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WEBINAR III: HUD Loss Mitigation Disposition Options: Pre-Foreclosure Sale & Deed-in-Lieu
Working Together to Help Families Stay in Their Homes
Presenters:
LEARNING OBJECTIVES
At the completion of this course, you will better understand: How to recognize and document Pre-Foreclosure Sale Program and Deed-in-Lieu of Foreclosure qualification criteria How to recognize the difference between the property appraisal eligibility and the minimum acceptable net sale proceeds How to explain the written Deed-in-Lieu of Foreclosure Agreement that will include all the required elements to the Homeowner(s)
Quick Review
Type
DDS Code
12Repayment 12Repayment 09-Special Forbearance
Description/Requirements
Verbal agreement to increase, reduce or suspend payments. Duration < 3 months Verbal financials required for agreements over 30 days. Written agreement to increase, reduce or suspend payments. Duration minimum 3 months Verified/documented financials required for agreements over 30 days. Structured plan to repay a loan delinquency over time (initial period for financial recovery followed by a payment schedule based on the Homeowners ability to repay) Cannot exceed 12 months PITI Duration minimum 4 months - SFB Type I increased payments. Duration minimum 6 months - SFB Type I on a combination of suspended, reduced or increased payments. Special Provision Type I - CAUSE OF DEFAULT IS UNEMPLOYMENT Duration minimum 12 months. May be used to reinstate a loan to facilitate the eventual sale or assumption of the property.
COLLECTIONS
Informal FB
HUD HB 4330.1 REV-5, Chapter 7
Formal FB
HUD HB 4330.1 REV-5, Chapter 7
Special Forbearances
(SFB) ML 2011-23 ML 2002-17
Type I
RETENTION
Type II
08 - Type II/Special Forbearance / Trial Payment Plan 08 - Type II/Special Forbearance /Trial Payment Plan 28Modification Started
Combines a short term SFB and a Loan Mod or Partial Claim Requires 3 month trial prior to execution of permanent Loan Mod or Partial Claim Cannot exceed 12 months delinquent PITI Loan Mod or Partial Claim is concurrent with the end of the SFB Type II Permanent change in 1 or more of the terms, allows the loan to be reinstated and results in a payment a Homeowner can afford May include a change in the a) interest rate, b) capitalization of the delinquent principal, interest or escrow items, c) extension of the time available to repay the loan and/or, d) re-amortization of the balance due 3- month Trial Payment Plan required
Loan Modification
ML 2011-28 ML 2009-35
1 1+
2 31+
3 61+
4 91+
Description/Requirements Lender will advance funds on behalf of the Homeowner in an amount to reinstate a delinquent loan (not to exceed 12 months PITI) Homeowner executes promissory note and subordinate mortgage payable to HUD (carries no interest and not payable until the Homeowner either pays off the first mortgage or no longer owns the property) 3-month Trial Payment Plan required Allows the use of a Partial Claim up to 30% of the UPB as of the date of default and combine it with a Loan Mod Must successfully complete a trial payment plan (4 months for imminent default and 3 months for 90+ delinquent) Front ratio not less than 31% and back ratio must not exceed 55% Allows a Homeowner in default to sell home and use proceeds to satisfy the mortgage debt even if the proceeds are less than the amount owed. Commit to actively market the property for 4-6 months Homeowner qualifications: occupy as primary residence; list property with licensed real estate broker with a cancellation clause in the even the terms of the PFS sale are not acceptable to HUD; make good effort to aggressively market property, perform all normal maintenance and repairs; standard As Is FHA appraisal; marketable title; Non-Owner Occupant Exceptions available; Tiered Net Proceeds Requirements 1st 30 days 88% - 2nd 30 days 86% - Remainder of marketing time 84%; Funds available for discharge of Subordinate Liens.
Partial Claim
(PC) ML 2003-19
Retention
FHA HAMP
ML 2009-23 ML 2009-35
39 - FHA-HAMP Trial 41-FHA HAMP Modification Started 15 - PreForeclosure Acceptance Plan Available
DISPOSITION
Deed-in-Lieu
(DIL) ML 2000-05
44 - Deed-in-Lieu Started
Homeowner voluntary deeds collateral to HUD in exchange for release from all obligations under the mortgage Lender must enter into a written agreement with the Homeowner stating specific actions that the Homeowner must perform in order to take advantage of this option and receive financial consideration Homeowner qualifications: cause of default is incurable; occupy the property as a primary residence; collateral property must be non-occupied at the time of conveyance; good and marketable title Occupancy Exceptions: Verifiable that the need to vacate was related to the cause of default (job loss, transfer, divorce, death), and the subject property was not purchased as a rental investment, or used as a rental for more than 18 months.
