2003 PRESERVATION AND PROTECTION GUIDELINES
SECTION I.
GENERAL REQUIREMENTS FOR PRESERVATION AND PROTECTION SERVICES
A. CLAIMING REIMBURSEMENT
The Department of Housing and Urban Development expects mortgagees to exercise the same level of diligence and prudence in protecting and preserving vacant properties which secure FHA-insured mortgages that the mortgagees would provide if they could look only to the property for recovery of losses from foreclosure. Mortgagees must take reasonable action to protect and preserve properties against potential damage and prevent progressive deterioration prior to conveying the property to HUD, unless such actions would constitute illegal trespass.
If a property securing a mortgage insured on or after
January 1, 1977, is damaged because of the mortgagee's failure to preserve
and protect the property, which may include failure to timely initiate
foreclosure, HUD will hold the mortgagee accountable.
The mortgagee may take additional protection and preservation measures
to those described herein, but HUD will reimburse the mortgagee only if
the mortgagee obtains prior written approval from the Departments designated
Management and Marketing (M&M) contractor.
Mortgagees may expend up to the maximum amount listed in Attachment
1 for the preservation and protection of a property.
HUD has updated the overall maximum cost schedule to reflect changes
that have occurred in preservation and protection requirements and costs,
including the one-time securing fee.
This fee covers, but is not limited to, initial lock changes, which
include a master lock with identical key codes for the front and rear
entry doors and any other entryway which provides immediate access to
the living area, attached garage or basement area.
Also included in the one-time securing fee are temporary measures
to protect the interior of the property from damage caused by leaking
roofs (e.g., tarping). The
costs of boarding, inspections, photographs, securing swimming pools,
and utility bills are not included in the maximum allowable per property. In addition to these services,
trip charges and eviction fees are not included but are listed in another
section of the guidelines. These services will be reimbursed,
provided costs stay within the cost allowables listed in the Attachments.
The mortgagee must support all expenditures with receipts.
For the purpose of claiming reimbursement, HUD considers actions identified
in this Mortgagee Letter to be approved, provided these actions are performed
in accordance with the work requirements and meet all applicable cost
limits. If HUD determines
that amounts paid for reimbursement are inappropriate, unnecessary, unsupported,
or excessive; or that the mortgagee obtained bids that were not independent
and competitive; or that services claimed have not been completely and
properly performed, HUD will require repayment of all such claim amounts. Mortgagees must not make any
claim for reimbursement for preservation and protection services performed
after conveyance to HUD. To
be reimbursable, the expense must have been incurred prior to the date
of conveyance. Payment of
certain utility bills are sometimes considered as an exception to this
guideline; please see Item L and
Attachment 7.
Generally, the more diligent the mortgagee is in completing the foreclosure
process and conveying the property in a timely manner, the smaller the
amount of expenditures for preservation and protection will be. A
mortgagee may use any individual or firm to perform protection and preservation
services on properties securing FHA-insured mortgages, however, the mortgagee
remains fully responsible to the Department for the actions of its agents,
whose actions HUD will consider the actions of the mortgagee.
HUD considers expenses which fall within the individual cost limits in
this Mortgagee Letter to be reasonable and approved, as long as the aggregate
does not exceed the maximum limit per property as identified in Attachment
1. Any
expenses which exceed the cost allowables or exceed the overall maximum
cost limit per property are not considered approved by HUD unless the
mortgagee has obtained prior written approval from HUDs M&M contractor. As
noted on page 1 of this section, the cost of boarding, inspection, photographs,
securing swimming pools and utility costs will be reimbursed if they fall
within the cost allowables, notwithstanding the maximum cost limit per
property.
B.
RESPONSIBILITY
FOR DAMAGE
The mortgagee must preserve and protect vacant properties in its possession to avoid damage prior to conveyance. A prudent mortgagee will preserve and protect a vacant property to avoid potential damage to the property and avoid potential surcharges to its claim. HUD will reimburse the mortgagee for required preservation and protection costs, within the established cost limits, when the mortgagee adequately documents and properly completes measures approved as claimable expenditures.
