§ 206.125 - Acquisition and sale of the property.

§ 206.125 Acquisition and sale of the property.

(a) Initial action by the mortgagee.

(1) The mortgagee shall notify the Secretary whenever Commissioner within 60 days of the mortgage is becoming due and payable under when the conditions stated in the mortgage, as required by § 206.27(c)(1), or have occurred or when the Deferral Period ends. The mortgagee shall notify the Commissioner within 30 days when one of the conditions stated in the mortgage, as required by § 206.27(c)(2), has occurred.

(2) After notifying the Secretary, and receiving approval of the Secretary Commissioner when needed, the mortgagee shall notify the mortgagor that the mortgage is due and payable, unless the borrower, Eligible Non-Borrowing Spouse, borrower's estate, and borrower's heir(s), as applicable, within 30 days of the later of notifying the Commissioner or receiving approval, if needed, that the mortgage is due and payable by reason of the mortgagor's death. The mortgagee shall require the mortgagor to give the applicable party 30 days from the date of notice to engage in the following actions:

(i) pay Pay the mortgage outstanding loan balance, including any accrued interest and , MIP, and mortgagee advances in full;

(ii) sell Sell the property for at least 95% an amount not to be less than the amount determined by the Commissioner through notice, which shall not exceed 95 percent of the appraised value as determined under § 206.125(b), with the net proceeds of the sale to be applied towards the mortgage balance; or outstanding loan balance. Closing costs shall not exceed the greater of: 11 percent of the sales price; or a fixed dollar amount as determined by the Commissioner through Federal Register notice. For the purposes of this section, sell includes the transfer of title by operation of law;

(iii) provide Provide the mortgagee with a deed in lieu of foreclosure. The mortgagor shall have 30 days in which to comply with the preceding sentence, or correct the matter ;

(iv) Correct the condition which resulted in the mortgage coming due and payable

, before a foreclosure proceeding is begun.

(3) Even

for reasons other than the death of the last surviving borrower;

(v) For an Eligible Non-Borrowing Spouse, correct the condition which resulted in an end to the Deferral Period in accordance with § 206.57; or

(vi) Such other actions as permitted by the Commissioner through notice.

(3) For a borrower, even after a foreclosure proceeding is begun, the mortgagee shall permit the mortgagor borrower to correct the condition which resulted in the mortgage coming due and payable and to reinstate the mortgage, and the mortgage insurance shall continue in effect. The mortgagee may require the mortgagor borrower to pay any costs that the mortgagee incurred to reinstate the mortgagorborrower, including forclosure foreclosure costs and reasonable attorney's fees. Such costs shall be paid by adding them to the mortgage outstanding loan balance. The mortgagee may refuse reinstatement by the mortgagor borrower if:

(i) The mortgagee has accepted reinstatement of the mortgage within the past two years immediately preceding the current notification to the mortgagor borrower that the mortgage is due and payable;

(ii) Reinstatement will preclude foreclosure if the mortgage becomes due and payable at a later date; or

(iii) Reinstatement will adversely affect the priority of the mortgage lien.

(4) For an Eligible Non-Borrowing Spouse, even after a foreclosure proceeding is begun, the mortgagee shall permit the Eligible Non-Borrowing Spouse to cure the condition which resulted in the Deferral Period ceasing, in accordance with § 206.57(d).

(b) Appraisal. The mortgagee shall obtain an appraisal of the property no later than 30 days after the mortgagor is notified that the mortgage is due and payable, or have the property appraised by an appraiser on the FHA roster, or other appraiser acceptable to, and identified by, the Commissioner through Federal Register notice, no later than 30 days after the mortgagee becomes aware receipt of the mortgagor's death, or upon the mortgagor's request request by an applicable party in connection with a pending potential property sale. The property shall be appraised no later than 15 days before a foreclosure before a foreclosure sale and have an effective appraisal date that is no more than 30 days before such sale. The appraisal shall be at the mortgagorrequesting party's expense unless the mortgage is due and payable. If the mortgage is due and payable, the appraisal shall be at the mortgagee's expense but the mortgagee shall have a right to be reimbursed out of the proceeds of any sale by the mortgagor. borrower or other permissible party. The Commissioner may, through Federal Register notice, identify other acceptable types of valuation for establishing the value of HECMs for the purpose of sale.

(c) Sale by mortgagor. Whether or not the mortgage is borrower or other permissible party. Where the HECM is not due and payable, the mortgagor borrower or an authorized representative of the borrower may sell the property for at least the lesser of the mortgage outstanding loan balance or the appraised value (determined under § 206.125(b)). If the mortgage . Where the HECM is due and payable at the time the contract for sale is executed, the mortgagor borrower or other party with legal right to dispose of the property may sell the property for at least the lesser of the mortgage balance or five percent under the appraised value. in accordance with the amount established by § 206.125(a)(2)(ii). The mortgagee shall satisfy the mortgage of record (and the Secretary Commissioner will satisfy the any second mortgage required by the Commissioner under § 206.27(ed) of record) in order to facilitate the sale, provided that there are no junior liens (except the mortgage to secure payments by the Secretary Commissioner if required under § 206.27(ed)) and all the net proceeds from the sale are paid to the mortgagee.

