www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 September 19, 1990 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 90-34 TO: ALL APPROVED MORTGAGEES ATTENTION: Servicing Managers (Single Family) SUBJECT: Single Family Claims for Insurance Benefits: Requirements for the Preservation, Protection and Inspection of Insured Properties - Including Mortgagees' Responsibility for Damaged Properties Effective thirty days from the date of this mortgagee letter, the changes in existing procedures and new policies outlined in this issuance will be implemented. During the initial transition period of the Regional Protection and Preservation (P&P) guidelines, there has been concern as to which guideline applies. The costs limits which were in force at the time the service was performed are the applicable limits. This means that during the transitional period of the implementation of the Regional guidelines, total P&P expenses may occasionally exceed the published maximums. Each case file that has applicable multiple P&P guidelines should have a note to file which references which of the P&P guidelines applied. COST LIMITS Limits on the amount HUD will reimburse mortgagees for specific items which are considered as protection and preservation (P&P) actions will be published by HUD Regional Offices. To the extent it is feasible, these limits will be established on a regional basis but some local variations may be necessary. However, local office variations must be approved and published by the Regional office in the Regional P&P Schedule. Appendix 1 provides a listing of HUD's ten Regional offices. Any Regional P&P Schedule which you have not received should be immediately requested directly from the respective Regional Office. _____________________________________________________________________ 2 Generally, mortgagees may expend up to $500 for protection and preservation work for a one unit single family property without HUD prior approval. The costs of required inspections will not be included in this $500.00 maximum. Additionally, where Regional P&P guidelines mandate that utilities be kept on, these costs shall be excluded from the $500.00 maximum for protection and preservation costs. All expenses must be supported by receipts and must be within allowable cost limits. All requests to exceed an individual item's cost limit or the $500.00 total limit must contain justification to support the request. In order to control costs, mortgagees are encouraged to seek competitive pricing for the required work. Expenses above allowable cost limits and above a total cost of $500 per property must have prior HUD written approval. Requests to exceed Regional debris removal limits must be supported by cost estimates as required in each of the Regional P&P guidelines. Appendix 2 provides a sample format to be used in requesting approval to exceed a stated limit or to submit less than the required number of estimates. Mortgagees must promptly submit written requests (by mail, courier, or fax) to the local HUD Office having jurisdiction where the property is located. All of the local HUD Offices have been instructed to promptly respond to each request. If a written response has not been received within 10 days, mortgagees must follow up with the local HUD Office and continue to follow up with the local HUD office until a written response is received. In emergency situations, mortgagees may fax their requests to the local HUD Office and confirm receipt of these requests verbally. Additionally, the local HUD offices will respond to your emergency requests via facsimile if requested. Mortgagees shall be responsible to confirm receipt and legibility of all requests sent via facsimile. Copies of both the mortgagee's request and HUD's response must be maintained in each claim review file. For all cases where a local HUD office has issued an approval to exceed a published cost limit, a copy of this approval must be attached to the copy of Form HUD-27011, Part B, submitted to the Single Family Insurance Claims Branch in Washington, D.C. for payment. _____________________________________________________________________ 3 Also, a copy of Part C must be attached to Part B submitted to Washington for payment for all cases where the total for line 110, Part B, exceeds $500.00. This means that even if the total preservation and protection costs (excluding required inspections and utility costs where mandated) are within the $500.00 limit, but the total preservation and protection costs (including required inspections and utilities) exceed $500.00, a copy of Part C must also accompany the Part B of Form HUD-27011 sent to the Single Family Insurance Claims Branch in Washington, D.C. Although a claim payment may include reimbursement for more than $500.00 for property preservation and protection expenses, the Department will require reimbursement for any amounts not supported by appropriate documentation. It is not necessary to submit receipts for disbursements made with the initial submission of Form HUD-27011. However, receipts must be available upon request from the Department and these receipts from vendors must break out the service provided, material costs, labor and/or if applicable hourly rate. EXTENSIONS OF TIME Requests