www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 September 10, 1985 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 85-19 TO: ALL APPROVED MORTGAGEES SUBJECT: New Single Family Claims Payment System Form HUD-27011, Single Family Application for Insurance Benefits - Title II Mortgages Effective March 1, 1985, the Department implemented a new system for paying claims for insurance benefits. Mortgagee Letter 85-2 was issued January 30, 1985, which implemented the new system and procedures. Thus far, the new claim system is running very efficiently and claims are being processed and paid quickly. Since implementation, approximately 60 percent of the claims coming in to the Department have been accepted by the system and promptly paid; most within five days of receipt. At this time, we wish to clarify our position on paying claims within five days of receipt. It is the Department's goal to process claims within five days of receipt as long as the lender has accurately completed the claim form, and the form passes all system edits and control checks. Lenders may or may not be issued the payment check within five days, because the Department of Treasury actually issues the check (usually within three days from the date HUD sends them the payment data). Lenders will first receive, from HUD, the Claim Payment Data Letter, which is usually received by lenders approximately three days prior to receipt of the claim payment check from Treasury. Currently, our statistics indicate that the majority of claims are being processed, and the check issued, within five to seven days of receipt. In addition, we remind lenders that Part B of the claim form is more complicated, susceptible to more parameters, and more difficult to resolve. Many Part B's are not paid within five days of receipt because costs are being claimed which exceed the parameters. Cases suspended by the system are manually reviewed prior to claim payment. _____________________________________________________________________ 2 The Department does not have the entire system in operation yet, and we request that lenders continue to cooperate with the Department in getting the new claims process underway. We also request that lenders wait approximately three weeks after a claim has been submitted before inquiring about the status. Initially, to assist in the transition, and in order to process many of the claims, the Office of Finance and Accounting has been telephoning lenders where there are minor errors on the form, and correcting the errors by telephone. The mortgagee error rate is approximately 40 percent. It appears the majority of errors are due to carelessness and not reading the instructions. We cannot continue to make corrections by telephone and will be returning claims to lenders as necessary. We will also identify the reason for the return. Since it is the responsibility of the lender to send us a complete and accurate claim, we will not consider a claim as having been "received" until it can be processed for payment. When it becomes necessary to return the claim, it causes delays which will probably result in curtailment of interest. Therefore we encourage you to verify your claim prior to submission. If we return your claim, you must make every effort to immediately make correction and return the claim to HUD Headquarters, Washington, DC., in order to meet time frames and avoid curtailment of interest. We request that when lenders prepare their claim for insurance benefits that they refer to the "printed instructions" issued by HUD dated December 1984, rather than the instructions which were distributed at training sessions. Also, we remind lenders that they may call the Single Family Claims Helpline on (202) 755-3700. In addition, following are some further guidelines to help lenders prepare their new claim form. This Mortgagee Letter must be distributed to the appropriate staff in your office who are responsible for preparing claim forms. The following page numbers are consistent with the printed instructions dated December 1984. We suggest that notations be made directly to the printed instructions. 1. Page 1, GENERAL, Receipts. Lenders must not send receipts to Headquarters with their claim even if they realize expenses are unusually high. Headquarters will generate correspondence to lenders and request receipts on a case by case basis. Where lenders know expenses are exceptionally high, or they have received field office approval to exceed allowable expenses, a detailed explanation can be provided on the reverse of Part B. A copy of the explanation must be maintained in the audit file and provided with the local HUD office copy. (Items 206 and 306). _____________________________________________________________________ 3 2. Mortgagee Audit File, Page 2. We remind mortgagees that the audit file must be complete and include all documentation which supports the claim. Various people from HUD will be monitoring lenders' claims, and thorough records must be kept so that lenders will not be questioned about the same items twice. The audit file must also include the Claim Payment Data Letter, any letters generated from HUD Headquarters requesting receipts or explanations or returned claims, and any correspondence from HUD Field Offices with respect to a claim or collection of monies resulting from a review of a claim. 