrower not responding to the Mortgagee’s efforts to contact the Borrower.

(D) Exceptions to Foreclosure Initiation Timeframe

(1) standard A Mortgagee may initiate foreclosure on a Delinquent Mortgage if one of the following conditions is met:

  • The Mortgagee has determined that the mortgaged Property has been abandoned, or has been vacant for more than 60 Days.
  • The Borrower, after being clearly advised of the Options available for relief, including the PFS and DIL Options, has clearly stated to the Mortgagee, in writing, that they have no intention of fulfilling their obligation under the Mortgage.
  • The mortgaged Property is not the Borrower’s Principal Residence and it is occupied by tenants who are paying rent, but the Rental Income is not being applied to the mortgage debt.
  • The Property is owned by a corporation or partnership.

(a) Vacant or Abandoned Properties If the Mortgage is in Default, the Mortgagee must commence foreclosure:

  • no later than six months after the date of Default; or
  • no later than 120 Days after the latter of the date that:
    • the Property becomes vacant; or
    • the Property is discovered or should have been discovered vacant or abandoned; or
    • for Properties that have 2, 3, or 4 units, all units are discovered or should have been discovered vacant or abandoned.

(b) Prohibition of Foreclosure due to State Legislation In some states, the Mortgagee must delay, cancel, and/or reschedule a foreclosure action to comply with state law requirements. HUD provides an automatic 90-Day extension after the expiration of the time during which foreclosure is prohibited to commence foreclosure where:

  • the foreclosure sale would have been conducted in the required timeframe but was canceled to comply with state law; and
  • the initial legal action to commence foreclosure was timely.

(c) Prohibition of Foreclosure due to Federal Law or Regulations [Highlighted text below must be implemented no later than December 1, 2016]Where a federal regulation requires a delay in the initiation of foreclosure, the Mortgagee must initiate foreclosure no later than 90 Days after the expiration of the time during which foreclosure is prohibited. The status of the Defaulted Mortgage should be reported in SFDMS using the established Delinquency/Default Reason (DDR) Code for federally mandated delay.

(d) Prohibition of Foreclosure due to Bankruptcy If federal bankruptcy does not permit commencement of foreclosure within the standard six-month timeframe, or requires foreclosure to be discontinued, the Mortgagee must commence or, if applicable, recommence foreclosure within 90 Days after the applicable release of stay or bankruptcy discharge date.

(e) Prohibition of Foreclosure due to Servicemembers Civil Relief Act Mortgagees are allowed an automatic 90-Day extension from the date the applicable SCRA foreclosure moratorium expires.

(f) Moratorium on Foreclosure due to Disaster Mortgages secured by Properties in Presidentially-Declared Major Disaster Areas (PDMDA) are subject to a 90-Day moratorium on foreclosures following the disaster. See Presidentially-Declared Major Disaster Areas. HUD provides the Mortgagee an automatic 90-Day extension from the date of the moratorium expiration date to commence or recommence foreclosure action or evaluate the Borrower under HUD’s Loss Mitigation Program.

(2) Automatic Extensions for Foreclosure Initiation Timeframe for Loss Mitigation Option HUD provides automatic 90-Day extensions to the deadline to complete a Loss Mitigation Option or to perform the first legal action initiating foreclosure, provided the Mortgagee has:

  • evaluated and approved the Borrower for a Loss Mitigation Home Retention Option prior to the expiration of the initial six-month period to initiate foreclosure, or issued an Approval to Participate in the PFS Program resulting in early termination or option failure;
  • reported the Loss Mitigation Option via SFDMS; and
  • from the date the Borrower defaulted under a Loss Mitigation Option or a TPP Agreement failed, initiated foreclosure action after review of the Borrowers for other Loss Mitigation Options.

Mortgagees may use these automatic extensions as outlined in Automatic Extensions to HUD’s Initiation of Foreclosure Timeline.

HUD does not provide automatic extensions for completion of a DIL; the Mortgagee must submit any request for extension of time for completion of a DIL to the NSC for HUD approval via EVARS. HUD does not provide automatic extensions for attempting a repayment plan, Formal Forbearance, Informal Forbearance, Delinquent Refinance, or assumption.

