FHA Single Family Housing Policy Handbook 4000.1, Part III — p. Foreclosure (12/30/2025)

FHA Single Family Housing Policy Handbook 4000.1, Part III — p. Foreclosure (12/30/2025)

p. Foreclosure (12/30/2025) 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. 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 the Mortgage has been accurately reported to consumer reporting agencies in accordance with applicable federal law; and • ensuring 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 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) Time Frame 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 time frame, the Mortgagee initiates the first legal action to begin foreclosure or the Borrower: III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1285 Last Revised: 11/26/2025 • enters into or is performing as agreed on a Repayment Plan or Forbearance; • completes a refinance of an insured cooperative housing Mortgage; • has been approved for a Permanent Home Retention Option; • executes a PFS ATP; or • executes a DIL agreement. (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 a Loss Mitigation Option Agreement, and the Mortgagee has determined that the Borrower is ineligible for other Loss Mitigation Options; or • the Mortgagee has been unable to determine 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 Time Frame (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 and the Mortgagee was unable to determine the Borrower’s eligibility for any Loss Mitigation Option due to the Borrower not responding to the Mortgagee’s efforts to contact the Borrower; • the Borrower has notified the Mortgagee in writing that they have no intention of fulfilling their obligation under the Mortgage after being clearly advised of the Loss Mitigation Options available for relief, including PFS and DIL; • 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; or • 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 III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1286 Last Revised: 11/26/2025 • no later than 120 Days after the latter of the date that: o the Property becomes vacant; o the Property is discovered or should have been discovered vacant or abandoned; or o for Properties that have two, three, or four units, all units are discovered or should have been discovered vacant or abandoned. If the Mortgagee fails to inspect the Property within the required time period, or fails to discover the vacancy, the vacancy date will be the last date on which the Mortgagee should have performed the inspection. If the Property becomes vacant prior to an inspection and the Mortgagee has knowledge of such vacancy, then the date the Property became vacant is the vacancy date. (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, where: • the foreclosure sale would have been conducted in the required time frame 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 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 time frame, 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. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1287 Last Revised: 11/26/2025 (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 the initiation of foreclosures and foreclosures already in process following the disaster. 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 for Borrowers in PDMDAs. (2) Automatic Extensions for Foreclosure Initiation Time Frame 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 Option prior to the expiration of the initial six-month period to initiate foreclosure, or issued an ATP in the PFS Program resulting in early termination or option failure; • reported the Loss Mitigation Option via SFDMS; and • initiated foreclosure action after reviewing the Borrower for other Loss Mitigation Options from the date the Borrower defaulted under a Loss Mitigation Option or a TPP Agreement failed. 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 a request for extension of time for completion of a DIL to HUD for approval via EVARS. HUD does not provide automatic extensions for attempting an assumption. (3) Loss Mitigation Denial If the Permanent Home Retention Option or OWL is denied, the Mortgagee must evaluate the Borrower for a Home Disposition Option. If the Borrower is denied for a Home Disposition Option, the Mortgagee must commence, recommence, or resume foreclosure no later than 90 Days after denial of the Loss Mitigation Option. 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 Loss Mitigation regulations under RESPA (Regulation X) at 12 CFR § 1024.41. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1288 Last Revised: 11/26/2025 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 time frame and provide: • the dates required notices were sent to the Borrower; • the date the Mortgagee received the Complete Loss Mitigation Request; • the date 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 Servicing File and the Claim 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 Servicing File and the Claim File; • report the applicable status codes in SFDMS; and • report on form HUD-27011, Part A: o the dates relating to the extension; o in block 19, the Expiration Date of the 90-Day extension being used; o in the “Mortgagee’s Comments” section, the extension being used and the reason(s) for the extension; and o 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 and Unreasonable Property Preservation and Protection Payments Mortgagees are responsible for curtailment of interest and exclusion of unreasonable Property P&P payments. For each curtailment time frame, the time frame begins on the earlier of the date the action should have been taken in accordance with HUD requirements or the actual date the action was taken. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1289 Last Revised: 11/26/2025 (F) Management Review Prior to the initiation of foreclosure, 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; • ensure the Mortgage Holder approves of the Mortgagee's decision to foreclose, or has the delegated authority to make such decisions; and • 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 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. (H) Property Assessed Clean Energy Obligation Review The Mortgagee must: • review each Property at the time of foreclosure referral to determine if the Property is encumbered with a PACE obligation; • confirm that any identified PACE obligation may only become subject to an enforceable claim (i.e., a lien) for delinquent, regularly scheduled PACE special assessment payments, and otherwise complies with the following eligibility and acceptability criteria for Properties with a PACE obligation: o FHA case number must have been assigned prior to January 7, 2018; o under the laws of the state where the Property is located, the PACE obligation is collected and secured by the creditor in the same manner as special assessment taxes against the Property; o the Property may only become subject to an enforceable claim (i.e., lien) that is superior to the FHA-insured Mortgage for delinquent, regularly scheduled PACE special assessment payments. The Property shall not be subject to an enforceable claim (i.e., lien) superior to the FHA-insured Mortgage for the full outstanding PACE obligation at any time (i.e., through acceleration of the full obligation). However, a notice of the lien for the full PACE obligation may be recorded in the land records; o there are no terms or conditions that limit the transfer of the Property to a new homeowner. Legal restrictions on conveyance arising from a PACE III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1290 Last Revised: 11/26/2025 obligation that could require consent of a third party before the owner can convey the Real Property are prohibited, unless such provisions may be terminated at the option of, and with no cost to, the homeowner; o the existence of a PACE obligation on a Property is readily apparent to Mortgagees, Appraisers, Borrowers, and other parties to an FHA-insured Mortgage transaction in the public records and must show the obligation amount, the expiration date, and cause of the expiration of the assessment. In no case may Default accelerate the expiration date; and o in the event of a sale, including a foreclosure sale, of the Property with outstanding PACE financing, the obligation continues with the Property, causing the new homeowner to be responsible for the payments on the outstanding PACE amount; and • contact HUD for guidance if a noncompliant PACE obligation is identified. 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 6.0 – First Legal Actions to Initiate Foreclosure and Reasonable Diligence Time Frames. (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 As part of the foreclosure proceedings, the Mortgagee must notify and serve all Interested Parties of the pending foreclosure, pursuant to state law. Unless otherwise specified by state law, Interested Parties include all condominium management companies and HOAs that are reflected in the Mortgage/origination documents, recorded covenants/declarations, initial foreclosure referral and/or III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1291 Last Revised: 11/26/2025 title search review, or made known to the Mortgagee during the foreclosure proceedings. (4) Outstanding HOA or Condominium Association Fees Unless prohibited by state law, the Mortgagee must ensure that outstanding HOA/Condominium Fees are included as part of the foreclosure proceeding. (B) Servicemembers Civil Relief Act 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 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. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1292 Last Revised: 11/26/2025 (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; and • provide the Borrower with a notice in writing stating the Mortgagee’s determination of which Loss Mitigation Option, if any, it will offer to the Borrower. (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: III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1293 Last Revised: 11/26/2025 • 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 for the first time during a Default episode after the Mortgagee has initiated foreclosure, the Mortgagee must suspend and/or terminate the foreclosure proceedings, depending on the state law requirement, after the Mortgagee has: • verified that a Borrower’s financial situation qualifies them for a Loss Mitigation Option; • allowed 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 • received an executed Loss Mitigation Option Agreement, where applicable, or sales contract from the Borrower. If state law requires the Mortgagee to cancel a foreclosure action and then requires the Mortgagee to re-initiate the action at a later date, if needed, the Mortgagee must request HUD approval via EVARS for an extension of time to the first legal action deadline prior to approving the Borrower for loss mitigation. (3) Communication Between Departments The Mortgagee must ensure that strong communication lines are established between the 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 of 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. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1294 Last Revised: 11/26/2025 (E) Reasonable Diligence in Completing Foreclosure (1) Definition The Reasonable Diligence Time Frame is the time period beginning at the earlier of the date the first legal action should have been filed in accordance with HUD time frames or the date the actual first legal action required by the jurisdiction to commence foreclosure was taken, 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 when processing foreclosures and acquiring title to and possession of Properties, in accordance with HUD’s Reasonable Diligence Time Frames. When circumstances beyond the Mortgagee’s control occur, the Mortgagee may treat delays in completing the foreclosure process as exceptions to the Reasonable Diligence Time Frames 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 Time Frame, the Mortgagee may exclude the time that the Borrower was performing under a Repayment Plan, Forbearance, 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 Time Frame. (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 Time Frame. (d) Delay due to Bankruptcy When a Borrower files bankruptcy after foreclosure proceedings have been initiated, an automatic 90-Day extension for foreclosure and acquisition of the Property will be allowed if: III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1295 Last Revised: 11/26/2025 • the Mortgagee ensures that all necessary bankruptcy-related legal actions are handled in a timely and effective manner; • 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. The time frame 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 commence or 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 Time Frame will be allowed to cover the actual time necessary to complete the possessory action. HUD provides this automatic extension if the Mortgagee takes the first required public legal action to initiate the eviction or possessory action within 30 Days of the later 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 Time Frame. Upon the expiration period associated with the applicable occupancy rights, Mortgagees are expected to proceed promptly with possessory actions. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1296 Last Revised: 11/26/2025 (3) Required Documentation The Mortgagee must document in the Servicing File and the Claim File any delay in completing foreclosure and all activities performed by the Mortgagee to mitigate and abide by these time frames. The Mortgagee must maintain a comprehensive audit trail and chronology to support any delay in compliance with the Reasonable Diligence Time Frames. Where the Mortgagee has submitted a request for an extension of time to HUD via EVARS, the Mortgagee must maintain a copy of HUD’s written response in the Servicing File and the Claim File. The request should be made as soon as possible, but before the time limit for that action expires. For automatic extensions, the Mortgagee must reflect these extensions in form HUD-27011 and retain in the Servicing File and the Claim File documentation supporting those extensions. (F) Allowable Foreclosure Attorney Fees and Fees Associated with Bankruptcy Clearance, Possessory Actions, and Completion of a DIL (1) Definition The Fannie Mae Allowable Foreclosure Attorney Fees Exhibit provides the maximum amount of foreclosure attorney fees that HUD will reimburse for work actually performed. The Fannie Mae Allowable Bankruptcy Attorney Fees Exhibit provides the maximum amount of bankruptcy attorney fees that HUD will reimburse for work actually performed. Appendix 5.0 – HUD Schedule of Standard Possessory Action and Deed-In-Lieu of Foreclosure Attorney Fees (Applies to Servicing Only) provides the maximum amount of fees that HUD will reimburse for work actually performed related to possessory actions and the completion of a DIL. (2) Standard HUD will reimburse Mortgagees for reasonable and customary fees for work actually performed related to the current