3. Page 5, No. 4, Mortgage Insurance Certificates, Old Section 221 Mortgages. Mortgage Insurance Certificates were not issued to lenders on some old Section 221 mortgages. The endorsement date on these mortgages is shown on the Note itself. For these mortgages, lenders should use the certification statement attached to Mortgagee Letter 85-2 , and add an additional statement which indicates that no MIC was issued because it was an old Section 221 mortgage. As usual, the Note should. be sent by the mortgagee to the appropriate local office with title evidence. 4. Page 5, No. 5, Mortgage Document. The new claim instructions, with respect to conveyances, no longer require mortgagees to send a copy of the mortgage with their initial claim (Part A). However, we failed to include in the instructions that lenders must include a copy of the mortgage with their title evidence. 5. Page 5, No. 5, Keys to the Property. The keys to the property must also be sent to the local HUD field office along with Copy 1 of the Form HUD-270ll. 6. Page 6, No. 6, Title Evidence, HUD-23l9. The Certificate of Title, Form HUD-23l9, which was previously provided to lenders with the old claim form will continue to be printed. Lenders can order copies from the local office having jurisdiction or lenders may photocopy the HUD-23l9. 7 Title Approval Letter, Page 6, No. 7. Mortgagees must submit the original Title Approval Letter. _____________________________________________________________________ 4 8. Page l2, Item 9, Marketable Title to and Possession of the Property. In States where title can be conveyed directly to HUD and the property is already vacant prior to recordation, or where the eviction process takes place simultaneously as part of the foreclosure action, lenders should directly deed the property to HUD to save time and avoid paying the transfer tax. In these cases, the dates in Blocks 9 and l0 of the claim form will be the same. However, direct conveyance should not be used when it will result in HUD having to record title to properties that are occupied without its prior approval. This violates HUD regulations and causes serious problems. It becomes uncertain as to who (the lender or HUD) should be paying taxes, liens, assessments, utilities, etc.; local HUD offices are unable to fully market properties although the property has been officially deeded to HUD; lenders are routinely incurring expenses after the date the deed is filed for record; and HUD is unable to properly monitor mortgagee compliance with respect to conveyance of damaged properties. Mortgagees may not file their claim until such properties are vacant. Consequently, lenders cannot directly deed properties to HUD when the direct conveyance causes the deed to be recorded in HUD's name prior to vacancy. Title must be in the name of the mortgagee first. Once eviction (vacancy) has taken place, the property must then be deeded to HUD and the claim form submitted. HUD will reimburse lenders for the amount of transfer tax, which will be reported in Item 308 of the claim form HUD-270ll. Of course, if lenders' attorneys can enter into an arrangement where the transfer tax can be waived because they are acting on behalf of the Federal Government, we would expect lenders to do so. In instances where mortgagees take title in their own name by either foreclosure or deed in lieu, the following guidelines must be observed: In accordance with Regulations 24 CFR 203.359, lenders have 30 days after they have acquired "good marketable title to and possession of" the property to convey (file for record) the property to HUD. It is HUD's position that lenders do not have possession of a property until it is vacant. The later of these two dates (marketable title to or possession of) is the date lenders must enter in Item 9 of the new claim form, HUD-270ll. Lenders must not submit their claim form to HUD prior to obtaining good marketable title to and possession of the property. _____________________________________________________________________ 5 In cases where you are conveying the property occupied pursuant to the occupied conveyance regulations (24 CFR 203.679), these properties may be directly deeded to HUD and the dates in Blocks 