FHA Single Family Housing Policy Handbook 4000.1, Part III — c. Defaults for Unpaid Property Charges (11/30/2023)

FHA Single Family Housing Policy Handbook 4000.1, Part III — c. Defaults for Unpaid Property Charges (11/30/2023)

c. Defaults for Unpaid Property Charges (11/30/2023) i. Definition HECM Loss Mitigation refers to strategies intended to minimize economic impact to the Mutual Mortgage Insurance Fund (MMIF) and to avoid foreclosure, if possible. Repayment Plan refers to a written agreement by the Borrower to make monthly payments to the Mortgagee to reimburse the Mortgagee for corporate advances made on the Borrower’s behalf for taxes and/or insurance. ii. Standard (A) HECMs in Default due to Unpaid Property Charges The Mortgagee may make property charge payments on behalf of the Borrower using funds available under the NPL. (1) When Insufficient Funds Remain If insufficient funds remain to satisfy these unpaid Property Charges, the Mortgagee must promptly notify the Borrower that failure to make the payment within 30 Days of the payment due date will result in the HECM becoming Due and Payable. III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 2. Default Servicing Handbook 4000.1 1494 Last Revised: 11/26/2025 If the Borrower does not make the required payment and provide the Mortgagee documentation of such, the Mortgagee must: • advance its corporate funds to pay the outstanding Property Charges; • take whatever steps necessary to protect its and HUD’s security interests; and • submit a Due and Payable request. (2) When There is a Deferral Period During a Deferral Period, the Mortgagee must not make property charge payments using HECM proceeds as no further Disbursements are available under the HECM. If a property charge payment is missed during a Deferral Period, the Mortgagee must notify any Eligible NBS that an obligation of the HECM was not satisfied and that the Deferral Period has ended unless the default is cured within 30 Days. If the default is not cured within such time, the Mortgagee must proceed in accordance with applicable time frames to initiate foreclosure and reasonable diligence in prosecuting foreclosure. If a default is cured at any time prior to a foreclosure sale, the Mortgagee must reinstate the Deferral Period provided the Deferral Period reinstatement provisions for an Eligible NBS are met. (3) HECMs with Set-Aside Accounts For HECMs with Set-Aside accounts for paying Property Charges, the HECM will be considered in default and eligible for Due and Payable status if: • the Set-Aside account has been exhausted of available funds to make property charge payments; • the Borrower fails to remit the property charge payment in full within 30 Days as required, after being notified by the Mortgagee of their outstanding property charge obligation; and • the Principal Limit has been exhausted, requiring the Mortgagee to make the property charge payment using corporate funds. (B) Notification to the Borrower of a Missed Property Charge Payment The Mortgagee must provide the Borrower a Property Charge Delinquency letter within 30 Days of the Mortgagee receiving notification that a property charge payment is outstanding when the Borrower has failed to make the required payment and provide the Mortgagee documentation of such payment. The Mortgagee may vary the actual structure of the letter, but must include the following: • state that an obligation of the Borrower to pay Property Charges has not been met; III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 2. Default Servicing Handbook 4000.1 1495 Last Revised: 11/26/2025 • state that the Borrower’s failure to pay Property Charges within 30 Days of the notice will result in the HECM becoming Due and Payable; • where applicable, include the amount of corporate funds advanced by the Mortgagee on the Borrower’s behalf to satisfy the unpaid Property Charge and state that the Borrower’s failure to reimburse the Mortgagee within 30 Days of the notice will result in the HECM becoming Due and Payable; • provide notice of availability of housing counseling; and • provide information regarding Loss Mitigation Options that may be available to a Borrower in default, including: • refinancing the defaulted HECM into a new HECM if possible under all applicable origination requirements; • state, local, or other government assistance programs available for Borrowers; and • disposition options including sale of Property or DIL. (C) Requesting Due and Payable If a property charge default has not been cured within 30 Days of notifying the Borrower of unpaid Property Charges, the Mortgagee must submit to HUD a Due and Payable request, in accordance with the Due and Payable policies. Where the Mortgagee is willing to offer the Borrower an available Loss Mitigation Option, the Mortgagee may request a property charge loss mitigation extension to the foreclosure time frame in HERMIT following the guidance in the Mortgagee Extension for Property Charge Loss Mitigation section. (D) Permissible Loss Mitigation Options Available for HECMs in Due and Payable Status If the Loss Mitigation Options identified in the Property Charge Delinquency letter are unavailable, have been declined by the Borrower, or have been otherwise exhausted, the Mortgagee may review the Borrower for the following: • Option 1: Repayment