FHA Mortgagee Letter 2022-06 — Establishing the Claims Standard for Reasonable Payments for Property Preservation and Protection Costs
HUD ML 2022-06 updates Handbook 4000.1 sections III.A.2.t.i(E) (Curtailment of Claims) and IV.A.2.a.ii(D) (Claim Type 01 Property Preservation and Protection Costs) to establish that HUD will only reimburse Mortgagees for reasonable Property Preservation and Protection (P&P) payments incurred during the P&P period.
Verbatim regulatory text
Verbatim provisions from FHA Mortgagee Letter 2022-06 — Establishing the Claims Standard for Reasonable Payments for Property Preservation and Protection Costs — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
HUD ML 2022-06 — Reasonable Payments for Property Preservation and Protection Costs (IV.A.2.a.ii(D)(3))
Mortgagee payments for P&P costs are considered reasonable if they are incurred during the P&P period, are otherwise reimbursable, and meet the allowances and schedules in Appendix 7.0. The Mortgagee may only include reasonable payments for P&P costs in its claim.
HUD ML 2022-06 — Prohibition on P&P Costs Incurred After P&P Period (IV.A.2.a.ii(D)(3))
Mortgagees must not claim P&P costs incurred after the P&P period for reimbursement.
HUD ML 2022-06 — Effective Date
This ML must be implemented for all FHA-insured Mortgages where the deadline to complete the first legal action, as defined in Appendix 6.0 of HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (Handbook 4000.1), is on or after March 31, 2022.
FHA Mortgagee Letter 2022-06 — Establishing the Claims Standard for Reasonable Payments for Property Preservation and Protection Costs — Purpose
The purpose of this Mortgagee Letter (ML) is to update the policy for Property Preservation and Protection (P&P) costs by establishing that HUD will only reimburse Mortgagees for reasonable payments for P&P costs incurred in connection with Single Family claims for FHA-insured Single Family Mortgages.
FHA Mortgagee Letter 2022-06 — Establishing the Claims Standard for Reasonable Payments for Property Preservation and Protection Costs — Effective Date
This ML must be implemented for all FHA-insured Mortgages where the deadline to complete the first legal action, as defined in Appendix 6.0 of HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (Handbook 4000.1), is on or after March 31, 2022. All updates will be incorporated into a forthcoming update of Handbook 4000.1.
FHA Mortgagee Letter 2022-06 — Establishing the Claims Standard for Reasonable Payments for Property Preservation and Protection Costs — Affected Programs
The provisions of this ML apply to the FHA Title II Single Family Forward Mortgage program.
FHA Mortgagee Letter 2022-06 — Establishing the Claims Standard for Reasonable Payments for Property Preservation and Protection Costs — Background
On April 19, 2021, FHA published an update to the Servicing and Loss Mitigation section (section III) of Handbook 4000.1 which, in part, updated section III.A.2.t.i(E) Curtailment of Claims. FHA’s intent was to ensure that HUD only reimburses Mortgagees for reasonable Property P&P costs in accordance with FHA claim regulations. Through this ML, in order to alleviate any confusion and ensure its original intent is made clear, FHA is establishing a standard for HUD’s reimbursement of reasonable Property P&P costs.