9 and l0 will be the same. Because some lenders have cases in process where they have already directly deeded the property to HUD and the property was not vacant, we will allow lenders (for those cases in process only) to withhold submission of the claim form until the property is vacant. Once the property is vacant, lenders may submit their claim and enter on the claim form, in Item l0, the date of vacancy even though the deed has been filed for record earlier than the date of vacancy. Thus, Items 9 and l0 will be the same for these cases. In addition, lenders must enter (in the Mortgagee's Comments Section on the Reverse of Part A) an explanation which states that the conveyance was in process prior to the new claim instructions and was directly deeded to HUD prior to vacancy. The actual date the deed was directly deeded to HUD must also be stated. Lenders are responsible for preservation and protection of the property, taxes, etc., until such time as the claim form is submitted. NOTE: The cut off date (i.e., the deed has not yet been forwarded or filed for record) for this procedure (for those cases in process) is fifteen days from the date of this Mortgagee Letter. 9. Date Deed Filed for Record, Page 12, Item l0. It has been brought to our attention by our local HUD Field Offices that lenders are not always notifying the HUD field office on the date the deed is filed for record that the property has been conveyed to HUD. Lenders must be certain that they simultaneously, in accordance with claim instructions, send the local HUD office having jurisdiction over the property, its copy of the claim form so that the local HUD office will know that it has a property in inventory, and can begin disposition activities. Delays in notifying HUD field offices result in unnecessary costs to us and, if problems continue, HUD Headquarters will consider taking further action against the lender for losses to the Department which resulted from untimely notification. l0. Page l3, Item l2, Holding Mortgagee Number. We received a legal ruling from our Office of General Counsel that lenders must enter the holding mortgagee number, since HUD's contract is with the holding mortgagee. This number is the number assigned to lenders when they were approved to do business with HUD. If lenders do not know their ten-digit holding mortgagee number, they may call Bob Harrigan, Lender Certification, Headquarters, telephone number (202) 755-0316. _____________________________________________________________________ 6 11. Page 15, Item 32, Tax Information. Lenders should not delay submitting their claim because they are awaiting a copy of the tax receipt to attach to the local office copy of the claim form (Part A, Copy 1). We request that lenders produce some type of information which will indicate that a disbursement for taxes has been made. A copy of the tax bill, a copy of the disbursement document, or other types of information, as long as it indicates that the tax payment was paid or sent for payment is acceptable. l2. Page l6, Item 35 or 36, Contact Person. Although we did not provide a block on Part A of the new claim form for a contact person, we request that you add in Block 35 or 36 the name and telephone number of a person who can answer questions concerning the information reported on Part A. l3. Page 18, Item 206-261, Calculation of Debenture Interest, Normal Year/Leap Year. In cases where lenders are calculating debenture interest on expenses and the days elapsed fall in both a normal year and a leap year, the most accurate method for lenders to use in obtaining the daily interest rate factor would be to use both the normal and leap year tables. However, as an alternative, lenders may choose to use only that year in which the most days elapsed. For example, if the most days elapsed during the normal calendar year, lenders can use that year to determine the daily interest rate factor. If the most days elapsed during the leap year, lenders can use the daily interest rate factor for the leap year. 14. Page 18, Item 206-261, Calculation of Debenture Interest When Time Frame Not Met (Part B). Also page 6, No. 7. In cases where the lender does not meet the allowable time frames for the submission of title evidence or fiscal data, and a request for an extension was not filed or the request was denied or had expired, the following dates will be used for calculation of debenture interest on expenses: a. When the mortgagee does not mail the title evidence to the HUD field office within 45 days* of the date in Item l0 or as of the expiration date of the extension (if any), the date to be entered in Item 104 is the date in Item l0 plus 45 days, or the date of the expiration of the extension, if any. Lenders can obtain the date the field office received title evidence from the Title Approval Letter. _____________________________________________________________________ 7 *HUD allows lenders 45 days plus a ten-day mailing time for the local field office to receive title evidence. b. When the lender is aware that it will not mail the Part B on the 45th day, or HUD Headquarters in Washington, DC will not receive Part B within 15 days of the date of the Title Approval Letter, or within 15 days of the expiration date of the extension letter (if any), the date to be entered in Item 104 is the date in Item l0 plus 45 days, or the expiration date of the extension. 