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The foreclosure process
is different in practically every state.
Some states have a "21 Day"
process and others are closer to 6 months.
The Foreclosure Process
Depends on
Several Factors:
Is the real estate loan a mortgage or deed-of-trust, how does the
state foreclose: judicial foreclosure or power-of-sale, how do they
handle the
notice-of-default: filed at courthouse or publication?
LOAN SERVICING AND CLAIMS
ISSUES
The Department remains committed to assuring that every possible
measure is undertaken to prevent loans from going into default and
eventual foreclosure. FHA encourages lenders to intervene with a
default management plan at the earliest possible opportunity.
Prudent servicing includes documented attempts to collect the debt
through letters and phone calls. Lenders are reminded that they are
required to take all reasonable and prudent measures to induce
borrowers to bring delinquent or defaulted accounts current. This
includes the use of repayment plans, modification agreements, or
refinancing, as appropriate.
Repayment Plans
When the lender negotiates a repayment plan (evidenced by a copy of
the lender’s letter to the borrower outlining the terms of the
agreement), the delinquency should be cured in no later than six
months from the date the payment plan is entered into by the lender.
The term cannot be extended. These repayment plans may be entered
into by lenders without HUD's permission. Lenders are reminded that
insurance claims must not be filed later than nine months after the
date of default, and for that reason, it is critical to work with
the borrower at the earliest stages of default.
Homeowners may be considered for a repayment plan if they have
recently experienced (1) an involuntary reduction in income or an
unexpected increase in living expenses and (2) the lender determines
the borrower has a reasonable ability to pay under the terms of the
repayment plan to eliminate the arrearage within six months.
Loan Modifications
The intent of a loan modification is to eliminate the arrearage and
to reduce the monthly payment (by lowering the interest rate for the
remaining term) which will allow the Title I loan to be brought
current before or by the end of the loan term. Homeowners may be
considered for a loan modification if they have recently experienced
(1) an involuntary reduction in income or an unexpected increase in
living expenses and (2) the lender determines the borrower has a
reasonable ability to pay under the terms of the loan modification
plan to eliminate the arrearage.
As loan modifications do not make sense in every situation, lenders
should carefully review each borrower to determine if this option is
viable. Loan modifications are most advantageous when implemented
during periods of low interest rates and when the stability of the
mortgage can be enhanced by modifying the debt over the remaining
term. The original principal balance, interest rate and term may not
be exceeded in any modification agreement.
Lenders may enter into these loan modifications without HUD’s
permission and they do not have to be recorded.
Refinancing
A final option open to homeowners in financial distress is
refinancing the loan. Detailed guidance for refinancing can be found
starting on page 2-9 of the Title I Handbook 1060.2 REV-6, published
on June 3, 1996 or at §201.19 of the Federal Regulations governing
the Title I Program. Lenders are reminded that in the case of a
refinance, they should maintain the note and all records associated
with the original Title I loan. Lenders also must list the
transaction on form HUD 27029, Title I Refinancing Report, which can
be downloaded over the Internet at: http://www.hudclips.org.
Expanded Review of Claims
An expanded review of claims has recently been instituted.
Underwriting reviews may take place on claims with any number of
loan payments made by the borrower.
Incontestability Clause
Pursuant to §201.54 (h) of the Federal Regulations, lenders are
reminded that any insurance claim on a Title I loan shall be final
and incontestable after two years from the date the claim was
certified for payment by the Secretary, unless a demand for
repurchase of the loan obligation is made on behalf of the United
States prior to the expiration of the two-year period. This two-year
window is only applicable in the absence of fraud or
misrepresentation on the part of the lender.
Lenders must be aware that this clause relates to any action taken
by a dealer on their behalf. As the dealer acts as an agent for the
lender, the lender remains directly responsible for any action taken
by the dealer. Finally, lenders purchasing Title I loans remain
fully responsible for the portfolio of loans held. The purchasing
lender is not immune from claim denial or repurchase because of the
improper actions of a dealer or previous lender. These improper
actions include imprudent underwriting.
For the most current information visit
http://www.hud.gov |