to exceed cost limits are considered separately from requests to exceed time frames. A mortgagee who fails to meet a time frame should expect an interest curtailment due to a time frame not being met unless an extension has been requested and granted. Failure to receive a response from a local HUD Office to exceed cost limits does not constitute either an extension to convey title and file Part A, or an extension to submit title evidence and submit fiscal data, Part B. A separate request for each extension of time must be submitted by the mortgagee. All requests for extensions and all responses must be in writing. A new extension form is being developed by the Department and will be introduced to mortgagees in the near future. The form will be used as a turnaround document which should simplify and expedite the process for both the mortgagee and HUD. DEMOLITION NOTICES Effective immediately, mortgagees must advise the local HUD office having jurisdiction when a demolition notice is received. In some cases, the property could be salvaged with limited repairs. Usually, these repairs would be too extensive to be considered as "protection and preservation costs" which HUD has authority to reimburse the mortgagee. _____________________________________________________________________ 4 A copy Of the demolition notice must be sent immediately to the local HUD Office to the attention of the Chief Property officer (CPO). The condition of the property will be evaluated and the mortgagee will be notified whether to allow the demolition or request the demolition be delayed. All local HUD offices have been advised to respond to each mortgagee's request promptly. DEBRIS REMOVAL Regional P&P cost schedules require the mortgagee to obtain three estimates before requesting permission to exceed the debris removal cost limit. HUD's research indicates that most estimates are provided free, and HUD expects mortgagees to attempt to obtain free estimates. If the mortgagee chooses to select a contractor who charges for estimates, the costs for such estimates will not be reimbursed by HUD. Mortgagees shall be required to reimburse the Department where we find such costs have been included on the insurance claim. In addition, in the event that a mortgagor reinstates, mortgagees shall not include the costs of any estimates in the total required for reinstatement from the mortgagor. There may be instances where because of the remote location of the property or for some other reason, the mortgagee may have difficulty in obtaining the required estimates. Mortgagees are advised that they may appeal to the local HUD office in such cases where they encounter difficulties in obtaining estimates. For such cases, the local HUD Office may accept less than the required number of estimates before issuing approval to exceed the limit. Or, in certain cases, approval may be given to convey the property without removing any debris. All such exceptions shall be provided to the lender in writing. Debris and personal property must be removed before the property is conveyed to HUD unless otherwise directed by the local HUD office, but this should not delay conveyance. The regulations require conveyance within 30 days after acquisition of possession. This should be ample time to remove debris and personal property. Any debris removed per local code is also subject to the established limits on debris removal. However, costs for removal of debris and personal property are not to be considered as P&P expense when removed as a part of normal eviction proceedings. This expense, may also include the hiring of locally mandated eviction crews and/or storage fees. Eviction expense disbursements should be entered in Section 305 of Part D of the HUD-27011. _____________________________________________________________________ 5 Exterior cleaning, which may include debris, normally should have to be conducted only once. Inspections will determine if exterior cleaning should take place at the time of conveyance, first cutting of the grass or if re-cleaning is necessary. Permission is necessary to exceed the published limit. We are requesting those Regions that have not addressed abandoned motor vehicles in their Regional guidelines to issue a supplement which clarifies their policy. BOARDING OF PROPERTIES Please note a change in HUD's requirements for boarding properties. Although the instructions in Chapter 9 of HUD Handbook 4330.1 (2/77), provides authorization for mortgagees to board properties in areas where it is common practice to do so without prior approval, this policy has sometimes been found to be ineffective in protecting properties. In some areas, boarding properties attracts rather than deters vandals. Mortgagees shall not board up vacant properties unless prior approval of the local HUD office is obtained. This approval may be provided on a case by case basis or prior approval may be provided in the Regional guidelines (i.e. city, county, zip code, street, block, etc.). Each HUD Regional Office will notify you of its policy on this matter. Although boarding will be restricted and approved on only a case by case basis, mortgagees shall continue to secure all windows and doors in accordance with Regional guidelines. SEVERELY FIRE DAMAGED PROPERTIES