15. Page 18, Item 206-261, Calculation of Debenture Interest on Expenditures or Advances Prior to the Date of Default. (Also Item 305.) It is possible that expenditures or advances will be made by lenders prior to the date of default (See note). The debenture interest regulation 24 CFR 203.410(c) does not allow lenders to claim debenture interest on expenses prior to the date of default. Therefore, in cases where an expenditure or advancement is made prior to the date of default, enter in the "Date Paid" column the date of default and document on the reverse of Part D the actual date paid. Debenture interest will be computed from the date of default. Note: The date of default is 30 days after the first uncorrected failure to perform under the mortgage. All payments are due on the first of the month, and all months are considered as having 30 days. 24 CFR 203.331. Example #l: Date of last fully paid installment 1/1/85 Date of first failure to perform 2/1/85 Date of default 3/1/85 Example #2: Due date of first payment to P&I 1/1/85 Date of last fully paid installment (No pymt made) Date of first failure to perform 1/1/85 Date of default 2/1/85 l6. Page 20, Item 305, Disbursements Advanced by Mortgagee Prior to Block 8 and Calculation of Debenture Interest. Lenders should only itemize in Item 305 escrow advances which occurred between the dates in Blocks 8 and l0. Lenders should not itemize advances prior to the date in Item 8. The first item to be entered in Block 305 will be any negative escrow amount as of the Date in Block 8. Identify the remaining escrow amount in the Description Column as the "Ending Escrow Balance", as of the Date in Block 8. (Mortgagees must maintain in the audit file an accounting which will identify the items which created the negative escrow). Irrespective of the date of expenditure, our _____________________________________________________________________ 8 regulations do not allow lenders to claim debenture interest prior to the date of default. Therefore, the date to be entered in the Date Paid Column on the "Ending Escrow Balance" will be the date of default (See l3 above). Debenture Interest will be calculated from the date of default to the date in Item 304. Entries after the first negative ending escrow balance will continue to be listed as expenditures were made, except that the Date Paid Column will reflect the date of default. (The actual date of expenditure should be entered on the reverse of Part D). Once expenditures are really made after the date of default, the actual date of expenditure can be entered in the Date Paid Column as set forth in Item 109. l7. Page 20, Item 305, Disbursements after Block 10. There may be times where items will be paid after the date the deed is filed for record. Our instructions indicate that no expenses should be incurred (requests made for work to be done, etc.) after the date the deed is filed for record, unless the local office requests the lender to take a specific action which would create an expenditure after the date the deed is filed for record. The debenture interest would be calculated from the date of expenditure to the date in Block 104. 18. Page 23, Item 107, Capitalized Accounting. (Also Blocks 8 and 17. If the capitalized accounting method has been used, lenders must apply payments, using the amortization method in accordance with Mortgagee Letter 84-1 , when you submit your initial claim (Part A). This must be done in order for our system to accept the claim, and for lenders to be able to enter the correct due date of the last complete installment paid (Block 8) and unpaid loan balance (Block l7). Additionally, funds in escrow should be included in Line 109 unless any monies unapplied were used as escrow funds in Item 305. l9. Page 26, Item 121, Mortgage Note Interest (Forbearance Agreements). On conveyance claims, lenders are not entitled to claim mortgage note interest unless a special forbearance agreement has been entered into in accordance with regulation 24 CFR 203.614 and HUD Handbook 4330.1, paragraph 123. _____________________________________________________________________ 9 20. Page 28, Item 124, Overpaid Section 235 Subsidy. There