1. DAMAGE BY FIRE, FLOOD, EARTHQUAKE, TORNADO, HURRICANE, OR A CONDOMINIUMS BOILER EXPLOSION - All properties conveyed to HUD must be undamaged by fire, flood, earthquake, tornado, hurricane, or boiler explosion (condominium units only). The mortgagee must repair the damage or obtain prior written permission from HUD to convey the property in damaged condition. If HUD (via the M&M contractor) requires the mortgagee to repair the property before conveyance, HUD will not reimburse the cost of these repairs.
2. DAMAGE DUE TO MORTGAGEE NEGLECT - For properties securing mortgages insured on or after January 1, 1977, HUD will hold mortgagees responsible if their failure to take adequate action to preserve and protect the property results in damage. HUD considers a mortgagees failure to inspect, preserve, and protect the property, or initiate foreclosure within the required timeframe, to be mortgagee neglect. Mortgagees must not convey properties that have become damaged due to mortgagee neglect unless prior written approval from HUD has been provided to convey the property in damaged condition. If HUD (via the M&M contractor) requires the mortgagee to repair damage to the property resulting from mortgagee neglect before conveyance, HUD will not reimburse the mortgagee for the cost of these repairs.
If the mortgagee receives
permission to convey a property in a damaged condition resulting from
fire, flood, earthquake, tornado, hurricane, condominium boiler explosion
or mortgagee neglect, HUD will deduct from the mortgage insurance benefits
the greater of any hazard insurance proceeds recovered by the mortgagee
or HUD's estimate of the cost to repair the property.
If the claim is adjusted for damages, the mortgagee must mark item
24 of Part A, Form HUD‑27011, yes and complete items 26 and 27.
If the mortgagee denies responsibility for the damage, it must mark item
24 of Part A, Form HUD-27011, no.
The mortgagee must identify the damage and explain the reason for
denial of responsibility in the Mortgagee Comments section on the reverse
side of Part A. The mortgagee
also must provide the M&M contractor with all documentation, including
copies of all inspections, showing that the mortgagee took appropriate
action to preserve and protect the property from the time of default to
conveyance. This documentation
must accompany the copy of Part A, Form HUD-27011, which the mortgagee
must send to the M&M contractor.
All documentation must include the FHA case number, and must be legible
and securely fastened to the copy of the claim form that is provided to
HUDs M&M contractors. Without
adequate documentation to support the mortgagee's position, the M&M
contractor will deem such damage (for properties securing mortgages insured
on or after January 1, 1977) to be the result of the mortgagee's failure
to take appropriate action to preserve and protect the property (mortgagee
neglect).
C.
EXISTING WARRANTIES
The Department will not reimburse mortgagees for repairs
to properties other than those required for preservation and protection. When repairing a property, mortgagees
must always be aware of existing warranties on properties built within
the previous ten years.
D. INSPECTIONS
When a mortgage is in default and a payment is not received
within 45 days of the due date, and efforts to reach the mortgagor by
telephone or other means within that period have proven unsuccessful,
the mortgagee must make a visual inspection of the property to determine
occupancy status in accordance with the requirements in
Attachment 2. The cost schedule
has been reformatted to show reimbursable limits for initial inspections,
additional units and subsequent inspections.
Subsequent inspections are to be performed 25-35 days following
any prior inspection if the property is vacant or following the last contact
with the mortgagor if the mortgage is in default.
No more than twelve inspections per calendar year are allowed to
be claimed unless indicated otherwise in
Attachment 2or when a reimbursable eviction inspection is performed.
E.
LOCK CHANGE/SECURING
Properties must be secured to prevent unauthorized entry
and to protect against weather damage in accordance with the requirements
in Attachment 3.
The Lock Change/Securing
Service cost schedule includes a one-time securing fee.
This will facilitate the securing of HUD property by not requiring
prior approval from the M&M contractor.
The one-time securing fee will include, but is not limited to,
lock changes, which include a master lock with identical key codes for
the front and rear entry doors; securing any other entryway which provides
immediate access to the living area, attached garage or basement area;
and, as needed, temporary measures to protect the interior of the property
from damage caused by leaking roofs.
These temporary repairs in the form of patchwork/covering, or replacing
loose shingles should be performed promptly.
Mortgagees must document the temporary measures taken to protect
the property. See
Attachment 3 for cost schedule. Before
and after photographs are required.
Allowable costs for Boarding of Properties, Ground and Yard Maintenance
and Winterization can be found under separate attachments.
F.
