(2008 Update)
GENERAL REQUIREMENTS FOR PRESERVATION
Mortgagees should preserve and protect
properties securing FHA-insured mortgages in accordance with the requirements
of 24
Generally, the more diligent a Mortgagee is in completing timely foreclosure and conveying a property, the lower the expenditure for preservation and protection will be. A Mortgagee may use any individual or firm to perform preservation and protection services on properties securing FHA-insured mortgages; however, the Mortgagee remains fully responsible to HUD for its actions and the actions of its agents. As a cautionary note, the Department reminds Mortgagees that in addition to the surcharges discussed in this Mortgagee Letter, HUD may pursue enforcement action, including debarment, civil money penalties and actions under the Program Fraud Civil Remedies Act.
HUD has established an overall maximum cost limit (see Attachment 1) that establishes the maximum amount that will be reimbursed for all preservation and protection expenses on an individual property. Additionally, HUD has established maximum allowable costs for individual types of expenses such as lawn mowing and lock-changes. Any expenses exceeding the cost allowable or exceeding the overall maximum cost limit per property are not considered approved by HUD unless a Mortgagee has obtained prior written approval from HUD’s designated Management and Marketing Contractor (“M&M”). HUD will require the repayment of claimed reimbursement amounts if it determines that:
· Amounts paid for reimbursement were unnecessary and excessive;
· The Mortgagee obtained bids that were not independent and competitive;
· Services claimed were not performed or not performed properly; or
· The amount claimed exceeded the cost allowable or overall maximum allowable limit and the Mortgagee did not obtain advance written approval.
To facilitate the timely securing of abandoned properties, HUD has pre-authorized Mortgagees to spend up to a set amount per property for expenses directly related to initial securing. This maximum securing limit is included within the overall maximum allowable limit as further described in Attachment 3.
Some types of expenses such as the
cost of boarding, inspections, securing swimming pools, sump pumps, demolition,
vacant/abandoned property registration fees and utilities are not included in
the maximum cost limit per property.
These services, with the exception of vacant/abandoned property
registration fees, will be reimbursed, provided costs stay within the cost
allowable listed in Attachments 2, 3, 4, and 7. Property registrations fees are set by the
local jurisdictions.
A Mortgagee should support all expenditures, including costs associated with the aforementioned exceptions, with receipts, photographs or other documents to support the expenditure. For the purpose of claiming reimbursement, HUD considers actions identified in this Mortgagee Letter to be pre-approved, provided these actions meet all applicable cost limits and are performed in accordance with the work requirements identified in this Mortgagee Letter.
II. Claim
Submission and Documentation
HUD will reimburse Mortgagees for preservation and protection actions in accordance with the provisions of this Mortgagee Letter upon receipt of form HUD-27011 Parts A&B via Electronic Data Interchange (EDI) or via the FHA Connection. For instructions on claim processing and document submission see HUD Handbook 4330.4, rev.-1, change 1, which is available on “www.hudclips.org”. Documentation to support each claimed expense must be maintained in the Mortgagee’s case file and must be provided to HUD or its M&M contractor upon request. The documentation should support the expenditures and illustrate that the Mortgagee took appropriate action to preserve and protect the property from the time of default to conveyance. Examples of appropriate documentation include copies of all inspections, photographs, receipts, applicable law or ordinance with respect to vacant property registration and over-allowable approval requests.
If the property suffered surchargable damage and the mortgagee has received permission to convey the property un-repaired, Mortgagees shall note “yes” on the Part A form, Item 24, “Is the property conveyed damaged?” Where item 24 is marked “yes”, Mortgagees must also include the date that HUD gave permission to convey damaged in item 25 and also include greater of the insurance recovery or HUD’s estimate of the cost of repairs in item 27.
Where the damage to the property is non-surchargable, item 25 should be marked “no”, and the Mortgagee shall include an explanation of the non-surchargeable damage in the Mortgagee’s Comment Section of Part A. See additional guidance in HUD Handbook 4330.4, rev.-1, change 1, which is available on www.hudclips.org.
Mortgagees are prohibited from performing or claiming preservation and protection services after the deed has been recorded. However, payment of certain utility bills may be considered an exception to this guideline (see Attachment 7).
III. Conveyance
of Damaged Properties
A. Surchargeable
Damage
All properties conveyed to HUD should be undamaged by fire, flood, earthquake, tornado, hurricane, or boiler explosion (for condominiums) or damage resulting from Mortgagee neglect. Costs resulting from these types of damage are considered surchargeable and are excluded from the claim for insurance benefits. The Mortgagee must repair the damage or obtain prior written permission from HUD to convey a property with surchargeable damage.
1. Damage
Due to Failure to Preserve and Protect (Mortgagee Neglect)
HUD
will hold a Mortgagee liable if its failure to take reasonable
action to preserve and protect property that it determined or should have been
determined to be vacant or abandoned results in property damage or
destruction. Examples of
Mortgagee neglect include but are not limited to a Mortgagee’s failure to:
a. Initiate foreclosure within the required timeframe;
b. Obtain timely and accurate property inspections;
c. Promptly secure and continue to protect all abandoned properties; or
d. Promptly notify HUD’s M&M contractor of receipt of code violations and demolition notices and take appropriate action.