(3) Loss Mitigation Denial The Consumer Financial Protection Bureau (CFPB) Loss Mitigation regulations are at RESPA (Regulation X) at 12 CFR 1024.41.HUD provides an automatic 90-Day extension to the initiation of foreclosure timeline in any case in which the Mortgagee needs additional time to comply with the appeals process required by the CFPB. The 90-Day extension begins on the date the Mortgagee denies loss mitigation and sends the Borrower the notice required under CFPB regulations.

(4) Requests for Other or Additional Extensions to the Time Requirement to Utilize Loss Mitigation Option For additional time extensions, and for extensions of time for any other reason not listed above, the Mortgagee must request the extension via EVARS prior to the expiration of the existing timeframe and provide:

  • the dates that required notices were sent to the Borrower;
  • the date that the Mortgagee received the Complete Loss Mitigation Request;
  • the date that the Mortgagee approved or denied the Borrower for Loss Mitigation Options; and
  • a clear explanation of the Mortgagee’s need for an extension to this deadline.

(5) Required Documentation The Mortgagee must retain documentation of form HUD-50012, Mortgagee’s Request for Extensions of Time, in the Claim Review File and must ensure that all extensions of time to initiate foreclosure are reflected in its claim submission. For all extensions of time requests, the Mortgagee must:

  • note the reason for the extension and relevant dates that necessitated the extension and retain documentation supporting the reason and dates in the Claim Review File;
  • report the applicable status codes in SFDMS; and
  • report on form HUD-27011, Part A:
    • the dates relating to the extension;
    • in Block 19, the Expiration Date of the 90-day extension being used;
    • in the “Mortgagee’s Comments” section, the extension being used and the reason(s) for the extension; and
    • in the “Mortgagee’s Comments” section, the statement, “I certify that the use of this extension is for the reason(s) stated above.”

(E) Curtailment of Claims Mortgagees are responsible for self-curtailment of interest and property expenses on Single Family claims when Reasonable Diligence Timeframes or reporting requirements are not met. Property expenses do not include real estate taxes and hazard insurance premiums.

(F) Management Review The Mortgagee must review its records before initiation of foreclosure in making a decision to foreclose as follows:

  • The Mortgagee must develop a form or checklist to document that they have reviewed the Mortgage for foreclosure. A supervisor higher than the person submitting the Mortgage for foreclosure must sign or electronically acknowledge that they have reviewed and approve the document evidencing the decision to foreclose.
  • The Servicer must have the mortgage holder’s approval of its decision to foreclose or have the delegated authority to make such decisions.
  • The Mortgagee is expected to continue to service the Mortgage throughout foreclosure proceedings and to work with the Borrower to avoid foreclosure pursuant to the Loss Mitigation During the Foreclosure Process section requirements and program requirements related to changes in the Borrower’s financial circumstances.

(G) Manufactured Housing Review [Highlighted text below must be implemented no later than December 1, 2016]Due to the title evidence requirements for Manufactured Housing, the Mortgagee must:

  • review each Property at the time of foreclosure referral to determine if the collateral for the FHA-insured Mortgage is a Manufactured Home; and
  • ensure that all the Title Evidence for Manufactured Housing requirements are met before conveying a Manufactured Home to HUD.

ii. Conduct of Foreclosure Proceedings

When foreclosure is necessary, the Mortgagee must give timely notice to HUD via SFDMS and exercise reasonable diligence in processing and completing foreclosure proceedings to acquire good marketable title and possession of the Property. HUD expects Mortgagees to comply with all federal, state and local laws when prosecuting a foreclosure and pursuing a possessory action.

(A) Initiating Foreclosure

(1) First Legal Action to Initiate Foreclosure The Mortgagee must perform the first legal action to initiate foreclosure for each state as provided in Appendix 5.0 – First Legal Actions to Initiate Foreclosure and Reasonable Diligence Timeframes.

(2) Notice to HUD of Foreclosure Initiation The Mortgagee must give notice to HUD within 30 Days of initiating foreclosure by reporting the foreclosure status in the monthly SFDMS report. The Mortgagee must report the foreclosure status for the current cycle or following cycle in which the first required public legal action is taken to initiate foreclosure.