Default episode that were paid to attorneys and trustees in connection with the foreclosure of a Mortgage, fees associated with bankruptcy clearance, possessory actions and/or completion of a DIL. For additional expenses incurred due to required legal actions, the Mortgagee may claim reimbursement for these costs by: III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1297 Last Revised: 11/26/2025 • providing a documented cost breakdown and written justification with the claim submission and retaining a copy in the Claim File; and • filing a supplemental claim for amounts above the maximum fee. If a Mortgagee suspends or cancels a foreclosure action to perform loss mitigation, or if the Mortgage is reinstated or paid in full, the Mortgagee may only charge the Borrower for attorney fees incurred for the work performed up to the point of the cessation. (a) Allowable Foreclosure Attorney Fees Mortgagees may claim reimbursement from HUD for attorney fees related to routine foreclosure actions for the preferred method of foreclosure based on the Fannie Mae Allowable Foreclosure Attorney Fees Exhibit in the Fannie Mae Servicing Guide Exhibits & Resources. The amount claimed for attorney fees cannot exceed the actual fees charged for work performed. Mortgagees may not request HUD approval to proceed with a method of foreclosure in states where an amount is not specified on the Fannie Mae Allowable Foreclosure Attorney Fees Exhibit. The footnotes included are not applicable to FHA-insured Mortgages. Fannie Mae revises this Exhibit frequently, so Mortgagees must ensure the fees claimed for reimbursement are based on the Exhibit in effect as of the date foreclosure is initiated. HUD reserves the right to revise amounts which it considers reasonable and customary at any time. Mortgagees may claim no more than 75 percent of the maximum attorney fee for fees incurred for a routine foreclosure that was not completed because any of the following occurred after the Mortgagee initiated foreclosure: • the Borrower filed a bankruptcy petition; • the Borrower successfully completed a Home Retention Option; • the Borrower successfully completed a PFS; or • the Borrower executed a DIL. (b) Allowable Bankruptcy Attorney Fees Mortgagees may claim reimbursement from HUD for routine bankruptcy clearance actions based on the Fannie Mae Allowable Bankruptcy Attorney Fees Exhibit in the Fannie Mae Servicing Guide Exhibits & Resources. The amount claimed cannot exceed the actual fees charged for work performed. Fannie Mae revises this Exhibit frequently, so Mortgagees must ensure the fees claimed for reimbursement are based on the Exhibit in effect as of the date the Borrower’s bankruptcy is filed. HUD reserves the right to revise amounts which it considers reasonable and customary at any time. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1298 Last Revised: 11/26/2025 (c) Fees Associated with Possessory Actions or Completion of a DIL Mortgagees may claim reimbursement from HUD for the fees associated with possessory action and completion of a DIL as listed in Appendix 5 – HUD Schedule of Standard Possessory Action and Deed-In-Lieu of Foreclosure Attorney Fees. The amount claimed cannot exceed the actual fees charged for work performed. (3) Required Documentation Mortgagees are expected to maintain documentation in the Servicing File and the Claim File to support all allowable fees. (G) 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 Mortgagee’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. iii. Claims Without Conveyance of Title (07/12/2022) (A) Definitions A Claims Without Conveyance of Title (CWCOT) is a procedure under which the Mortgagee attempts to secure a third-party purchaser for the mortgaged Property so that conveyance to HUD is not required in exchange for mortgage insurance benefits. A Competitive Sale is a CWCOT-related sale where a Mortgagee elects to use an independent third-party provider to conduct the foreclosure sale or in connection with any post-foreclosure sales efforts and where the Property is marketed for a minimum of 15 Days. A Non-Competitive Sale is a CWCOT-related sale where a Mortgagee elects not to use an independent third-party provider to conduct the foreclosure sale or in connection with any post-foreclosure sales efforts and/or the Property is not marketed for a minimum of 15 Days. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1299 Last Revised: 11/26/2025 (B) Qualification Criteria for Use of Commissioner’s Adjusted Fair Market Value (1) Definition The Commissioner’s Adjusted Fair Market Value (CAFMV) is the estimate of the FMV of the mortgaged Property, less adjustments, which may include without limitation, HUD’s estimate of holding costs and resale costs that would be incurred if title to the mortgaged Property were conveyed to HUD. (2) Standard Mortgagees must use the CAFMV for all foreclosure sales and post-foreclosure sales efforts associated with defaulted FHA-insured Mortgages when eligible for CWCOT. A Mortgage is eligible for CWCOT when all the following criteria are met: • the FHA-insured mortgage insurance is still active for the FHA case number; • the Mortgagee has worked with the Borrower to exhaust all applicable Home Retention Options and has determined that the Borrower’s case does not meet the criteria for a Home Disposition Option, or the Mortgagee has been unable to locate the Borrower and the Property is vacant or has been abandoned by the Borrower; and • the Property has no Surchargeable Damage. (3) Small Servicer Exemption (a) Definition Small Servicers are those Servicers defined in 12 CFR § 1026.41(e)(4)(ii). (b) Standard HUD permits but does not require the use of CAFMV by small servicers. (C) Property Valuation and Commissioner’s Adjusted Fair Market Value (1) Required Appraisal Unless otherwise directed by HUD, Mortgagees must first obtain, and review for accuracy, an “As-Is” FHA appraisal, which includes both an interior and exterior evaluation of the Property. The FHA appraisal must be completed in accordance with the Claims Without Conveyance of Title Properties requirements in the Appraiser and Property Requirements for Title II Forward and Reverse Mortgages section. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1300 Last Revised: 11/26/2025 If the Property is occupied and an interior appraisal cannot be obtained, an “exterior-only” appraisal may be used. (a) Appraisal Validity Period The appraisal must be valid on the date of the foreclosure sale. Appraisals are valid for 180 Days from the effective date of the appraisal report. (b) Extension to Appraisal Validity Period HUD provides an automatic 30-Day extension from the appraisal expiration date for delays due to bankruptcy, court delays, or delays outside of the Mortgagee’s control. The Mortgagee must request and obtain HUD approval via EVARS for extensions beyond the automatic 30-Day extension. (c) Subsequent Appraisals for Post-Foreclosure Sales Efforts If a Property that had an exterior-only appraisal becomes vacant, the Mortgagee must obtain a new appraisal that includes both an interior and exterior inspection if: • before foreclosure, any delay due to obtaining a new appraisal will not cause the foreclosure sale to be canceled; or • after foreclosure, the Mortgagee conducts post-foreclosure sales efforts. Mortgagees must use an FHA Roster Appraiser to conduct the new appraisal. HUD will reimburse the Mortgagee for the cost of one new appraisal following vacancy through the FHA insurance claim. (d) Required Documentation Mortgagees must upload the appraisal information and related FHA case number through HUD’s system of record (P260) within 30 Days of the date of the appraisal. (2) Determining the CAFMV After determining the Property’s appraised value using the most recent appraisal, the Mortgagee’s authorized employees must access the CAFMV link in FHAC to determine a Property’s CAFMV. The CAFMV remains valid and in effect for 120 Days from the date of the appraisal. In jurisdictions where the Mortgagee is required to bid a specific amount at foreclosure, that amount will be deemed to be the CAFMV for purposes of the initial foreclosure; however, the Mortgagee’s authorized employees must access III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1301 Last Revised: 11/26/2025 the CAFMV link in FHAC to determine a Property’s CAFMV for use in any post- foreclosure sales efforts. To facilitate a CWCOT post-foreclosure sales effort, the Mortgagee may contribute an additional amount needed to raise a third party’s bid to the CAFMV and allow the sale of the Property to such third party. HUD will not reimburse any contribution by the Mortgagee to facilitate the sale through the FHA insurance claim. (3) Damage to the Property after Appraisal The Mortgagee must request a variance from HUD via EVARS to proceed with the current appraised value if the Mortgagee becomes aware that the Property sustained significant damage, other than damage resulting from Borrower neglect, that may impact the value after the appraisal was completed. If HUD denies this request, additional instructions will be provided with the denial. (4) Updated Appraisals due to Postponed Foreclosure Sales If the foreclosure sale does not take place within 180 Days from the effective date of the appraisal, and within such additional time provided under Extension to Appraisal Validity Period, the Mortgagee must request an updated appraisal and obtain an updated CAFMV. (D) Independent Third-Party Providers (1) Definition An Independent Third-Party Provider is a party that conducts the foreclosure sale or post-foreclosure sales efforts, including marketing efforts in support of such sales under CWCOT procedures, and who is not one of the following: • an Affiliate or subsidiary of the Mortgagee; • any entity over which the Mortgagee has significant influence; or • any entity with which the Mortgagee has a conflict of interest in fact or appearance. (2) Standard Where permitted by the jurisdiction, the Mortgagee may utilize an independent third-party provider to market the Property prior to any foreclosure or post- foreclosure sales efforts or to conduct such sales to ensure maximum competition for both the foreclosure sale and post-foreclosure sales. The Mortgagee may only use an independent third-party provider that agrees, in writing, to share sales and auction reporting information with the Mortgagee and HUD. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1302 Last Revised: 11/26/2025 For successful third-party sales, HUD will reimburse expenses relating to the Mortgagee’s use of an independent third-party provider to market or conduct the foreclosure sale or post-foreclosure sales efforts, provided the Property was marketed for a minimum of 15 Days before each scheduled sale. HUD will reimburse such independent third-party provider expenses incurred for successful third-party sales up to an amount that does not exceed: • 3 percent of the Property’s sales price where the independent third-party provider markets the Property, but does not conduct the sale; or • 5 percent of the Property’s sales price where the independent third-party provider markets the Property and conducts the sale. Closing costs of the sale are to be paid by the third-party purchaser or the Mortgagee. Revenue sharing agreements of the reimbursed fee between the Mortgagee and the independent third-party provider are prohibited. (E) CWCOT Bidding at the Foreclosure Sale The CAFMV is multi-tiered: • at the foreclosure sale, the Mortgagee must bid the CAFMV which is the FHA calculation or the state-mandated foreclosure price, if applicable; and • at post-foreclosure sales opportunities, the CAFMV is the FHA calculation, which may be adjusted if the Property had an exterior-only appraisal and is vacant after 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’s bid exceeds the CAFMV, resulting in the Mortgagee acquiring title to the Property at a foreclosure sale, 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 the Mortgagee’s FHA claim for insurance benefits will be calculated in accordance with 24 CFR § 203.401(b). The Mortgagee may not utilize post-foreclosure sales efforts and may not convey title to the Property to HUD. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1303 Last Revised: 11/26/2025 (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 Notwithstanding the foreclosure sale, the Borrower or a third party may exercise a legal right and redeem the Property. 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. (F) CWCOT Post-Foreclosure Sales Efforts If the Property does not sell to a third party at the foreclosure sale, the Mortgagee may pursue post-foreclosure 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’s third-party provider must indicate that the Property is being sold in an “as is” condition, and the condition is unknown and may include defects, possible health or safety hazards, or debris, or located in a Special Flood Hazard Area (SFHA). Where the Property is occupied, based on the appraisal or property inspection, the Mortgagee’s third-party provider must clearly indicate that the Property is occupied in the auction information. (1) CWCOT Post-Foreclosure Sales Period Mortgagees that utilize the post-foreclosure sales efforts must list the Property for sale to all third parties for a 60-Day period. (2) Extensions of Time Frames to Engage in Post-Foreclosure Sales Efforts HUD will provide the Mortgagee with an automatic extension of the conveyance time frames to attempt post-foreclosure sales efforts and commence possessory III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1304 Last Revised: 11/26/2025 action, where applicable, for 60 Days from the date the foreclosure deed is filed for recording or the expiration of the redemption period, if applicable, in circumstances where the Mortgagee complied with all foreclosure time frames. (a) Conveyance Time Frame if Property Does Not Sell If the Property does not sell through the post-foreclosure sales efforts, the Mortgagee must convey the Property to HUD within 30 Days of the end of the post-foreclosure sales period. (b) Extension of Conveyance Time Frame to Allow for Closing Where a sales contract has been ratified before the expiration of the 60-Day period, HUD will provide the Mortgagee with an additional, automatic 60- Day extension to the deadline for conveyance, from the date the sales contract has been ratified, to allow for closing of the sale. (3) Preservation and Protection during Post-Foreclosure Sales Periods The Mortgagee must preserve and protect the Property in accordance with HUD requirements during the post-foreclosure sales period and throughout any approved extensions to deadlines for conveyance. HUD will reimburse the Mortgagee through the FHA insurance claim for all reasonable preservation, protection, and eviction expenses incurred prior to the expiration of any extension of the deadlines for conveyance, as listed in Property Preservation Allowances.

Source: FHA Single Family Housing Policy Handbook 4000.1, Part III — p. Foreclosure (12/30/2025) · source URL · snapshot 8c03836f77f317e1