Plan to satisfy outstanding corporate advances made for property charge defaults; or • Option 2: an extension of the foreclosure time frames due to an At-Risk HECM Borrower. The Mortgagee will not be reimbursed for any amount greater than the MCA, even if the HECM balance exceeds 100 percent of the MCA due to the Mortgagee providing a Repayment Plan. In addition, a HECM with an active Repayment Plan is not eligible for assignment to HUD. (1) Option 1: HECM Loss Mitigation Repayment Plan The Mortgagee must determine the Borrower’s ability to support, and likelihood of success under, a Repayment Plan before offering this Loss Mitigation Option. III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 2. Default Servicing Handbook 4000.1 1496 Last Revised: 11/26/2025 If the Borrower will not be able to repay the corporate advance within the permissible time, this Loss Mitigation Option is not available. Additionally, any permissible Repayment Plan must provide that in the event the last surviving Borrower dies before the Repayment Plan is paid in full, any outstanding amounts owed become immediately due and must be satisfied within 30 Days. The Mortgagee must follow the steps below when evaluating a Borrower for a Repayment Plan. (a) Assessing the Borrower for a Repayment Plan When assessing a Borrower for a Repayment Plan, the Mortgagee must evaluate the Borrower’s ability to repay the Mortgagee’s corporate advances through a Repayment Plan by using the financial information provided by the Borrower and the calculation instructions below. The Mortgagee must determine the shortest time period necessary, not to exceed five years, for the Repayment Plan to ensure repayment at the earliest possible date. (b) Repayment Plan Calculation (i) Calculate Total Arrearage The total arrearage is determined by adding the outstanding corporate advances for taxes and/or insurance made for the account to any Property Charges due for the next 90 Days. HOA and Condominium Association dues may be included in the total arrearage at the Mortgagee’s discretion. (ii) Calculate Monthly Surplus Income The Borrower’s monthly surplus income is the total amount of income as stated by the Borrower, less: • the Borrower’s necessary living expenses; and • one-twelfth of the Property Charges due over the next 12 months. (iii)Calculate Repayment Plan Terms The Mortgagee must determine if the Repayment Plan can be achieved using 25 percent of the Borrower’s monthly surplus income. If the total arrearage amount divided by 25 percent of the Borrower’s monthly surplus income, rounded up to the nearest whole month, is: • 60 months or less, the result is the required length of the Repayment Plan; or • more than 60 months, the Mortgagee must determine the percentage of the Borrower’s monthly surplus income needed to repay in 60 months: III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 2. Default Servicing Handbook 4000.1 1497 Last Revised: 11/26/2025 • if the resulting percentage would represent a reasonable expectation of the Borrower’s performance, the required length of the Repayment Plan is 60 months; or • if the resulting percentage would represent an unreasonable expectation of the Borrower’s performance, the Borrower’s surplus income is insufficient to support a Repayment Plan and this option is no longer available. (iv) Insufficient Surplus Income for a Repayment Plan Where the Mortgagee determines that the Borrower’s surplus income is insufficient to support a reasonable Repayment Plan, the Mortgagee may assess the Borrower for an At-Risk extension. (c) Additional Unpaid Property Charges or Hardship Experienced after Establishing a Repayment Plan (i) Additional Unpaid Property Charges In cases where there is an active Repayment Plan, the Mortgagee may re- evaluate the Borrower for a new Repayment Plan if the Borrower again fails to pay the required Property Charges. The Mortgagee must solicit new financial information from the Borrower to conduct this assessment. To revise the Repayment Plan the Mortgagee must use a recalculated total arrearage, including all outstanding corporate advances made. The Mortgagee must determine the maximum permitted length of a new Repayment Plan by subtracting the number of months of previous Repayment Plan participation from 60 months, which is the maximum available time frame. The Mortgagee must then determine if the new Repayment Plan can be achieved using 25 percent of the Borrower’s monthly surplus income. If the revised total amount divided by 25 percent of the Borrower’s monthly surplus income, rounded up to the nearest whole month, is: • no more than the maximum permitted length as calculated above, the result is the required length of the new Repayment Plan; or • more than the maximum permitted length, the Mortgagee must determine the percentage of the Borrower’s monthly surplus income needed to repay within the permitted time period: • if the resulting percentage would represent a reasonable expectation of the Borrower’s performance, the required length of the new Repayment Plan is the maximum permitted time; or • if the resulting percentage would represent an unreasonable expectation of the Borrower’s performance, the Borrower’s III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 2. Default Servicing Handbook 4000.1 1498 Last Revised: 