HUD Updates Foreclosure Procedures, Pre-Foreclosure Borrower Communication Policies

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On October 28, HUD issued two mortgagee letters related to the servicing of certain FHA-insured loans. Mortgagee Letter 2013-38 provides a list of the first legal actions necessary to initiate a foreclosure and the reasonable diligence timeframes for completing foreclosure and acquisition of title in each state. The letter also outlines acceptable delays in those timeframes due to mediation or bankruptcy, or when a separate legal action is necessary to acquire possession of the title. In addition, the letter provides a new schedule of allowable attorney fees by state for services performed in connection with a mortgage default.  The updated reasonable diligence timeframes apply to all cases in which the first legal action to initiate foreclosure occurs on or after November 1, 2013. The updated attorney fees are effective for all cases in which certain actions occur on or after November 1, 2013. Mortgagee Letter 2013-39 updates the timelines servicers must follow for collection communications, advises servicers regarding early engagement in loss mitigation, outlines staffing requirements to support timely borrower communications, and provides guidance on the timing, content, and method of delivery for collection letters and other borrower communications. This letter also advises servicers to pay special attention to borrowers at risk of early payment default and re-default, and provides specialized collection techniques for such borrowers. Finally, this letter details the FHA’s expectations for escalating borrower inquiries and complaints that allege (i) improper analysis of borrower information or denials of loss mitigation options, (ii) foreclosures initiated or continued in violation of HUD’s policy, or (iii) any other violations of HUD collections and loss mitigation policies. This guidance is effective for all mortgages in default as of January 1, 2014.