BOARDING OF
PROPERTIES
Mortgagees shall not board a property unless
they have prior written approval from the M&M contractor; the property
is severely damaged by fire, flood or other natural disaster and must
be secured for safety reasons; or the property is located in one of the
pre-approved boarding areas shown in
Attachment 4. Where boarding is
required, openings on these properties must be securely boarded using
carriage bolts or screws. The
use of nails is prohibited. The
cost of boarding properties is not to be included in the maximum allowable
limit per property.
Attachment 4details boarding service requirements, cost limits, and pre-approved
boarding areas. Before and
after photographs are required.
G.
DEBRIS
REMOVAL
Mortgagees are to remove all exterior debris. This action will promote preservation and protection of the property by allowing grass cuts and other yard maintenance requirements to be performed in a timely manner while reducing possible code violations.
Mortgagees are not to remove interior debris except
for: 1) debris that constitutes a health or safety hazard, 2) debris that
causes the issuance of a code violation which would result in a fine and/or
lien if not corrected prior to conveyance to HUD, 3) debris required to
be removed as part of an eviction by local law enforcement or crews under
the control and direction of local law enforcement where the mortgagee
has no control over the timing of removal, and 4) geographic areas identified
in Attachment 5.
HUD will not reimburse amounts in excess of the amount listed in
Attachment 5 for debris removal without prior written approval from the M&M
contractor.
A mortgagee may expend up to
this amount without M&M contractor approval.
Costs such as labor hours, dump
fees, and transportation costs (i.e. fuel, mileage, truck rental, etc.)
should not be claimed in addition to debris removal cost limits, as these
costs are incorporated in the per unit allowable cost for debris removal. Before
and after photographs are required.
See Item J, Eviction Costs, for guidance concerning
items removed from the property in connection with an eviction.
H.
HAZARDOUS WASTE
REMOVAL
Most residential properties will have very limited hazardous
waste. See
Attachment 5 for specific requirements regarding the removal of hazardous waste.
I.
GROUND AND YARD MAINTENANCE
Excluding
properties in the Denver Homeownership Center (HOC) area where only one
initialcut will be reimbursed, there is a change in the initial cut requirements. Under
certain circumstances where the foreclosure process exceeds 12 months,
and the mortgagee is in compliance with the reasonable diligence requirement,
an initial grass cut will be allowed once per 12 months.
No
more than one initial lawn cut will be allowed per 12 month period. If
the grass grows to six inches in length during the off-season, the mortgagee
must request prior approval to cut the grass.
Grass
will be cut to a maximum of two inches in length.
If
it becomes necessary for the mortgagee to request permission to cut the
grass before the official season begins, the mortgagee may not claim this
special service and an initial cut unless the grass again becomes six
or more inches high, Before and After photographs are always required
for the initial grass cut, the final grass cut and any off-season grass
cut, if such action was necessary.
A
mortgagee will not be reimbursed more than once for an initial grass cut. A
final grass cut shall be completed no later than two weeks prior to conveyance
if conveyance is completed during the growing season.
See
Attachment 6 for seasonal times.
Yard
maintenance must be performed in accordance with the requirements in
Attachment 6.
J.
EVICTION COSTS
Generally only the costs of removing personal
property while the eviction is being conducted under the control and direction
of local law enforcement officials are considered eviction costs and are
not subject to the allowable cost limit for the jurisdiction.
If the mortgagee is required by local law to remove trash and debris
from the property as part of the eviction, and the mortgagee has no control
over the timing of removal, the costs of removing the items are considered
eviction expenses/costs. Such
costs are to be claimed as labor hours and are to be reasonable and customary
for services performed in the area.
Only reasonable costs for eviction crews necessary to accomplish the eviction
will be reimbursed. For
example, waiting for the sheriff to perform the eviction will be disallowed. If the sheriff, statute, or local
law requires that a specific service be performed, such requirement must
be documented.
In most circumstances no more than three or four men should be necessary
to complete an eviction for a townhouse or condo and no more than six
men should be required for a single family detached dwelling.
If the local law provides that a specific number of men be provided,
or if the law enforcement official conducting the eviction identifies
a need for additional men to be present at the time of the eviction, there
must be documentation to support the need for these additional men in
the claim review file.
To reduce the number of canceled and rescheduled evictions, mortgagees
are required to perform an inspection within seventy-two hours of a scheduled
eviction to determine whether or not the property is vacant.