11/26/2025 surplus income is insufficient to support a new Repayment Plan and this option is no longer available. The required minimum monthly payment for a new Repayment Plan equals the revised total arrearage divided by the length of the new Repayment Plan. (ii) Experienced Hardships If the Borrower experiences a decrease in their surplus income due to a verified hardship (e.g., illness, death of a household member who was identified as a contributor of income in a previous Repayment Plan calculation, emergency home repair, loss of employment income, etc.) and requests a Repayment Plan adjustment, the Mortgagee must solicit new financial information from the Borrower to conduct a new Repayment Plan assessment. To revise the Repayment Plan the Mortgagee must use a recalculated Borrower’s surplus income amount. The Mortgagee must determine the maximum permitted length of a new Repayment Plan by subtracting the number of months of previous Repayment Plan participation from 60 months, which is the maximum available time frame. The Mortgagee must then determine if the new Repayment Plan can be achieved using 25 percent of the Borrower’s new monthly surplus income. If the total amount divided by 25 percent of the Borrower’s new monthly surplus income, rounded up to the nearest whole month, is: • no more than the maximum permitted length as calculated above, the result is the required length of the new Repayment Plan; or • more than the maximum permitted length, the Mortgagee must determine the percentage of the Borrower’s new monthly surplus income needed to repay within the permitted time: • if the resulting percentage would represent a reasonable expectation of the Borrower’s performance, the required length of the new Repayment Plan is the maximum permitted time; or • if the resulting percentage would represent an unreasonable expectation of the Borrower’s performance, the Borrower’s surplus income is insufficient to support a new Repayment Plan and this option is no longer available. The required minimum monthly payment for a new Repayment Plan equals the total arrearage divided by the length of the new Repayment Plan. III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 2. Default Servicing Handbook 4000.1 1499 Last Revised: 11/26/2025 (iii)Insufficient Surplus Income for a New Repayment Plan Where the Mortgagee determines that the Borrower’s surplus income is insufficient to support a reasonable new Repayment Plan, the Mortgagee may assess the Borrower for an At-Risk extension. (d) Unsuccessful Repayment Plan Performance A Borrower’s Repayment Plan performance is unsuccessful when a full monthly payment is not made within 60 Days of the monthly payment due date. Where a Borrower fails to perform successfully under an existing Repayment Plan, the Mortgagee may consider one of the following options: • if the Mortgagee determines that a recalculated Repayment Plan results in reasonable payments, provide the Borrower with such; or • if the Mortgagee determines that a recalculated Repayment Plan results in unreasonable payments, assess the Borrower for an At-Risk extension. If a Repayment Plan is unsuccessful and either the Mortgagee chooses not to offer one of the above options or, after considering the options, determines neither is available, any extension to the foreclosure time frames cease immediately and the Mortgagee must proceed in accordance with HUD’s regulations. However, the Mortgagee may receive an automatic 90-Day extension after a failed Repayment Plan to resume or restart foreclosure. (e) Repayment Plans Satisfied Immediately Upon Death Any approved property charge loss mitigation extension immediately ceases when the last surviving Borrower dies. Any outstanding corporate advances owed become immediately due. If any amount owed is not satisfied within 30 Days, the Mortgagee must proceed with calling the HECM Due and Payable. If any outstanding amounts due are satisfied, the Mortgagee must request that the Due and Payable status on the HECM related to the repayment of any approved Property Charges be rescinded. (2) Option 2: Allowable Foreclosure Extensions for At-Risk HECM Borrowers (a) Definition An At-Risk HECM Borrower refers to a Borrower who is in default for unpaid Property Charges, has insufficient surplus income to support a Repayment Plan, or was unsuccessful in their Repayment Plan and meets the following criteria: III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 2. Default Servicing Handbook 4000.1 1500 Last Revised: 11/26/2025 • the youngest living Borrower is at least 80 years of age; and • the Mortgagee has determined that the Borrower or Family Member receiving care in the residence has critical circumstances such as a supported terminal illness or substantiated long-term physical disability. (b) Standard To request a property charge loss mitigation extension for an At-Risk HECM Borrower, the Mortgagee must use the appropriate timeline in HERMIT and identify their request as At-Risk. Upon request of the Mortgagee, HUD will determine whether an extension will be granted and reserves the right to require the Mortgagee to timely proceed to foreclosure. If the last surviving Borrower dies or one of the required criteria cease to be met, any approved extension ceases immediately and the Mortgagee must proceed in accordance with