(d) Initiation of foreclosure.

(1) The mortgagee shall commence foreclosure of the mortgage within six months of giving notice to the mortgagor that the mortgage is due and payable, or six months from the date of the mortgagor's death if applicabledate defined in § 206.129(d)(1), or within such additional time as may be approved by the SecretaryCommissioner.

(2) If the laws of the State, city, or municipality or other political subdivision in which the mortgaged property is located or if Federal bankruptcy law does not permit the commencement of the foreclosure within six months from the date of the notice to the mortgagor that the mortgage is due and payablein accordance with § 206.125(d)(1), the mortgagee shall commence foreclosure within six months after the expiration of the time during which such foreclosure is prohibited by such laws.

(3) The mortgagee must shall give written notice to the Secretary Commissioner within 30 days after the initiation of foreclosure proceedings, and must shall exercise reasonable diligence in prosecuting the foreclosure proceedings to completion and in acquiring title to and possession of the property. A time frame that is determined by the Secretary Commissioner to constitute “reasonable diligence” for each State is made available to mortgagees.

(4) The mortgagee shall bid at the foreclosure sale an amount at least equal to the lesser of the sum of the outstanding loan balance and any and all other incurred expenses, or the current appraised value of the property. Such a bid by any party other than the mortgagee, for the full loan balance and all associated expenses, will result in a full payoff of the loan and no claim for insurance benefits being presented to FHA.

(e) Other bidders at foreclosure sale. If a party other than the mortgagee is the successful bidder at the foreclosure sale, the net proceeds of the sale shall be applied to the mortgage outstanding loan balance.

(f) Deed in lieu of foreclosure.

(1)

(i) In order to avoid delays and additional expense as a result of instituting and completing a foreclosure action, the mortgagee shall accept a deed in lieu of foreclosure from the

mortgagor if the

borrower or other party with legal right to dispose of the property provided it is filed for recording within 9 months of the due date and the mortgagee is able to obtain good and marketable title

from the mortgagor

.

(ii) Cash for Keys. The Commissioner may provide a financial incentive, in an amount to be determined by the Commissioner, to be paid by the mortgagee and reimbursed through any subsequent claim where a borrower or other party with a legal right to do so deeds the property within 6 months of the due date.

(2) In exchange for the executed and delivered deed, the mortgagee shall cancel the credit instrument and deliver it to the mortgagor borrower and satisfy the mortgage of record. If applicable, the mortgagee shall request that the Commissioner cancel the credit instrument and deliver it to the borrower and satisfy the mortgage of record.

(g) Sale of the acquired property.

(1) Upon acquisition of the property by foreclosure or deed in lieu of foreclosure, the mortgagee shall take possession of, preserve, and repair the property and shall make diligent efforts to sell the property within six months from the date the mortgagee acquired the property. Repairs shall not exceed those required by local law and, in cases where the sale is made with a mortgage insured by the Secretary or guaranteed by the Secretary of Veterans Affairs, those necessary to meet the objectives of the property standards required for mortgages insured by the Secretary. No other repairs shall be made without the specific advance approval of the Secretary. or such additional time as provided by the Commissioner. The mortgagee shall sell the property for an amount not less than the appraised value (as provided under paragraph (b) of this section) unless the mortgagee does not file an application for insurance benefits or written permission is obtained from the Secretary Commissioner authorizing a sale at a lower price.

(2) Repairs shall not exceed those required by local law, or the requirements of the Secretary of HUD Commissioner or the Secretary of Veterans Affairs if the sale of the property is financed with a mortgage insured by the Secretary of HUD Commissioner or guaranteed, insured, or taken by the Secretary of Veterans Affairs. No other repairs shall be made without the specific advance approval of the Commissioner.

(3) The mortgagee shall not enter into a contract for the preservation, repair, or sale of the property with any officer, employee, or owner of ten percent or more interest in the mortgagee or with any other person or organization having an identity of interest with the mortgagee or with any relative of such officer, employee, owner, or person.

(

Approved by the Office of Management and Budget under control number 2528-0133)

[54 FR 24833, June 9, 1989; 54 FR 32060, Aug. 4, 1989, as amended at 60 FR 42761, Aug. 16, 1995; 61 FR 49034, Sept. 17, 1996]

4) The Commissioner may provide financial incentive, in an amount to be determined by the Commissioner, to be paid by the mortgagee and reimbursed through a subsequent claim when a bona fide tenant vacates the property prior to an eviction being initiated by the mortgagee.