Properties which have suffered severe fire damage will need to be secured for safety reasons and to prevent unauthorized entry. This requires that all lower floor windows and doors shall be secured according to the specifications identified in the appropriate Regional P&P guidelines. The additional costs of securing a severely fire damaged property are not included in the $500.00 cost limitation for customary preservation and protection expenses. However, mortgagees must request prior written approval from the local HUD Office if the costs of the securing will exceed $450.00. Local HUD Offices have been advised to respond to all requests promptly. _____________________________________________________________________ 6 INSPECTIONS Mortgagee Letter 81-26 notified mortgagees that HUD would reimburse mortgagees for one inspection after a 45-day period of delinquency but "once the property has been found to be occupied, no further inspections are required by HUD and reimbursement would not be allowed." This policy is now changed and the following procedures must be followed. (I) DEFINITIONS For our purposes, inspections shall be identified as initial, occupancy and vacant. In addition to the initial and vacant inspections which were previously required and reimbursable, a new requirement is being added for inspections to determine occupancy. The occupancy inspection serves three purposes: first, it promptly apprises the mortgagee when it has acquired possession because the property is vacant; second, it apprises the mortgagee when it is time to take reasonable protection and preservation action; and third, it permits more timely foreclosure of an abandoned property. (A) INITIAL: The requirement for the initial inspection remains unchanged. When the mortgage is in default and a payment is not received within 45 days of the due date and efforts to reach the mortgagor or occupant have been unsuccessful, the mortgagee must inspect the mortgaged property to determine if it has become vacant or abandoned. (B) OCCUPANCY: Effective with this mortgagee letter, HUD's requirements for performing inspections of occupied properties are changed. When the inspector cannot verify occupancy on-site, the mortgagee must perform at least one valid follow-up to determine whether the property remains occupied. This follow-up must be documented whether it was by letter, telephone, or means other than an on-site inspection. When the mortgagee is unable to determine the occupancy status by telephone or correspondence, an inspection and adequate follow-up must be made within 30 days of the last inspection. _____________________________________________________________________ 7 During bankruptcy actions and assignment processing, mortgagees should be able to verify the status of the property without requiring an on-site inspection. (Occupancy information during bankruptcy can usually be obtained by contacting either the bankruptcy trustee or the filing attorney.) Reimbursement normally will not be made for occupancy inspections if the mortgagor has filed bankruptcy until the bankruptcy is released, discharged or the property is formally abandoned by the bankruptcy trustee. Also, mortgagees may communicate with the HUD Office and/or counseling agency to determine the mortgagor's status while a case is being processed for assignment. For this reason, there should be few cases where an occupancy inspection is warranted and reimbursable during assignment processing. (C) VACANT: Where the mortgage is in default and the mortgagee has established that the mortgaged property is vacant, mortgagees shall inspect the mortgaged property every thirty days. This is a clarification of the Department's requirement to inspect vacant properties "at least monthly". Generally, reimbursement will be limited to one inspection for each thirty day cycle. This inspection should not be earlier than 25 days after the last inspection or later-than 35 days after the last inspection. A distinction must be made between those items which are required and those which are merely recommended. Only where a local HUD Office has identified a need to inspect more frequently, and has made this a requirement, will reimbursement be allowed for those additional inspections. (II) REQUIREMENTS: For all inspections, mortgagees shall document the general condition of the property as well as any actions which would be required to adequately protect and preserve the property. Many of the inspection forms currently used by the industry meet or exceed our requirements. At this time, HUD will not require the purchase or use of a specific form. However, at a minimum, the following items must be documented on each inspection report. Judgement should be used in each individual case to determine which specific information to record for these inspections. Of course, where the property is occupied, some of the items listed would be identified as not applicable (n/a). _____________________________________________________________________ 8 Date of the inspection. Identity of the inspector. Is the property occupied? Is the house locked? Is the grass mowed and/or shrubs trimmed? Is there any apparent damage? Is any exterior glass broken? Are there any apparent roof leaks? Does the house contain