FHA Mortgagee Letter 2022-06 — Establishing the Claims Standard for Reasonable Payments for Property Preservation and Protection Costs — Summary of Changes
This ML: • updates section III.A.2.t.i(E) Curtailment of Claims; and • updates section IV.A.2.a.ii(D) Claim Type 01 - Conveyances, Computation of Claim Amount, Property Preservation and Protection Costs. Single Family Housing Policy Handbook 4000.1 Servicing and Loss Mitigation The policy changes will be incorporated into Handbook 4000.1 as follows: Mortgagee Action Before Initiation of Foreclosure (III.A.2.t.i) (E) Curtailment of Claims and Unreasonable Property Preservation and Protection Payments Mortgagees are responsible for curtailment of interest (IV.A.2.a.i(D)) and exclusion of unreasonable Property P&P payments (IV.A.2.a.ii(D)). 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. Single Family Housing Policy Handbook 4000.1 Claims and Disposition The policy changes will be incorporated into Handbook 4000.1 as follows: Claim Type 01 - Conveyances (IV.A.2.a) ii. Computation of Claim Amount (D) Property Preservation and Protection Costs (1) Definitions P&P Actions are maintenance, security, and repair work required by HUD to ensure the Property meets HUD’s conveyance condition standards. P&P Costs do not include real estate taxes and hazard insurance premiums. The P&P Period begins on the date of commencement of the Reasonable Diligence Time Frame and continues until the end of the date established based on the aggregate calculation of the total number of days in the Reasonable Diligence Time Frame (Appendix 6.0) and the Conveyance Time Frame (III.A.2.v.ii) or CWCOT time frame (III.A.2.t.ii(H)). (2) Standard HUD will reimburse Mortgagees up to the Maximum Property Preservation Allowance in Appendix 7.0, or as permitted by HUD as approved over-allowables, for P&P actions so long as: • the actions are performed during the P&P period, even if the Mortgagee renders payment after conveyance; and • the actions are performed in accordance with HUD guidance. The Mortgagee may not request reimbursement for any costs related to obtaining bids for P&P actions. (a) Photographs The Mortgagee may request a flat fee reimbursement (Appendix 7.0) for photographs, regardless of the number of pictures required. (b) Inspections The Mortgagee may request reimbursement for costs for: • up to 13 inspections per calendar year per Property, with one inspection performed for each 25-35-Day cycle in accordance with HUD guidance and with additional protective measures supported by documentation (III.A.2.h.xiv.C); • Pre-Conveyance Inspections that do not coincide with the regular inspection schedule; and • additional inspections as otherwise required by HUD. (c) Debris Removal (i) Standard HUD will reimburse the Mortgagee for debris removal amounts up to the maximum amount in the P&P cost schedule (III.A.2.v.iii.B) and up to amounts authorized by the MCM. (ii) Required Documentation The Mortgagee must retain in the Claim Review File: • before and after photographs reflecting the debris removal and including the date and property address; and • salvage and dumping fee receipts or other documentation stating the date, property address, number of cubic yards dumped, and number and type of appliances disposed of. (3) Reasonable Payments for Property Preservation and Protection Costs (a) Standard Mortgagee payments for P&P costs are considered reasonable if they are incurred during the P&P period, are otherwise reimbursable, and meet the allowances and schedules in Appendix 7.0. The Mortgagee may only include reasonable payments for P&P costs in its claim. The Mortgagee must calculate the P&P period by adding the number of Days in the Reasonable Diligence Time Frame (Appendix 6.0) and the Conveyance Time Frame (III.A.2.v.ii) or CWCOT time frame (III.A.2.t.ii(H)). The Reasonable Diligence Time Frame starts on the earlier of: • the date the first legal action (Appendix 6.0) should have been filed; or • the actual date the first legal action was taken. Calculation of Preservation and Protection Period Reasonable Diligence Time Frame Conveyance or CWCOT Time Frame Days Total Days in P&P Period See Appendix 6.0 30 Days (unless an extension is approved) Reasonable Diligence Time Frame plus conveyance or CWCOT time frame Days Mortgagees must not claim P&P costs incurred after the P&P period for reimbursement. (4) Required Documentation The Mortgagee must retain in the Claim Review File documentation supporting all property preservation expenses claimed by the Mortgagee. Where the Mortgagee was instructed by HUD to perform a specific service after the date of conveyance, the Mortgagee must include in the “Mortgagee’s comments” section of form HUD-27011 notation of the request and a list of expenses associated with completing the request. Mortgagees must only include reasonable P&P payments on form HUD- 27011, Part C, for reimbursement. The Mortgagee must retain copies of any approved extensions received from HUD in the Claim Review File. (5) Review of P&P Expenses (a) HUD Review HUD’s MCM will evaluate all claimed costs for P&P. HUD will require the Mortgagee to repay these costs if HUD determines that: • amounts paid for reimbursement were unnecessary, excessive, or unsupported; or • services claimed were not performed or were not performed in accordance with HUD guidance (III.A.2.v.iii(B)). (b) Mortgagee Determination If the Mortgagee determines any P&P costs have been incorrectly filed for reimbursement, the Mortgagee must reimburse HUD as a Claim Remittance in FHAC.
Operationalizing FHA Mortgagee Letter 2022-06 — Establishing the Claims Standard for Reasonable Payments for Property Preservation and Protection Costs
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