Except where a local variation requires an inspection every week,
this eviction inspection will be reimbursed as a subsequent inspection. Where an inspection is to be
conducted the same week as the scheduled eviction, the inspection is to
be performed within seventy-two hours of the scheduled eviction. Mortgagees must confirm with
the sheriff or the appropriate local law enforcement official the day
before or morning of the scheduled eviction to confirm that the eviction
is going to occur as scheduled.
This should result in reduced costs that otherwise would be incurred by
mortgagees for crews that show up for canceled or rescheduled evictions. If this happens, the mortgagee
is only eligible to claim a maximum of one hour of labor per man.
Sound judgment is to be used in distinguishing personal
property from debris. Generally,
examples of items that might be considered personal property are chairs,
tables, clothing and books.
Examples of debris are trash, shabby and torn carpet, cracked and torn
linoleum, waste paper, sweepings and litter.
However, mortgagees must follow any local code and laws regarding
the definition of personal property versus debris.
If mortgagees have questions regarding personal property and debris,
please consult local counsel for guidance.
Photographs are required to support all personal property/debris removed
from the property as part of an eviction.
A maximum of ten photographs will be reimbursed as part of the
eviction costs. Mortgagees
should use discretion in determining if additional photos are needed to
adequately support all services/items to be claimed.
The maximum allowable amount per photo is listed in
Attachment 8. Eviction costs should
be entered in item 305 of Part D of the claim form.
K.
WINTERIZATION
In jurisdictions where winterization is required, ALL properties must be winterized
between October 1 and March 31.
Properties should not be winterized between April 1 and September
30. Exceptions to these
winterization time periods and detailed service requirements are specified
in Attachment 7.
L.
UTILITIES
In jurisdictions where utilities are to remain on, the
mortgagee may pay the bill and claim reimbursement for utility costs that
cover the date of the conveyance until the end of that utility's billing
cycle. See
Attachment 7 for specific requirements regarding utilities.
M.
SECURING/ WINTERIZING
SWIMMING POOLS
Fees for securing or winterizing swimming
pools are not included in the maximum allowable limit per property. Prior written approval from the
M&M contractor is required for securing or winterizing pools unless
otherwise noted in these guidelines.
See Attachment 3 for
specific requirements regarding swimming pools.
Before and after photographs are required.
N.
PHOTOGRAPHS
To promote the use of e-commerce, digital photographs
will be accepted, but are not required.
The cost of photographs will be allowed only to support the initial
vacancy inspection, before and after photographs for the one-time securing
service, securing/winterizing swimming pools, boarding, yard maintenance
and debris removal; and expenses beyond allowable cost limits where prior
approval is required. Photographs
will also be required to support personal property/debris removed as part
of an eviction (unless otherwise specified in the variations from the
general requirements in
Attachment 8).
O.
SIGNS FOR EMERGENCY CONTACT
Mortgagees must post small signs no larger than 8.5
x 11 to an interior window or front door. The sign shall not state that
the property is pending foreclosure or give the phone numbers or name
of the M&M contractor as a contact.
The sign should contain the mortgagees toll free telephone number,
if the mortgagee has one, and the telephone number of the mortgagee's
local representative, i.e. the company to contact in the event of emergency. There is no allowable cost to
post signs or stickers unless noted in the local office variations. See
Attachments 3 and
7 for variations.
P.
FAILURE TO PERFORM PRESERVATION AND PROTECTION
When a mortgagees failure to properly preserve
and protect a property results in damage to the property (e.g., a roof
leak resulting in interior damage,) the M&M contractor must notify
the mortgagee of the failure to perform within 30 days of conveyance. HUD, at its discretion, will
either re-convey the property to the mortgagee or require the mortgagee
to reimburse HUD the greater of the estimated cost of repair or any insurance
recovery received by the mortgagee. (24CFR 203.379(c)).
Q.
REQUEST TO EXCEED COST LIMITS
If the cost to perform required preservation and protection exceeds any individual cost limits or the overall cap shown in the most recent Preservation and Protection/Post Endorsement Guidelines and Fee Schedules, the mortgagee must request permission to exceed the maximum allowable expenses in writing. The sample format for submission of this request is included as Attachment 9, Request to Exceed Cost Limit(s) for Preservation and Protection. The mortgagee must include with the request any documentation needed to substantiate the over-allowable expense.
