FHA Single Family Housing Policy Handbook 4000.1, IV. CLAIMS AND DISPOSITION > A. Title II Claims > 4. Withdrawal or Cancellation of Conveyance Claims — c. Cancellation of Insurance Benefits due to Reconveyance

i. Reconveyance

(A) Definition A Reconveyance is a conveyance of a Property from HUD back to the Mortgagee due to the Mortgagee’s failure to comply with HUD’s conveyance requirements or at the Mortgagee’s request.

(B) Standard When HUD reconveys a Property, the Mortgagee must return all insurance funds received from the claim associated with that Property. For Mortgages insured on or after November 19, 1992, the Mortgagee must also reimburse HUD for its holding costs and expenses incurred in the acquisition and Reconveyance of the Property.

(C) Reduction of Insurance Benefits due to Changes in Value For Mortgages insured on or after November 19, 1992, if there is a reduction in the estimate of value from the time of Reconveyance to the time of reapplication for insurance benefits, HUD will deduct from the claim amount the difference in value.

(D) FHA Short Refinance For Mortgages under the FHA Short Refinance program, the Mortgagee will be required to repay all claim funds to FHA, including the claim funds paid under the Emergency Economic Stabilization Act (EESA), in the event the Property is reconveyed to the Mortgagee.

(F) Property Preservation Costs (1) Standard The Mortgagee is responsible for any damages the Property has sustained while in the Mortgagee’s possession, if the Property was conveyed without prior notice and approval by HUD. If a Property is reconveyed because of damage, the Mortgagee must withdraw its claim for insurance benefits and reimburse HUD for property expenditures. (2) Holding Costs (a) Definition Holding Costs are those costs paid by HUD related to taxes, maintenance and operating expenses of the Property, and administrative expenses. (b) Standard If HUD finds that the Mortgagee did not comply with its conveyance standards, the Mortgagee must reimburse HUD for holding costs and interest on the paid insurance benefits from the date of the notice to the date the defect is corrected or to the date the Secretary reconveys the Property, as determined by HUD.

(G) Appeals of Reconveyances due to Property Condition HUD has established a two-stage appeal procedure for disputes between Mortgagees and HUD regarding Reconveyance requests due to property condition. (1) Appealing to the Mortgagee Compliance Manager If the Mortgagee disagrees with HUD’s decision to reconvey, the Mortgagee may appeal the Reconveyance via email in P260 to the MCM within 10 Days from the date the response was due or received from HUD. (2) Appealing to HUD If the Mortgagee believes that the MCM’s decision is not supported by regulation or circumstances and has exhausted all appeal methods available through the MCM, the Mortgagee may appeal the decision to reconvey the Property to HUD’s Contracting Officer’s Representative (COR). The Mortgagee must submit the written appeal to the COR within 10 Days from the date the response was due or received from the MCM. HUD’s decision is final and HUD will not accept further appeals.

ii. Reacquisition by HUD and Resubmission of Claim

(A) Reacquisition (1) Definition Reacquisition is the process by which a Mortgagee conveys to HUD a Property that has been previously reconveyed to the Mortgagee. (2) Standard After the Mortgagee has corrected the problem causing Reconveyance, the Mortgagee may request reacquisition by HUD of a reconveyed Property and resubmit the claim. Where a Mortgagee used the CWCOT procedure and the Property was reconveyed, the Mortgagee may choose to retain that Property, instead of requesting reacquisition by HUD.

(B) Reacquisition Package (1) Standard The Mortgagee must prepare and submit a reacquisition package to the MCM via email through P260 requesting permission to convey the Property to HUD. The Mortgagee must ensure that this package demonstrates: • that any title issues have been resolved, if applicable; • that any required repairs have been completed, if applicable; and • that the Property is ready to be conveyed to HUD. The Mortgagee must attach a copy of the Preliminary Notice of Intent to Reconvey in its email to the MCM. (2) Required Documentation For Properties reconveyed due to title issues, the Mortgagee must include in its reacquisition package: • documentation demonstrating that all title issues are fully remediated; and • for Manufactured Housing, evidence that the Manufactured Home is affixed to the land, is classified and taxed as real estate, and the title to the Manufactured Home has been surrendered or purged in accordance with the jurisdictional requirements. For Properties reconveyed due to damage, the Mortgagee must include in its reacquisition package: • current dated color photographs that support repairs; and • current inspection reports or other documentation evidencing that repairs have been completed and that the Property is in conveyance condition.

(C) Resubmission of Claim (09/28/2020) Once the MCM accepts the Property for reacquisition, the Mortgagee may re-apply for insurance benefits. The Mortgagee must resubmit form HUD-27011, Parts A and B, as applicable, via FHA Catalyst.

(D) Expenses and Interest after Reconveyance The Mortgagee must not include on its reacquisition claim any property expenses or debenture interest not included in the initial claim filing. HUD will not reimburse these additional expenses as part of the reacquisition claim. If necessary, the Mortgagee may submit a reconveyance supplemental claim for additional property expenses or debenture interest incurred before initial conveyance to HUD. The Mortgagee must submit the reconveyance supplemental claim within six months of the final settlement date of the reacquisition claim.