may be instances when lenders have advanced corporate funds to repay overpaid Section 235 assistance to HUD and have not received the full repayment from the mortgagor. In these instances, HUD prefers that the lender reverse full monthly installments. Under this method, the overpayment will be reflected in the unpaid loan balance on Part A of the claim form. However, if lenders choose not to reverse the payments and charge the overpaid subsidy as an advance of mortgagee funds to meet an escrow requirement, they must net out (credit) any repayments made by the mortgagor, and claim the remaining amount in line 124, Column B, of the claim form, identified as "overpaid subsidy." Debenture interest is calculated by the mortgagee from the date of default even though the funds may have been paid prior to that date. If the overpaid assistance was the result of an error on the part of the mortgagee, lenders are not entitled to and may not claim debenture interest. Mortgagees must not show overpaid assistance in line 124, if the mortgagee has selected to reverse full monthly installments. 21. Page 28, Item 137, Negative Net Claim Amount. If Part B of the claim is a negative amount, do not send HUD a check; HUD will re-calculate your claim and will bill you for the amount owed HUD. 22. Page 30, No. 5, Documents Sent to the Local HUD Office - Assigned Mortgages. If the mortgage is applicable to One-Time Mortgage Insurance Premium (MIP), include in the documents you send to the local HUD office, Attn: Single Family Loan Management Branch, a copy of Form HUD- 2700l (6-83), Mortgagee's One-Time MIP Transmittal. 23. Page 3l, Hazard Insurance Policy. On regular assignments, and Section 221(g)(4) assigned mortgages, when the mortgagee notifies the insurance carrier to change the payee clause on the policy, we request that lenders also (in addition to the words Secretary of Housing and Urban Development of Washington, DC) add to the loss payable clause the words "IN CARE OF" and insert the address of the local HUD field office which has jurisdiction over the area where the property is located. _____________________________________________________________________ 10 24. Page 58, Supplemental Claims. We reemphasize that lenders should always try to file a correct and complete claim the first time. Do not submit corrected claims. In addition, lenders should not file a supplemental claim (on Part A or Part B) prior to the receipt of final payment of Part B. Whenever a supplemental claim is filed for additional funds, provide copies of supporting documents (i.e., copy of extension letter, ledger card, receipts, etc.). In all instances, an explanation of the reason for submission of the supplemental must be entered on the reverse of the Part A. Failure to provide this explanation may result in your supplemental claim being returned or denied. In some cases, HUD may have overpaid your claim due to an error on your part or on HUD's part. In these instances, a supplemental claim must be filed. In the mortgagee comment section of Part A, provide an explanation of where and how the overpayment occurred, and specify the amount overpaid (i.e., UPB, on line 111) and the applicable interest. When calculating interest, be sure to include the interest HUD calculated as well as any interest you may have calculated in Column C of Part B. A check for the total amount must be attached to the face of the HUD-27011, and forwarded immediately after the discovery of the error. The claim should be sent to the address on the bottom of the HUD-27011. The above is a change to the instructions which are dated December 1984. 25. Page 59, Item 1, Claim Type (Supplemental). When filing a supplemental claim, in addition to checking the 05 claim type block, we request that lenders also indicate the original claim type in the "Mortgagee's Comment" section on the reverse of Part A. Do not check more than one claim type in Item No. 1. 26. Fiscal Data Instructions, Page 6l. An appeal may be made in the event exception is taken with respect to the attorney/trustee fee or bankruptcy fee allowed. You must write to: (NOTE: This is only for attorney/trustee/bankruptcy fees). _____________________________________________________________________ 11 U.S. Department of Housing and Urban Development Office of General Counsel (OGC) ATTN: John Witsil 451 7th Street, SW Washington, DC 20410 Your letter must include: a copy of the Claim Payment Data Letter, a copy of the original claim submitted, and an itemized list which substantiates your request for consideration of additional funds. Do not include receipts. If an additional amount is approved, complete a supplemental claim and forward it together with a copy of OGC's approval to: U.S. Department of Housing and Urban Development Insurance Claims Division, OFA Post Office Box 23998 Washington, DC 20026 27. Page 6l, Item 104. Date Form Prepared. On supplemental claims, make the following change. The words "this supplemental form is prepared" should be deleted, and the words "of the original claim submission Item 104, Part B", should be inserted. In cases where the date of expenditure is after the date on the original Part B, lenders must not compute debenture interest. HUD will calculate the debenture interest for lenders in these cases. Do not calculate debenture interest on supplemental claims when the original claim was submitted prior to March 1, 1985. 