In emergency situations, mortgagees may fax their requests to the M&M contractors office, and confirm receipt of these requests verbally. The M&M contractors office will respond to these emergency requests via fax if the mortgagee so requests. Mortgagees are responsible for confirming receipt and legibility of all requests sent via fax.
The M&M contractor has the responsibility to review and approve or disapprove over allowable requests from mortgagees. The M&M contractor shall evaluate all requests to increase line items on a case-by-case basis to determine if the increase is reasonable and justifiable. With the exception of requests involving debris removal where two independent bids are mandatory, there is no requirement for the mortgagee to submit multiple bids for other expense types.
However, if the M&M contractor believes that the expense is not justified, the contractor may either request that the mortgagee obtain additional independent bids or deny the over-allowable expense request, in writing, and provide a full explanation to the mortgagee including evidence of similar bids or past expenses for the same services that support the denial. The M&M contractor may provide referrals to contractors who have performed similar services at a reasonable price but may not require use of any particular contractor as a requirement for approval.
The M&M contractor must respond to the mortgagees request, in writing, within 10 calendar days from the date of receipt. Mortgagees who have not received a response to an over-allowable expense request within 10 calendar days should contact the appropriate GTR.
If the mortgagee
disagrees with the M&M contractors decision to deny the request, the
mortgagee will have 10 calendar days to submit an appeal to the M&M
contractor. The M&M
contractor must forward the appeal request, including all supporting documentation
that the mortgagee provided supporting the appeal to its GTR within 24 hours of receipt.
The GTR must respond to the mortgagees appeal request within 5 calendar days of receipt from
the M&M contractor. Mortgagees
who have not received a response to their appeal within 5
calendar days should contact the REO Director.
There is no appeal of over-allowable expense requests beyond the
REO Director.
If a mortgagee elects, as a matter of convenience, to obtain services at
a cost higher than the allowable limits, it may do so, but it may not
claim amounts in excess of the limits for reimbursement.
R.
EXTENSIONS OF TIME
Requests to exceed cost limits are not the same as requests to exceed timeframes. A mortgagee's failure to receive a response from an M&M contractor to exceed cost limits does not constitute an extension of time to convey title and submit Part A, or an extension of time to provide title evidence and submit Part B. The mortgagee must submit a separate request for each extension of time. All requests for extensions must be submitted on Form HUD-0012, Mortgagee's Request for Extensions of Time.
Verbal requests for extensions will not be accepted.
Mortgagees must submit written requests promptly to the M&M contractor
responsible for disposition of the property. Upon receipt, the M&M
contractor will have 10 calendar
days to approve the request, reject the request as lacking adequate
documentation or deny the request. If the M&M contractor rejects
or denies the request for an extension of time, the contractor will specify
in writing the reason for the rejection or denial.
If the mortgagee has not received a response within 10
calendar days of receipt by the M&M contractor, the mortgagee
may resubmit a copy of the request directly to the GTR. See Attachment
10, Contacts for Lender Appeal. The GTR will have 5
calendar days from receipt, either to approve the request, reject
the request as lacking adequate documentation or deny the request.
If the GTR rejects or denies the request for an extension of time, the
GTR will specify in writing the reason for the rejection or denial.
If the GTR fails to respond to the request for an extension of time within
5 calendar days, the
mortgagee may contact the REO Director at the HOC with jurisdiction over
the property and request a time extension. See Attachment
10 for listing of REO Directors. The REO Director will make
a determination to approve or deny. In instances where HUDs failure
to respond caused the mortgagee to exceed time limits, the REO Director
will authorize a 30 day extension of time to allow for resolution of the
issue.
In emergency situations, mortgagees may fax their requests to the M&M
contractors office, and confirm receipt of these requests verbally.
The local M&M contractors office will respond to these emergency requests
via fax if the mortgagee so requests. Mortgagees are responsible
for confirming receipt and legibility of all requests sent via fax.
S.
CONTACTS FOR LENDER APPEAL
A new appeal process for lender disputes arising from
property condition, re-conveyance, demolition requests and administrative
offset issues will be addressed in a separate Mortgagee Letter.
In the interim, lenders are to contact the appropriate GTR for
guidance. See
Attachment 10.
If you have other questions regarding this Mortgagee Letter, please contact
the M&M contractor in your area.
See Section III for directory.