HUD Adapts Foreclosure Process for Reverse Mortgages

The Department of Housing and Urban Development (HUD) recently updated the schedule of claimable attorney fees and reasonable diligence timeframes for initiating foreclosure on FHA-insured loans, including Home Equity Conversion Mortgages (HECMs). 

Changes were announced via a mortgagee letter, issued Oct. 28, that applies to all cases in which the first legal action to initiate a foreclosure occurs on or after Nov. 1, 2013 and encompasses federally insured forward mortgages in addition to reverse mortgages. 

HUD limits the amount of fees attorneys can claim and requires servicers to prosecute foreclosure in a specific timeframe. Despite “substantial” changes in state foreclosure requirements in recent years, the department hasn’t updated its guidance since 2005.

This presented “significant” challenges for FHA servicers trying to meet reasonable diligence time frames and recoup appropriate attorney fees when prosecuting foreclosures on FHA-insured loans, says K&L Gates, a US-based international law firm.

“The updates announced in Mortgagee Letter 2013-38 bring welcome increases for both claimable attorney fees and reasonable diligence timeframes in many jurisdictions,” says the firm.

Attorney fees servicers can claim for prosecuting a foreclosure increased in almost every state, K&L Gates’ analysis found, generally by at least a few hundred dollars, although some states saw much larger increases. 

While updates to the reasonable diligence timeframes weren’t as comprehensive, says the law firm, they still represent a positive development for servicers and were increased in 23 jurisdictions, generally by one to two months. 

States that have experienced significant foreclosure backlogs were granted larger increases, including Florida and New York. Timeframes in the remaining states remained the same. 

“As in the past, if a mortgagee fails to meet the reasonable diligence standard, the mortgagee must self-curtail the interest claimed,” K&L Gates says. “Note that no changes were made to the deadline to initiate foreclosure, so servicers still need to initiate foreclosure timely in order to avoid curtailment of interest.”

Access Mortgagee Letter 2013-38.

Written by Alyssa Gerace

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