personal property and/or debris? Are any doors or windows boarded? Is the house winterized? Are there any repairs necessary to adequately preserve and protect the property? Proper documentation must be maintained by the mortgagee on the performance of inspections and follow-up activities. HUD defines proper documentation, for the purposes of reimbursement, as copies of all completed inspection forms and accompanying follow-up documentation for occupancy inspections, which shall be available for verification and shall be maintained in each claim review file for which reimbursement is being sought. RESPONSIBILITY FOR DAMAGE: (I) GENERAL: A vacant property must be protected and preserved while it is in the possession of the mortgagee so that it will not be damaged at the time of conveyance. A prudent mortgagee will protect and preserve a vacant property avoiding potential damage to the property and avoiding potential surcharges to their claim. HUD will reimburse the mortgagee for required preservation and protection costs within locally established limits when these expenditures are adequately documented. (II) TYPES OF DAMAGE: (A) DAMAGE BY FIRE, FLOOD, EARTHQUAKE OR TORNADO: All properties conveyed to HUD must be undamaged by fire, earthquake, flood, and tornado. The mortgagee must repair the damage or obtain prior permission from HUD to convey the property damaged. Where the decision of the field office is to require the mortgagee to repair the property prior to conveyance, HUD will not reimburse the mortgagee for the cost of these repairs. _____________________________________________________________________ 9 If permission is given to convey a Property in a damaged condition, the greater of any insurance recovery or HUD's estimate of the cost of repairs shall be deducted from the mortgage insurance benefits. Where the claim is to be adjusted for damages, Item 24 of Part A, Form HUD-27011 should be marked "yes" and Items 26 and 27 must be completed. (B) MORTGAGEE NEGLECT: For properties insured on or after January 1, 1977, mortgagees will be held responsible if their failure to take adequate action to preserve and protect the mortgaged property resulted in damage. A mortgagee's failure to inspect, protect and preserve the property will be considered mortgagee neglect. Properties which become damaged as a result of mortgagee neglect also require the mortgagee to repair the damage or obtain prior permission from HUD to convey the property damaged. Where the decision of the field office is to require the mortgagee to repair the property prior to conveyance, HUD will not reimburse the mortgagee for the cost of these repairs. If permission is given to convey a Property in a damaged condition, the greater of any insurance recovery or HUD's estimate of the cost of repairs shall be deducted from the mortgage insurance benefits. Where the claim is to be adjusted for damages, Item 24 of Part A, Form HUD-27011 should be marked "yes" and Items 26 and 27 must be completed. (C) OTHER DAMAGE: A new procedure is being implemented for those properties where the Property is damaged by other than fire, flood, earthquake, or tornado. The mortgagee must assume responsibility for this damage or demonstrate by appropriate documentation that it is not responsible. In this event Item 24 of Part A, Form HUD-27011 should be marked "no". The damage must be identified and the reason for denial of responsibility must be explained in the Mortgagee Comments section on the reverse side of Part A. Please note that mortgagees must also provide the local HUD Offices any documentation, including copies of all inspections, which they feel will verify that appropriate action was taken to preserve and protect the mortgaged property from the time of default to conveyance. _____________________________________________________________________ 10 This documentation must accompany the copy of Part A, Form HUD-27011, which is sent to the local HUD Office. Ensure that all such documentation includes the FHA Case number, is securely fastened to the claim form and is legible. Without adequate documentation to support the mortgagee's position, local HUD offices shall deem such damage as being due to the mortgagee's failure to take appropriate action to preserve and protect the mortgaged property. HUD reserves the right to request reimbursement for the costs of repairing the property or request reconveyance. The Preamble to the Regional guidelines state that the mortgagee will be held responsible if a property, where the mortgage is insured after January 1, 1977, is damaged because of the mortgagee's failure to take reasonable action to protect and preserve. Mortgagees are responsible for damages up until the time the property is conveyed. It is anticipated that the attached turnaround document, (Attachment 2), will decrease delays. The mortgagee's liability for damage rests with the reasonableness of the proof of attempts to correct the problem. Questions have been asked about resecuring properties due to vandalism. After the first securing, mortgagee's must seek approval to expend additional funds to resecure the property. HAZARD INSURANCE RECOVERY: HUD has become aware of situations where the hazard insurance proceeds received are less than expected