28. Part E of the Claim form HUD-270ll (non- conveyance). Part E in its heading, makes reference to using this claim form for co-insurance and non-con- veyances. The reference to "non-conveyances" does not mean lenders can file a claim to HUD for properties sold to third parties. The reference to "non-conveyances" was used in HUD's anticipation of implementing a proposed rule which would allow lenders to submit claims for the payment of insurance benefits on single family properties without conveying title to the foreclosed proper- ties to HUD. The proposed rule was published in the Federal Register on Thursday, January l0, 1985, Vol. 50, No.7, page 1233. Since a final Rule has not been published, you cannot submit a claim with- out conveying title (or assigning a mortgage). _____________________________________________________________________ 12 29. Old Form HUD-27l7. HUD is no longer issuing the Form HUD-27l7 to lenders. Instead, lenders will receive a Claim Payment Data letter which gives lenders detailed information on the payment of a claim. This Claim Payment Data letter is generated by our system and will be received a few days prior to the receipt of the claim check. A sample copy of the Claim Payment Data letter is attached for your information. A second page to this letter is currently being developed to provide explanations where a claim has been adjusted or interest curtailed. Mortgagees should be receiving the second page by the time they receive this letter. Also, with respect to the Claim Payment Data letter, Part A, initial settlement on conveyances, HUD calculates debenture interest on the claim from the date of default (see Item l3) to the date of settlement of the claim. If there are questions on the above, please contact your local HUD office having jurisdiction, or the Single Family Servicing Division in Washington, DC, telephone (202) 755-6672, or the Single Family Claims Helpline in Washington, DC, telephone (202) 755-3700. Sincerely, Janet Hale Acting General Deputy Assistant Secretary for Housing-Federal Housing Commissioner Attachment _____________________________________________________________________ U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT OFA-MIAS WASHINGTON DC 20410 24-JUL-85 1133 0116 00224 24-JUL-85 1211 F082 WAS DU FIRST SAVINGS & LOAN 100 ZIP PLACE ANYTOWN, USA 99999 DATE: 07/15/85 DEAR SIR: SUBJECT: FHA CASE NO. 999-999999 ADVICE OF PAYMENT SERVICERS' NAME: NATIONAL MORTGAGE COMPANY PAYMENT TYPE: PARTIAL MORTGAGEE REF. NO. 40103 SECTION OF THE ACT 0203 CLAIM TYPE: CONVEYANCE SETTLEMENT DATE 07/15/85 SCHEDULE NO. 0089C DATE CLAIM REC'D 07/12/85 DUE DATE LAST INSTALLMENT 07/01/81 (LINE NO.) ****DESCRIPTION**** DEDUCTION EXPENSE INTEREST RATE (017) UNPAID PRINCIPAL BALANCE 44,694.25 (107) ADJUSTED LOAN BALANCE (108) SALE/BID/APPRAISAL VALUE (109) ESCROW BALANCE (110) TOTAL DISBURSEMENTS P&P (111) TOTAL DISBURSEMENTS (112) ATTORNEY/TRUSTEE FEES PD (113) FORECL., ACQUIS., CONVY. (114) BANKRUPTCY FEE (115) RENTAL INCOME (116) RENTAL EXPENSE (117) TOTAL TAXES ON DEED (27 OR 118) AMOUNT OF DAMAGE (119) ADJUSTED DAMAGE (120) SPECIAL ASSESSMENTS (121) MORTGAGE NOTE INTEREST (122) MORT. INSURANCE PREMIUM (125) OVERHEAD COST (126) UNCOLLECTED INTEREST (127) AMOUNT DUE FROM BUYER (128) AMOUNT OWED BUYER (129) ADDITIONAL SETTL. COSTS INT. FROM 08/30/81 TO 05/15/85 13,253.98 .08000 OFFSET AMOUNT TOTALS 44,694.25 13,253.98 FHA CASH PAYMENT 57,948.23 FHA DEBENTURE PAYMENT NET CLAIM PAYMENT 57,948.23 _____________________________________________________________________ SUBJECT: FHA CASE 999-999999 ADVICE OF PAYMENT ADJUSTMENT ADJUSTMENT HAS BEEN MADE TO YOUR CLAIM FOR THE REASON SHOWN BELOW: ITEM NO: REASONS: 9. THERE ARE MORE THAN 30 DAYS BETWEEN THE DATE IN ITEMS 9 AND 10, AND NO EXTENSION WAS INDICATED IN ITEM 20. INTEREST IS CURTAILED TO THE DATE IN ITEM 9 PLUS 30 DAYS. NOTE: IF NO ENTRY UNDER 'ITEM NO' ABOVE, PLEASE IGNORE THIS PAGE. QUESTIONS? CALL HUD HELP-LINE (202) 755-3700 *U.S. Government Printing Office : 1985 -461-409/20053 _____________________________________________________________________ _____________________________________________________________________