(3) Notice to HOA or Condominium Associations The Mortgagee must name and properly serve HOA and condominium associations reflected in the Mortgage or origination documents, recorded covenants/declarations, initial foreclosure referral and/or title search review, or made known to the Mortgagee during the foreclosure proceedings.

(B) SCRA Protection during Foreclosure The Mortgagee must obtain court permission before foreclosing on a Mortgage falling under provisions of the SCRA. A foreclosure sale or Manufactured Housing repossession during the period of military service and subsequent periods specified within the SCRA is invalid unless it is:

  • made pursuant to a court order granted before such sale with a return made and approved by the court; or
  • held pursuant to a written agreement, entered into after the commencement of Active Duty, between the parties involved.

(C) Loss Mitigation During the Foreclosure Process The Mortgagee may evaluate the Borrower for a Loss Mitigation Option during the foreclosure process where:

  • the Borrower submits their initial Complete Loss Mitigation Request; or
  • the Mortgagee has determined that the Borrower was ineligible for loss mitigation based on a Complete Loss Mitigation Request; and a change in circumstances has occurred so that a Borrower may be eligible for a subsequent loss mitigation review.

(1) Requests Received during Foreclosure The following describes Mortgagee action regarding foreclosure proceedings and loss mitigation requests, depending on when the request is received by the Mortgagee.

(a) 45 or More Days to Scheduled Foreclosure Sale Date

(i) Response When the loss mitigation request is received 45 Days or more prior to the scheduled foreclosure sale date, the Mortgagee must notify the Borrower in writing within five business days of receiving the request that:

  • the Borrower’s request has been received; and
  • the request is complete or incomplete.

(ii) Review Within 30 Days of receiving a Complete Loss Mitigation Request, the Mortgagee must review a Borrower’s request for eligibility for all Loss Mitigation Options.

(iii) Foreclosure Action A Mortgagee must not move forward with a scheduled foreclosure sale during its loss mitigation review.

(b) More than 37 Days but Less than 45 Days to Scheduled Foreclosure Sale Date

(i) Review Within 30 Days of receiving a Complete Loss Mitigation Request, the Mortgagee must review a Borrower’s request for eligibility for Loss Mitigation Options when received more than 37 Days but less than 45 Days to the scheduled foreclosure sale date. If an incomplete request is received and is not completed despite the Mortgagee’s repeated requests to the Borrower for information, the Mortgagee may, at its discretion, evaluate an incomplete loss mitigation request and offer a proprietary, non-incentivized Loss Mitigation Option.

(ii) Foreclosure Action The Mortgagee must not move forward with a scheduled foreclosure sale during its loss mitigation review.

(c) 37 or Fewer Days Prior to the Scheduled Foreclosure Sale Date

(i) Review A Mortgagee must use its best efforts to complete a thorough and accurate review when the Borrower’s request is received 37 Days or fewer prior to the scheduled foreclosure sale date.

(ii) Foreclosure Action HUD does not require the Mortgagee to suspend the foreclosure sale. The Mortgagee may proceed with a foreclosure sale if the Mortgagee:

  • determines after its review of available information that a Borrower is ineligible for loss mitigation; or
  • using its best efforts, is still unable to complete a thorough and accurate review of a Borrower’s request by the scheduled foreclosure sale date.

(2) Terminating Foreclosure Proceedings for Loss Mitigation When a Borrower requests loss mitigation assistance after the Mortgagee has initiated foreclosure, the Mortgagee must suspend and/or terminate the foreclosure proceedings, depending on the state law requirement, after all of the following have occurred:

  • verifying that a Borrower’s financial situation qualifies them for a Loss Mitigation Option;
  • allowing the Borrower at least 14 Days to consider the Mortgagee’s offer of loss mitigation assistance, if the request for loss mitigation was received more than 37 Days prior to the scheduled foreclosure sale date; and
  • receiving an executed Loss Mitigation Option Agreement from the Borrower, indicating that the Borrower understands and agrees to the Loss Mitigation Option terms; receiving a signed sales contract under an approved PFS program participation; or receiving a DIL agreement executed by the Borrower.

