FHA Single Family Housing Policy Handbook 4000.1, Part III — e. Loan Default and Loss Mitigation (05/09/2022)

FHA Single Family Housing Policy Handbook 4000.1, Part III — e. Loan Default and Loss Mitigation (05/09/2022)

e. Loan Default and Loss Mitigation (05/09/2022) As part of prudent and diligent loan servicing, HUD encourages Lenders to make a reasonable effort to assist delinquent Borrowers in bringing the Loan current prior to accelerating the Loan and repossessing the Manufactured Home. i. Contact with the Borrower Within 17 Days of the missed payment, but before taking action to accelerate the maturity of the Loan, the Lender or its agent must contact the Borrower and any co- maker or Co-signer, either in a face-to-face meeting or by telephone, to discuss the reasons for the Default and to seek its cure. If the Borrower and the co-makers or Co- signers cannot be located, will not discuss the Default, or will not agree to its cure, the Lender may proceed to take action. The Lender must document the results of its efforts to contact the Borrower and any co-maker or Co-signer. ii. Loss Mitigation Tools HUD encourages loss mitigation to help a delinquent Borrower return the Loan to good standing. The purpose of loss mitigation is to assist the Borrower to retain the home, to reduce HUD and Lender losses, and to preserve the insurance fund. Listed below are the tools available to Lenders and Borrowers that can assist in bringing the Loan current. III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs 2. Title I Manufactured Home Loan Program Handbook 4000.1 1563 Last Revised: 11/26/2025 (A) Refinance A Streamline Refinance may be used for a Loan that is in Default provided that it is not refinanced for an amount greater than the lesser of: • the original principal balance of the Loan; or • the current principal balance plus reasonable closing costs and Upfront Mortgage Insurance Premium (UFMIP). (B) Modification Agreement A Borrower may be considered for a Loan Modification if the Lender determines the Borrower has the reasonable ability to pay under the terms of the loan modification plan to eliminate the arrearage. A Lender may enter into a modification agreement with a Borrower without prior permission from HUD. A modification agreement: • requires a written agreement signed by the Borrower; • need not be recorded; • may increase or decrease the monthly payment amount; • cannot increase the interest rate or loan term; • cannot include new funds; and • does not require any further insurance reporting to HUD; however, all documentation concerning the modification must be submitted if an insurance claim is filed. (C) Repayment Plan Unlike a modification, a repayment plan does not require a Borrower’s signed agreement. As with a modification, a Borrower may be considered for a short repayment plan if the Borrower has recently experienced an involuntary reduction in income or an unexpected increase in living expenses and the Lender determines the Borrower has a reasonable ability to pay under the terms of the repayment plan. A Lender may enter into a repayment plan without HUD’s permission. A repayment plan: • must be evidenced by a copy of the Lender’s letter to the Borrower outlining the terms of the agreement; • may not extend beyond six months; and • does not require any further insurance reporting to HUD. When establishing and monitoring a repayment plan, the Lender must ensure that the status of the Loan will not preclude submission of a claim for loss to HUD due to exceeding the deadline for claim submission. III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs 2. Title I Manufactured Home Loan Program Handbook 4000.1 1564 Last Revised: 11/26/2025 (D) Partial Payments (1) Definition A Partial Payment refers to a payment of any amount less than the full amount due on the Loan at the time the payment is tendered, including Late Charges and amounts advanced by the Lender on behalf of the Borrower (such as for the payment of taxes). (2) Standard The Lender may agree to accept a Partial Payment, thereby assisting a Borrower who is having a temporary problem making their Loan Payment. This practice will usually be advantageous for the Lender and HUD. Except as outlined below, a Lender must accept any Partial Payment and apply it to the Borrower’s account or hold it in a trust account pending disposition. When Partial Payments held for disposition aggregate a full monthly installment, they must be applied to the Borrower’s account, thus advancing the date of the oldest unpaid installment. If the Lender did not agree to accept Partial Payments, it must return a Partial Payment to the Borrower with a letter of explanation if any of the following apply: • The Loan is not in Default. • The payment represents less than half of the full amount then due. • The payment is less than the amount agreed to in a modification agreement or repayment plan. • The Lender has issued a Notice of Default and Acceleration. • The Loan has been Delinquent for six months. • The Loan has been chronically Delinquent (i.e., two or more instances where the account was Delinquent, brought current, and then reverted back to a Delinquent status). (E) Assumption If the Borrower cannot afford to continue to make Loan Payments and elects to sell the home, the Lender may