Since being introduced as a national program in 1994 , the PFS Program has helped thousands of mortgagors in default to avoid foreclosure and transition to more affordable housing. The PFS Program can help many families who today are facing foreclosure.  The PFS loss mitigation option allows a mortgagor in default to sell his or her home and use the sale proceeds in satisfaction of the mortgage debt when the proceeds are less than the amount owed.

This Mortgagee Letter (ML) serves to remind mortgagees of the relief that the PFS Program can bring to borrowers with FHA-insured mortgages. To facilitate greater use of this program, FHA has consolidated in this ML the requirements of the PFS Program that have been issued over the years, and has updated and clarified those requirements where needed, to better address the problems faced by mortgagors today and provide greater flexibility in considering a mortgagor’s candidacy for participation in this program.  

• Establishing Market Value –Mortgagees are reminded to ensure that properties in the PFS program are sold at or near fair market value as established by an independent appraisal, prepared by an appraiser on the FHA Appraisal Roster.  
• Minimum List Price Requirements – Properties offered for sale under the PFS program are to be listed for sale at no less than the “as-is” appraised value as determined by a current FHA appraisal, obtained and reviewed by the mortgagee.
• Negative Equity – The ratio of 63% for the fair market value (FMV) to the outstanding mortgage balance (including unpaid principal and accrued interest) has been updated to address events in the current housing market, and replaced with tiered net sales proceeds.
• Tiered Net Proceeds Requirement – This ML incorporates guidelines for varying minimum net sales proceeds based on the length of time a property has been competitively marketed for sale.
• Marketing Documentation – Prior to accepting a discounted offer, evidence of competitive marketing from the selling broker is to be presented and mortgagees are to retain this documentation in the claim review file.  
• Non-owner Occupant Exceptions – Mortgagees are authorized to grant reasonable exceptions to non-occupant mortgagors when documentation indicates a property was not purchased as a rental or used as a rental for more than 18 months, immediately preceding the approval into the PFS program. 
• Removal of Repair Limitations –With prior approval from HUD, properties with surchargeable damage (i.e., damage caused by fire, flood, earthquake, hurricane, boiler explosion or mortgagee neglect) may be eligible for the PFS program if funds - sufficient to cover the government’s estimated repair costs - are applied to reduce the outstanding debt when a claim is filed.
• Increase in Funds Available for Discharge of Subordinate Liens – In instances where a mortgagor has made an initial contribution/incentive of $750 or $1,000, the amount that can be used from sales proceeds for the discharge of liens or encumbrances (which represent an impediment to conveyance of marketable title) has been raised from $2,000 to $2,500.  
• Change in Allowable Closing Costs – Subject to the stated ratios, HUD allows up to 1% of the buyer’s mortgage amount for closing costs to be included in the “Seller’s Costs” on the HUD-1 for all transactions that involve a new FHA-insured mortgage. 

This ML supersedes in its entirety ML 1994-45, “HUD’s Nationwide Pre-Foreclosure Sale (PFS) Procedure”.  It also supersedes the section (pages 29-35) of ML 2000-05, “Loss Mitigation Program-Comprehensive Clarification of Policy and Notice of Procedural Changes” that describes Pre-Foreclosure Sale requirements.

• Form HUD-90035 (Information Sheet) and Form HUD-90036 (Application to Participate) have been consolidated to reflect updates made to the program and to delete any reference to HUD’s former Assignment Program.  The new Form HUD-90035 (Information/Disclosure) no longer requires the signature of the party providing homeownership counseling to the mortgagor.  Form HUD-90036, Application to Participate is obsolete and no longer required.
• Form HUD-90038 (Homeownership Counseling Certificate) is now obsolete.  Form HUD-90054 (Pre-Foreclosure Sale Data Reporting) and Form HUD-92068-F (Mortgage Assignment Program Request for Financials) were both previously declared obsolete.
• Form HUD-90041 (Request for Variance) has been slightly modified to reflect the new minimum net sales proceeds of 84%.
• Form HUD-90045 (Approval to Participate) has been modified to provide a signature block for the mortgagor’s signature(s) and new language describing HUD’s current PFS Program.

Mortgagees are reminded that HUD performs monitoring reviews of appraisals and holds mortgagees accountable for the quality of appraisals on properties securing FHA-insured mortgages. As such, HUD may request electronically-formatted appraisals to review and ensure their accuracy. Mortgagees who submit appraisals that do not meet HUD’s requirements are subject to the imposition of sanctions by the HUD Mortgagee Review Board in accordance with 24 CFR Part § 25.9 (ee) and Part § 203.5 (e)(3).

To view the Mortgagee Letter in its entirety,please click here

Please click on the following links for the Attachments:

Attachment 1

Attachment 2

Attachment 3

Attachment 4

Attachment 5

Attachment 6

About Safeguard
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland, OH  and founded in 1990 by Robert Klein, Safeguard has grown from a regional preservation company with a few employees and a handful of contractors performing services in the Midwest, to a national company with over 500 employees.  Safeguard is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation, and maintenance functions, as well as numerous ancillary services in the U.S., the Virgin Islands, and Puerto Rico