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U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000

April 19, 1994
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
MORTGAGEE LETTER 94-21
     TO:  ALL APPROVED MORTGAGEES
     ATTENTION:  SERVICING MANAGERS (Single Family)
     SUBJECT:  Deeds-in-lieu of Foreclosure
 
          The Department remains concerned about the low nationwide
     acceptance rate of deeds-in-lieu of foreclosure.  We recognize
     that junior liens on the property frequently prevent the
     acceptance of deeds-in-lieu; however, deeds-in-lieu are often
     more efficient and cost effective than processing foreclosures
     and have several advantages for homeowners.  Therefore, the
     Department expects lenders to accept deeds-in-lieu and mitigate
     losses whenever possible.
 
          In May 1993, HUD updated pertinent portions of its Handbook
     4330.1, REV-4, Administration of Insured Home Mortgages, with
     respect to deed-in-lieu procedures.  This Mortgagee Letter
     reiterates this important Departmental policy.
 
          -    Paragraph 7-1 requires mortgagees to review each loan
               in default to determine which foreclosure avoidance
               strategy is appropriate with an eye toward effectively
               mitigating losses.
 
          -    Paragraph 7-11 and paragraph 9-2A2 require that
               mortgagees perform a management review to assure that a
               deed-in-lieu was considered.  Mortgagees must also
               develop and maintain a checklist to document the
               decision.  (Every case going to foreclosure must be
               considered for a deed-in-lieu and accepted if at all
               possible.)
 
          -    Paragraph 9-4F directs mortgagees to contact secondary
               lienholders to try and negotiate payment of secondary
               liens so that clear title can be obtained.
 
          -    Paragraph 9-4G alerts mortgagees that the amount of
               consideration that can be offered to mortgagors in
               exchange for deeds-in-lieu has been increased to
               $500.00.  This amount is fully reimbursable to the
               lender.
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          -    Paragraph 9-4H requires that mortgagees maintain
               documentation of deed-in-lieu efforts for HUD's monitoring
               purposes.  The Department intends to closely monitor
               mortgagee deed-in-lieu decisions.
 
          HUD continues to encourage mortgagees to minimize
     delinquency losses by putting more emphasis on loss mitigation.
     Many mortgagees have hired loss mitigation specialists and have
     created loss mitigation sections in their companies.  HUD
     applauds such positive measures.
 
          Any questions regarding this matter should be directed to
     the Loan Management staff in the local HUD Office.
 
Sincerely yours,
 

Nicolas P. Retsinas
Assistant Secretary for Housing
- Federal Housing Commissioner