approve an assumption of the Loan. (F) Short Sale The Lender may agree to release its lien on the home to facilitate the Borrower’s sale of the home to a third party for less than the amount due the Lender. The Lender may still file a claim with HUD regarding the resultant deficiency, provided that the actual sales price is not less than the value of the home as determined by a current HUD- approved appraisal, and provided that the Borrower remains legally liable for the III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs 2. Title I Manufactured Home Loan Program Handbook 4000.1 1565 Last Revised: 11/26/2025 remaining amount owed on the Loan. A short sale release of lien, with release of liability of the Borrower, requires prior approval from HUD. iii. Notice of Default and Acceleration The Lender must provide each Borrower with written notice that the Loan is in Default and that the loan maturity is to be accelerated. This notice must be sent when the Loan is at least 30 Days Delinquent but after the Lender has attempted to contact the Borrower. Exceptions to sending the notice include when the Borrower agrees to a modification agreement or repayment plan, is in bankruptcy, or has voluntarily surrendered the Manufactured Home. In addition to complying with applicable state or local notice requirements, the notice must be no smaller than size 12 font Times New Roman, sent by certified mail, and contain: • a description of the obligation or security interest held by the Lender; • a statement of the nature of the Default and of the amount due to the Lender as unpaid principal and earned interest on the Note as of the date of the notice; • a demand upon the Borrower either to cure the Default or to agree to a modification agreement or a repayment plan, no later than 30 Days from the date of the notice; • a statement that upon the Borrower’s failure to comply with the demand, the maturity of the Loan is accelerated and full payment of all amounts due is then required; • a statement that if the Default persists the Lender will report the Default to an appropriate credit reporting agency; and • the following statement: This loan is insured against nonpayment by the federal government. If you do not repay the loan as agreed, we may assign the debt to the U.S. Department of Housing and Urban Development (HUD) for collection. If your loan is assigned to HUD, your failure to pay the debt in accordance with the terms set by HUD may result in any or all of the following actions: • Seizing your federal income tax refunds, Social Security benefit payments, federal employee wages or retirement, or other federal payments, • Administrative garnishment of your wages if you are not a federal employee (which does not require a judgment and court order to implement), • Referring the debt to the U.S. Department of Justice, U.S. Department of the Treasury, or to private collection agencies, • Your liability for penalties and administrative costs that HUD may impose as authorized by Section 3717 to Title 31 of the United States Code (including collection fees charged by Justice, Treasury or private collection agencies.) III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs 2. Title I Manufactured Home Loan Program Handbook 4000.1 1566 Last Revised: 11/26/2025 iv. Notice to Credit Reporting Agency If the loan maturity is accelerated and the Loan is not reinstated, the Lender must report the Default to one or more of the national credit reporting agencies. v. Reinstatement of the Loan The Lender may rescind the acceleration of maturity and reinstate the Loan only if the Borrower brings the Loan current, executes a modification agreement, or agrees to an acceptable repayment plan. vi. Bankrupt or Deceased Borrower When a Lender becomes aware that a Borrower has filed bankruptcy or has died, the Lender must take prompt, effective action to protect the Lender’s interest as holder of the Loan. (A) Bankruptcy (1) Standard The Lender must file a timely proof of claim with the bankruptcy court, unless the court notifies the Lender that the Borrower has no assets. A proof of claim must be filed even if the Borrower is current on the Title I Loan. Since the Lender must repossess and sell the Manufactured Home prior to submitting a claim for loss with HUD, the Lender must take all steps necessary to preserve the lien against the home. If the bankruptcy is closed, the Lender must have evidence of the bankruptcy discharge or dismissal. In a case where relief from the stay has been granted for the purpose of repossessing the home, the Lender must file a deficiency claim for the unsecured balance no later than 180 Days following filing of the petition to ensure their deficiency claim is not barred. (2) Required Documentation The case binder must contain evidence of bankruptcy discharge or dismissal. (B) Deceased Borrower The Lender must confirm the death of a Borrower via a death certificate or other reasonable evidence. The Lender must determine if a probate proceeding exists and document its findings. If there is a probate proceeding, the Lender must file a timely proof of claim. III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs 2. Title I Manufactured Home Loan Program Handbook 4000.1 1567 Last Revised: 11/26/2025

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