HUD’s regulations. (c) Required Documentation The Mortgagee must include supporting documentation with the extension request validating that the Borrower meets the definition of an At-Risk Borrower. (E) Optional Delay to Submit a Due and Payable Request for Low Balance Arrearages The Mortgagee may delay submitting a due and payable request to HUD for HECMs with a total Property Charge arrearage amount that is $5,000.00 or less by uploading documentation into HERMIT establishing that either: • the Mortgagee is unable to contact the Borrower, and: • the Mortgagee has received the Borrower’s current annual Occupancy Certification; and • the Mortgagee has no indication that the Borrower has vacated the Property; or • the Mortgagee has contacted the Borrower, and: • the Borrower has expressed a willingness to repay; and • the Borrower is currently making payments or partial payments. The Mortgagee must submit a due and payable request to HUD immediately upon the occurrence of any of the following events, whichever occurs first: • the Borrower fails to timely complete the annual Occupancy Certification; • the Borrower no longer occupies the Property securing the HECM as their Principal Residence; III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 2. Default Servicing Handbook 4000.1 1501 Last Revised: 11/26/2025 • 12 months have elapsed from the first missed property tax and/or Hazard Insurance payment, and the Mortgagee is still unable to contact the Borrower; • the Borrower has expressed an unwillingness to repay; or • the total arrearage exceeds $5,000.00. (F) Rescission of Due and Payable for a Mortgagee-Funded Cure A Mortgagee may request HUD rescind a previous due and payable approval where the Mortgagee has completed a Mortgagee-Funded Cure and there are no other outstanding reasons for default. (G) Curing the Default Following a Due and Payable Request At any time prior to a foreclosure, the HECM default may be cured if the Borrower or Eligible NBS: • becomes current on all Property Charges; • repays all applicable corporate advances made by the Mortgagee; and • fully cures any outstanding reasons for default. Where the last surviving Borrower has died and there is an Eligible NBS, the Deferral Period Requirements will apply after the property charge default is cured. HECMs with Repayment Plans or an At-Risk extension are not eligible for assignment until the default is cured, at which time the Mortgagee may assign the HECM in accordance with guidance for submitting assignment requests. (H) Assignment Following a Mortgagee-Funded Cure A Mortgagee may choose to assign a HECM that meets all other eligibility criteria for assignment following completion of a Mortgagee-Funded Cure. A Mortgagee-Funded Cure is complete only after the Borrower has made at least one year of Property Charge payments during which the Mortgagee has not advanced any additional funds on the Borrower’s behalf. The Mortgagee must identify the Mortgagee-Funded Cure in HERMIT under the “Alerts” tab as follows: • New – select “Insurance Default” or “Tax Default;” • Alert Date – enter the date of the Mortgagee-Funded Cure; • Expiration Date – enter the Alert Date plus three years; • Alert Amount – enter the amount funded by the Mortgagee; • Status – enter “Active;” and • Alert Note – enter “Mortgagee-Funded Cure.” The Mortgagee will not be reimbursed for any amount greater than the HECM’s MCA in any claim for FHA insurance benefits. III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 2. Default Servicing Handbook 4000.1 1502 Last Revised: 11/26/2025 iii. Required Documentation (A) Due and Payable Notice Where the Borrower has failed to cure the default and the HECM has been called Due and Payable, the Mortgagee must provide the Borrower a Due and Payable notice in accordance with HUD’s Due and Payable policies. (B) Property Charge Loss Mitigation Extension for Repayment Plans When an extension to the foreclosure time frames is taken due to the use of a Repayment Plan, the Mortgagee must upload in HERMIT a fully executed Repayment Plan agreement that provides the following information: • date of agreement; • total outstanding arrearage; • monthly surplus income amount; • Repayment Plan term; • monthly Repayment Plan amount; and • due date of next monthly Repayment Plan amount. (C) Ongoing Reporting Requirements for Repayment Plans When a HECM becomes eligible to be called Due and Payable as a result of the Borrower’s failure to pay property taxes and/or Hazard Insurance, the Mortgagee must report the default event using HERMIT. While a HECM is on a Repayment Plan, the Mortgagee must update HERMIT monthly with the following information: • total outstanding arrearage; • monthly surplus income; • term of Repayment Plan; • amount of monthly Repayment Plan payment; • due date of next monthly payment; • when a Borrower experiences a hardship; and • reason for hardship. When the default is subsequently cured, the Mortgagee must upload supporting documentation into HERMIT, reflecting the resolution of the default. III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 2. Default Servicing Handbook 4000.1 1503 Last Revised: 11/26/2025

Source: FHA Single Family Housing Policy Handbook 4000.1, Part III — c. Defaults for Unpaid Property Charges (11/30/2023) · source URL · snapshot 8c03836f77f317e1