2. Limitation on Fire Damage
3. Damage Due to Mold
A property may be conveyed with mold if the mold was not
caused by a surchargeable condition, including
Mortgagee neglect, fire, flood, earthquake, hurricane, or for condominiums, by
boiler explosion. However, even if the
mold was not caused by a surchargeable condition, the
failure by the Mortgagee to take reasonable action to remediate the cause of
the mold and complete any other required preservation and protection actions
related to minimizing further mold damage prior to conveyance of the property,
qualifies as Mortgagee neglect and, is surchargeable.
4. Requesting Approval to Convey with Surchargeable Damage
Mortgagees
may not convey properties that have surchargeable damage
unless the Department provides prior written approval. Until further notice, such approval shall be
provided by the appropriate M&M Contractor having jurisdiction over the
subject property. (24
Such requests for approval should be sent by facsimile or email to the appropriate M&M contractor. The M&M contractor should review and respond in writing to the request either by fax or e-mail no later than 10 business days following receipt. HUD, at its sole discretion, may require that the Mortgagee repair the damage prior to conveyance or may elect to accept conveyance of the property in damaged condition and require that the claim for insurance benefits be reduced by the greater of the insurance recovery or by the government’s estimate of the cost of repairs. If HUD requires the Mortgagee to repair property damages before conveyance, HUD will not reimburse the cost of these repairs.
If the claim is adjusted for damages, the Mortgagee should mark item 24 of Part A, form HUD‑27011, “yes” and complete items 26 and 27. Please note that HUD’s claim system will suspend the claim, delaying payment, if the mortgagee has noted “yes” in item 24 without providing the date of approval in item 26 and the amount of the claim reduction in item 27.
As a matter of administrative practice, HUD generally will
not deny conveyance of properties if the government’s estimate of the cost to
repair the surchargable damage is equal to or less
than $2,500.
5. Surchargeable Damage Conveyed Without Approval
When a property with surchargeable damage is conveyed without prior approval,
HUD may, at its sole discretion, either re-convey the property to the Mortgagee
or seek reimbursement from the Mortgagee for HUD’s estimate of the cost of the
repairs (24
The
e-mail will identify the reason(s) for the proposed re-conveyance, a cost
estimate of the property damage and provide the Mortgagee an opportunity to
respond with additional information. If
additional information is received from the Mortgagee within 10 business days
from the date of the e-mail, it will be included in the package provided to the
The
process for appealing the decision of the
B. Properties
Conveyed with Non-Surchargeable Damage
If a property has sustained non-surchargeable damage, the Mortgagee is not required to obtain pre-approval before conveyance. However, the Mortgagee must include a description of the damage in the “Mortgagee’s Comments” section of form HUD-27011, Part A. Item 24 of Part A, “Is the property conveyed damaged?” should be marked “no”. (Note: marking “yes” in item 24, triggers HUD’s claim system to look in item 26 for the date of HUD’s approval to convey the property damaged and to item 27 for the amount that the claim is to be reduced. Mortgagees must indicate “yes” for surchargable damage and “no” for non-surchargable damage.) Inspection reports and photo documentation should support the damage assessed.
Additionally, the Mortgagee must include, along with the copy of the claim sent to HUD’s M&M Contractor, documentation supporting the preservation and protection work performed on the property. At a minimum, this documentation should include evidence of the date of vacancy, validation of the property condition at vacancy and a chronology of actions performed by the Mortgagee to preserve and protect the property.
If a Mortgagee fails to provide the required explanation in the Mortgagee’s Comments section of Part A or fails to provide the required documentation of P&P actions performed, required documentation that clearly identifies the date of vacancy and documentation to clearly identify property condition, the M&M Contractor will notify the Mortgagee in writing that the Mortgagee has 10 business days to provide the information. If no documentation or inadequate documentation is received from the Mortgagee the damage will be considered surchargeable.
V. Permits and Vacant Property Registration
Each Mortgagee and/or field service provider
should be familiar with the state and/or jurisdictional requirements related to
city ordinances (such as vacant/abandoned property registration) or local
law. The fee associated with
registration of a vacant/abandoned property is reimbursable and must be
included on your claim. Documentation to
support such a claim for registration fees must be included in the claim review
file along a receipt for payment. If and
when a building permit is required by local law prior to performing
preservation and protection services, then the Mortgagee must obtain the permit. If code violations are related to health and
safety and/or costs to resolve the violation is less than $250.00 the mortgagee
shall complete the work without prior approval from the M&M unless the
repair causes mortgagee to exceed the overall cap for preservation and
protection. Otherwise, the mortgagee
shall contact the M&M contractor. If
vacant property registration fee is less than $250.00 the mortgagee shall pay
the fee without prior approval from the M&M otherwise the mortgagee shall
contact the M&M contractor. The
M&M contractor should intercede with the community on municipal liens
(i.e., on properties such as those being placed in the ACA program) or approve
the repairs.