(3) Communication Between Departments The Mortgagee must ensure that strong communication lines are established between their Loss Mitigation and Foreclosure departments to facilitate the coordination of loss mitigation efforts and the sharing of documentation and information relating to a Borrower’s delinquency. Both departments must be aware when a Borrower’s file is under review for HUD’s Loss Mitigation Program.

(D) Borrower Sale of the Property before Foreclosure Sale HUD encourages the Mortgagee, when possible, to provide the Borrower with an opportunity to sell the Property and to provide a reasonable time to complete the sale. The Mortgagee should not initiate foreclosure if it appears that a sale is probable and should accept payments tendered while the Property is for sale and before foreclosure is started.

(E) Reasonable Diligence in Completing Foreclosure

(1) Definition The Reasonable Diligence Timeframe is the period of time beginning with the first legal action required by the jurisdiction to commence foreclosure and ending with the later date of acquiring good marketable title to, and possession of, the Property.

(2) Standard The Mortgagee must exercise reasonable diligence in processing foreclosures and in acquiring title to and possession of Properties, in accordance with HUD’s Reasonable Diligence Timeframes. When circumstances beyond the Mortgagee’s control occur, the Mortgagee may treat delays in completing the foreclosure process as exceptions to the Reasonable Diligence Timeframes and may exclude such delays when calculating the time to complete a foreclosure if an extension has been granted by HUD.

(a) Delay Due to Use of Loss Mitigation Home Retention Option When determining compliance with the Reasonable Diligence Timeframe, the Mortgagee may exclude the time that the Borrower was performing under an SFB-Unemployment Agreement or TPP.

(b) Delay Due to Foreclosure Mediation Where mediation is required after the initiation of foreclosure but before the foreclosure sale, the Mortgagee may exclude the time required to complete the mediation when determining compliance with the Reasonable Diligence Timeframe.

(c) Delay Due to Active Duty Military Service If a Borrower is on Active Duty military service and the Mortgage was obtained prior to entry into Active Duty military service, the Mortgagee may exclude the period during which the Borrower is on Active Duty military service when computing the Reasonable Diligence Timeframe.

(d) Delay Due to Bankruptcy When a Borrower files bankruptcy after foreclosure proceedings have been initiated, an automatic extension for foreclosure and acquisition of the Property will be allowed as long as:

  • the Mortgagee ensures that all necessary bankruptcy-related legal actions are handled in a timely and effective matter;
  • the case is promptly referred to a bankruptcy attorney after the bankruptcy is filed; and
  • the Mortgagee monitors the action to ensure that the case is timely resolved through dismissal, termination of the automatic stay, or trustee abandonment of all interest in the secured Property.

HUD will reimburse legal expenses related to resolving bankruptcies in accordance with Attorney’s Fees.

The timeframe for completing the bankruptcy action will vary based on the chapter under which the bankruptcy is filed.

(i) Chapter 7 Bankruptcy HUD allows the Mortgagee an additional 90 Days from the date of the release of stay of the Chapter 7 bankruptcy to recommence the foreclosure.

(ii) Chapter 11, 12 or 13 Bankruptcy When the Mortgagee cannot proceed with foreclosure action because of a Chapter 13 (or Chapter 11 or 12) bankruptcy, the Mortgagee must closely monitor the payments required by the bankruptcy court. If the Borrower becomes 60 Days delinquent in payments required under a Chapter 13 (or Chapter 11 or 12) plan, the Mortgagee must ensure that prompt legal action is taken to resolve the matter. Any delay the Mortgagee encounters must be fully documented and must be beyond the Mortgagee’s control.

(e) Delay in Acquiring Possession When a separate legal action is necessary to gain possession following foreclosure, an automatic extension of the Reasonable Diligence Timeframe will be allowed for the actual time necessary to complete the possessory action. HUD provides this automatic extension if the Mortgagee takes the first legal action to initiate the eviction or possessory action within 30 Days of:

  • the completion of foreclosure proceedings; or
  • the expiration of federal or local restrictions on eviction.

The additional time needed under applicable federal, state, or local laws to obtain possession of a Property is taken into consideration when evaluating a Mortgagee’s compliance with HUD’s Reasonable Diligence Timeframe. Upon the expiration period associated with the applicable occupancy rights, Mortgagees are expected to proceed promptly with possessory actions.