and the mortgagee requested reimbursement of this difference on Part B. This resulted in the net adjustment no longer representing the greater of HUD's estimate of damage or the insurance recovery. Mortgagees may not request further reimbursement on Part B without checking to ensure that the net reduction to the claim will still be the greater of HUD's estimate of damage or the insurance recovery. Mortgagees will be required to reimburse the Department where the Department finds this improper adjustment made. OTHER CONCERNS Regional guidelines are specific on winterizing and indicate any exceptions. If Regional guidelines do not state a range of months during which winterizing must be completed, then the intent is that winterizing should be done all year. _____________________________________________________________________ 11 Concerning photographs, the burden of proof of any expense will always be on the mortgagee. Any additional photographs beyond the allowable photo expenditures in the Regional guidelines are the responsibility of the mortgagee, unless specifically allowed (in writing) by a field office on a case by case basis. The term "master lock" when addressed under securing properties may not be adequately identified in some Regional guidelines. Regional offices will be requested to clarify this guideline to include the type of "master lock" and the proper key code. In addition, if a Regional guideline does not properly address bracing of doors, clarification will have to be made, by the applicable Region, which will indicate how bracing is to be achieved and at what allowable cost. One of the most commonly asked questions is if a mortgagee is required to include grass mowing and/or snow removal in the maximum limit. The answer is yes. As the mortgagee approaches the ceiling, an estimate of the total grass removal and/or snow removal should be made and a one time request to exceed the maximum limit should be made at that time. This will significantly reduce the number of approvals needed. _____________________________________________________________________ 12 Any questions concerning preservation and protection procedures should be addressed to the respective HUD Field Office which has jurisdiction over the specific case involved. After six months, the Department will review the various policies dealing with preservation and protection to see how they are working and decide if any revisions need to be made at that time. Very sincerely yours, Arthur J. Hill Acting Assistant Secretary for Housing-Federal Housing Commissioner Attachments _____________________________________________________________________ ATTACEIMENT # 1 HUD REGIONAL OFFICES ATTENTION: DIRECTORS OF HOUSING BOSTON REGIONAL OFFICE ROOM 375 THOMAS P. O'NEIL, JR. FEDERAL BUILDING 10 CAUSEWAY STREET BOSTON, MA 02222-1092 (617) 565-5234 NEW YORK REGIONAL OFFICE 26 FEDRAL PLAZA NEW YORK, NY 10278-0068 (212) 264-8053 PHILADELPHIA REGIONAL OFFICE LIBERTY SQUARE BUILDING 105 SOUTH SEVENTH STREET PHILADELPHIA, PA 19106-3392 (215) 597-2560 ATLANTA REGIONAL OFFICE RICHARD B. RUSSELL FEDERAL BUILDING 75 SPRING STREET, SW ATLANTA, GA 30303-3388 (404) 331-5136 CHICAGO REGIONAL OFFICE 626 WEST JACKSON BOULEVARD CHICAGO, IL 60606-5601 (312) 353-5680 _____________________________________________________________________ FORT WORTH REGIONAL OFFICE 1600 THROCKMORTON PO BOX 2905 FORT WORTH, TX 76113-2905 KANSAS CITY REGIONAL OFFICE PROFESSIONAL BUILDING 1103 GRAND AVENUE KANSAS CITY, MO 64106-2496 (816) 374-6432 DENVER REGIONAL OFFICE EXECUTIVE TOWER BUILDING 1405 CURTIS STREET DENVER, CO 80202-2349 (303) 844-4513 SAN FRANSICSO REGIONAL OFFICE PHILLIP BURTON FEDERAL BUILDING AND U.S. COURTHOUSE 450 GOLDEN GATE AVENUE PO BOX 36003 SAN FRANCISCO, CA 94102-3448 (415) 556-4752 SEATTLE REGIONAL OFFICE ARCADE PLAZA BULIDNG 1321 SECOND AVENUE SEATTLE, WA 98101-2058 (206) 442-5414 2 _____________________________________________________________________ ATTACHMENT #2 - SAMPLE FORMAT REQUEST TO EXCEED COST LIMIT(S) FOR PRESERVATION AND PROTECTION Department of Housing and Urban Development (__________________) (__________________) (__________________) Dear________________ SUBJECT: Request for Variance from Regional Preservation and Protection Schedule FRA CASE NO.____________________ Mortgagor's Name________________ Property Address________________ _________________ Mortgagee's Loan No.____________ Permission is requested to: All required documentation, including applicable estimates, is attached. If additional information is needed, please contact___________________________at (XXX) XXX-XXXX. Check the box below if appropriate. Please fax your response to fax number:________________. __________________________________________________________________ HUD APPROVAL/DISAPPROVAL: For the subject case, HUD will authorize expenditures for: (1) debris removal up to a maximum of $__________ (2) boarding up to a maximum of $________________ (3) winterization up to a maximum of_____________ (4) other________________________________________ TOTAL AUTHORIZATION NOT TO EXCEED $_____________ DATE MORTGAGEE'S REQUEST RECEIVED_____________ DATE OF APPROVAL______________________________ DATE OF THIS RESPONSE_________________________ APPROVED BY___________________________________