KEY TERMS
PAYMENT DUE DATE:
months consist of 30 days FHA considers payment due on the 1st day of every month; all
IMMINENT DEFAULT:
Borrower is either current or less than 30 days past due on their mortgage, and is experiencing a significant reduction in income or some other hardship that will prevent them from making their next mortgage payment
DELINQUENT: 1+ days past the oldest unpaid installment (OUI) DATE OF DEFAULT (DOD): 30 days past the oldest unpaid installment (60 days delinquent)
Example: Last paid installment (LPI) Feb. 1 First payment missed March 1 Date of default - April 1
Example:
Disposition Options:
Pre-Foreclosure Sale Deed-In-Lieu of Foreclosure
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No Strategic Defaults
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Servicer must provide a copy of the appraisal to the Homeowner, their sales agent, or HUD upon request A new appraisal may be obtained to ensure current FMV during marketing period
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DEED-IN-LIEU OF FORECLOSURE
DIL allows the Homeowner to voluntarily deed the collateral property to HUD in exchange for a release from all obligations under the mortgage. Homeowner Benefits Although this option results in the Homeowner losing the property, it is often preferable to foreclosure because: Homeowner mitigates the cost and emotional trauma of foreclosure Homeowner is eligible to receive up to $2,000 incentive payment Deed-in-Lieu is generally less damaging than foreclosure to Homeowners ability to obtain credit in the future Servicer Benefits Avoids the time and expense of a legal foreclosure action, and Due to the cooperative nature of the transaction, the property is generally in better physical condition at acquisition
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DEED-IN-LIEU OF FORECLOSURE
Homeowner Requirements
Unable to support the mortgage debt
Occupy the property as their primary residence
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DEED-IN-LIEU OF FORECLOSURE
General Requirements
All Borrowers named on Note must execute the Deed to convey
Borrowers agree to certify compliance with program stipulations concerning property condition Account must be at least 31 days delinquent when the Deedin-Lieu is recorded
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DEED-IN-LIEU OF FORECLOSURE
Agreement Requirements
A written Deed-in-Lieu Agreement must be executed by the Borrower and Servicer which contains all of the conditions under which the deed will be accepted All conditions can be found in Mortgagee Letter 2000-05
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CASE STUDIES
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Ms. McGuire
Ms. McGuire is 3 months delinquent on her mortgage and advised her servicer that she has been trying to sell her property for the last 90 days. She wants to sell the property because the neighborhood has numerous bad elements and she feels unsafe. She has not been able to acquire a contract for sale and she doesn't know what she is going to do. Ms. McGuire explained that her tenants moved out of the property in the middle of the night without notice and she isnt planning to rent the property anymore because it was too hard to keep tenants. Shes been trying to sell, but that hasnt worked out so she just wants to give the property back. Ms. McGuire has been delinquent on her mortgage a number of times. She has rented the property since January 2002.
Monthly Mortgage: Interest Rate: Loan Originated: Income: Expenses (includes mtg. pymt.): Surplus Income: Surplus Percentage: Total Delinquency: $1,234.00 7.5% (Fixed) Sept. 1, 2000 $3,500.00 $3,755.75 ($255.75) (6.81) $3,702.00
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Ms. McGuire
Is Ms. McGuire eligible for HUD Loss Mitigation options?
A. Yes
B. No
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Mr. Robinson
Mr. Robinson, the son of the Homeowner of record, contacted the servicer to advise them that his mother Mrs. Crowley recently passed away and that he is the Executor of his mothers estate. Mr. Robinson has indicated that no other family member has an interest in the property and he is inquiring as to the process he has to complete in order to sign the house back over to the mortgage company. He has had the property listed for sale for 120 days through a local Realtor, but has not received a contract to date.
Assumptions: Mrs. Crowley was never delinquent Mrs. Crowley occupied the property Income and Expenses are unknown The property has never been rented Monthly Mortgage: Interest Rate: Loan Originated: Total Delinquency: $852.63 8.0% (Fixed) April 1, 1995 $3,410.52
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Mr. Robinson
Based upon Mrs. Crowleys information, is the son, Mr. Robinson eligible for HUDs Loss Mitigation Program? A. Yes B. No For which HUD Loss Mitigation Option does the property qualify? A. Pre-Foreclosure Sale
B. Deed-in-Lieu of Foreclosure
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Mr. Harris
Mr. Harris is currently two payments past due on his mortgage. His delinquency is due to losing
his job of ten years. He contacted his Servicer to advise them he has recently secured employment, but his income is 30% less than his previous job and the new employer is located 50 miles away from his home. Due to the reduction in income and the added expense of commuting, Mr. Harris states that he vacated the home and moved closer to the new job two weeks ago. Mr. Harris also indicates that he no longer can afford the home. Assumptions: He has occupied the property since origination; mortgage payment is included in expenses. The property has never been rented. (Current rent is included in expenses noted below.)
Monthly Mortgage:
Interest Rate: Loan Originated: Income: Expenses: Surplus Income: Surplus Percentage: Total Delinquency:
$972.46 7.5% (Fixed) April 1, 2005 $2,500.00 $3,284.75 ($784.75) (23.89%) $1,944.92
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Mr. Harris
Based upon this information, is Mr. Harris eligible for HUDs Loss Mitigation Program?
A. Yes
B. No For which HUD Loss Mitigation Option does the property qualify? A. Pre-Foreclosure Sale B. Deed-in-Lieu of Foreclosure
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Ms. Dove
Ms. Dove is three (3) payments delinquent on her mortgage. She has contacted her servicer to advise she has experienced a loss of income and an increase in expenses; she feels she can no longer afford the mortgage. Ms. Dove has previously been delinquent on her mortgage and was approved for a Partial Claim two years ago. She has occupied the property since origination, July 1, 2006. The mortgage payment is included in expenses. Monthly Mortgage: Interest Rate: Loan Originated: Income: Expenses (includes mtg. pymt.): Surplus Income: Surplus Percentage: Total Delinquency: $1,200.00 5.5% (Fixed) July 1, 2006 $3,500.00 $3,784.75 ($284.75) (7.5%) $3,600.00
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Ms. Dove
Since Ms. Dove has received a previous Partial Claim, will that prohibit her from being approved for a Loss Mitigation Disposition Option?
A. Yes
B. No For which type of HUD Disposition Option will Ms. Dove qualify? A. Pre-Foreclosure Sale B. Deed-in-Lieu C. All of the above
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ONLINE RESOURCES
Code of Federal Regulations: 24 CFR 202.2, 203.331, 203.355, 203.356, 203.502, 203.600,
203.606, and 203.608
Neighborhood Watch
FHA Connection Error Codes for HUD Default Reporting
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