(3) Required Documentation The Mortgagee must document in its Claim Review File any delay in completing foreclosure and all activities performed by the Mortgagee to mitigate and abide by these timeframes. The Mortgagee must maintain a comprehensive audit trail and chronology to support any delay in compliance with the Reasonable Diligence Timeframes. Where the Mortgagee has submitted a request for an extension of time to the NSC via EVARS, the Mortgagee must maintain a copy of the NSC’s written response in the Claim Review File. For automatic extensions, the Mortgagee must reflect these extensions in form HUD-27011 and retain in the Claim Review File documentation supporting those extensions.

(F) HUD Schedule of Attorney Fees

(1) Definition The HUD Schedule of Attorney Fees (Schedule) states the maximum fee amount that may be reimbursed in an FHA insurance claim for a foreclosure attorney, bankruptcy clearance, possessory action, and completion of a DIL.

(2) Standard The HUD Schedule of Attorney Fees reflects the customary legal services pertinent to mortgage Defaults. Each fee on the Schedule is the total maximum amount, instead of an hourly rate, reimbursable in a claim for mortgage insurance benefits. The HUD Schedule of Attorney Fees does not reflect additional expenses incurred due to foreclosure and/or mediation because of the wide differences in costs and lengths of time of foreclosure completion, depending on the jurisdiction in which the foreclosure actions are occurring. For any additional expenses incurred due to required legal actions, such as mediation or probate proceedings, the Mortgagee may claim these amounts by submitting a documented cost breakdown and retaining in the Claim Review File a written justification for those costs.

(G) CWCOT Bidding at the Foreclosure Sale

(1) Mortgagee as Successful Bidder

(a) Amount Equal to the CAFMV If the Mortgagee is the successful bidder for an amount equal to the CAFMV, the Mortgagee may elect to either:

  • retain title to the Property and file a claim for insurance benefits under CWCOT; or
  • convey the title to the Property to HUD and its claim for insurance benefits as a conveyance claim.

(b) Amount Greater than CAFMV Where the Mortgagee is the successful bidder for an amount greater than the CAFMV, unless the sheriff or other appropriate local authority has mandated the subject bid as the minimum bid that could be set for the Property, the Mortgagee is deemed to have elected to retain title of the Property and therefore must not convey title to the Property to HUD.

(2) Third Party as Successful Bidder

(a) Amount Equal to or Greater than CAFMV Where a third party is the successful bidder at the foreclosure sale for an amount equal to or greater than the CAFMV, the Mortgagee must submit its claim for insurance benefits under CWCOT.

(b) Amount Less than CAFMV Where a third party is the successful bidder at the foreclosure sale for an amount less than the CAFMV, the Mortgagee may not file a claim for any insurance benefits.

(3) Borrower or Third Party Redemption Where the Borrower or a third party redeems the Property and acquires title for an amount not less than the CAFMV, the Mortgagee must submit its claim for insurance benefits under CWCOT.

(H) CWCOT Post-Foreclosure Sales Efforts If the Property does not sell to a third party at the foreclosure sale, the Mortgagee may pursue additional sales efforts and may utilize independent third-party providers to conduct such sales prior to making a final decision to convey a Property to HUD. The Mortgagee must still comply with HUD’s conveyance timeframes, unless a sales contract has been ratified. Where a sales contract has been ratified, HUD provides Mortgagees with an automatic 30-Day extension from the deadline for conveyance.

(I) Electronic Record Retention of Foreclosure-Related Documents The Mortgagee must retain documents relating to loss mitigation review in electronic format, in addition to requirements for retaining hard copies or originals of foreclosure-related documents, for foreclosures occurring on or after October 1, 2014. These documents include, but are not limited to:

  • evidence of the Servicer’s foreclosure committee recommendation;
  • the Mortgagee’s Referral Notice to a foreclosure attorney, if applicable; and
  • a copy of the document evidencing the first legal action necessary to initiate foreclosure and all supporting documentation.

(J) Foreclosure Reporting The Mortgagee must report in SFDMS the Account in Foreclosure Codes that accurately reflect the current stage of foreclosure.