HUD Repayment Agreements Overview
An essential part of the Department of Housing and Urban Development’s ability to provide affordable, low-income housing across the nation is the use of repayment agreements upon default of these agreements. These arrangements facilitate a number of HUD activities, including:
The housing industry as a whole is impacted by HUD’s repayment agreement guidelines. Whether you are a tenant, landlord, loan servicer, lender, mortgage broker or the like, HUD repayment agreement provisions likely factor into your business at some level.
Without the repayment agreement, HUD would have a more difficult time ascertaining and securing the youngest of its insured loans, resulting in an adverse effect on the housing community nationwide. For tenants who are defaulting on rental obligations, the repayment agreement is often the difference between remaining in their homes, and being evicted out of them, as the repayment agreement itself ensures a place to live during its tenure .
Although it seems like a simple enough matter to understand, some still wonder what exactly this repayment agreement is. A HUD repayment agreement is a written agreement between a mortgagor and a mortgagee that outlines an unresolved debt in the event of default by the mortgagor. With HUD backing this agreement, both parties can agree to terms that allow for flexibility on either end, to provide a safe haven for either the borrower or the lender.
The repayment agreement essentially serves as a type of a set-aside, whereby the mortgagee is willing to postpone the end result of foreclosure proceedings with an agreement to be paid back later. Essentially, it is a deferment on foreclosure and the default judgment that pays for the most part into the future (but still at a reasonable present period), which allows the mortgagor time to get his or her finances in order.
Eligibility for HUD Repayment Agreements
Section 3 – Eligibility for HUD Repayment Agreements
Repayment agreements are available to borrowers who do not currently qualify for a loan modification. If the lender has determined you do not qualify for a loan modification, you may still be eligible for a repayment plan. In situations like this, request that the bank evaluate your financial standing for a repayment arrangement.4020.13 7(H)(4)(a)
Borrowers cannot be eligible for HUD repayment agreements if they have experienced an increase in income or have sufficient reserves to make the mortgage payment.
As outlined in HUD Handbook 4000.1, borrowers must exhibit the ability to pay their regular mortgage payment plus add-on amounts on a consistent basis.4036.1(D)(2)(a)(i) & (D)(2)(b)(i)
Borrowers must include any monthly allowances in the calculation of disposable income.4036.1(D)(2)(c)(i)
Servicers may grant a temporary extension of time to pay, if the borrower requests an extension and the lender believes the borrower will be able to make the payment within the extension period. 4050.2(B)
If the borrower agrees to a repayment plan that is grievable, and if the borrower defaults on the agreement, the loan can be accelerated per the terms of the original security instrument.4050.2(C)(3)(c)
Steps to Obtain a HUD Repayment Agreement
Applying for a HUD repayment agreement requires that you comply with the HUD guidelines governing this program. The application process is rather straightforward, but potential applicants are subject to a strict timeline.
Immediate Action Required Upon Receipt of a Default Notice Under HUD regulations, you must begin your efforts to enter into a HUD repayment agreement within five days of the notice of default from your loan servicer. This means that the clock starts ticking from the date that your servicer sends you a default notice to the most recent address provided to them.
Application Process Once the five-day window has passed, you will have a maximum of 30 days to respond to the servicer’s collection attempts and return the HUD repayment agreement to them. If you fail to do so, the servicer will be required to initiate foreclosure proceedings.
Required Documentation You will be asked to provide the following documentation as part of the HUD repayment agreement application process. Use of the Servicer’s Form HUD-34 You must use the Servicer’s Form HUD-34 in order to submit the necessary information for the HUD repayment agreement. If you do not have the form, you can request it from the servicer or download it from the HUD website.
Key Timelines You should be aware of the following timelines regarding the HUD repayment agreement process. If you have received a notice of default from your loan servicer, it’s important for you to act quickly on this issue. Failure to enter into a HUD repayment agreement will result in foreclosure proceedings being initiated on the property in default.
HUD Repayment Agreement Terms and Provisions
In the vast majority of HUD repayment agreements, you will be asked to agree to certain standards with respect to your payments, reporting and other requirements for project-based Section 8 properties and/or incoming money related to the Project Loans. Foremost among these are terms and conditions such as interest, disputed bills, the need for you to pay additional fees or charges and late fees.
Interest
An interest rate will be charged to you on certain only amounts you owe (that you have agreed to pay such interest) under the Agreement. Make sure you know from whom a particular interest calculation will be taken; is it the date of the Agreement, the date of default, the date of the required payment you’re looking to repay (and then also what the commencement date and also the end date will be).
For example if you were to have an obligation of $10,000 and only $9,000 of that could bear interest, then you would be responsible for paying interest on $9,000 not $10,000 even though you owed $10,000. Further, be aware that the amount would not only be calculated from the date of default, but also from the date when future payments were due.
Late Fees
Particularly for utility accounts, you are likely to be obligated to pay late fees, such as a percentage above the amount outstanding. When does late fees become due, and how much do you owe may depend on whether or not the amounts owed are subject to interest. Also, and sometimes in addition, you may be subject to being billed an amount over and above the actual late fee.
You will likely see late fees ranging from 2% of the previous unpaid balance to 5%. Of course, the interest and late fee are in addition to the principal amounts owed. There could also be provisions that allow for the billing of a collection fee (which is the landlord’s actual reasonable cost of collections).
Payment Obligations Under a HUD Agreement
Repaying a debt under a HUD agreement is typically easier than trying to repay the debt in accordance with the mortgage note, which can contain somewhat puzzling terms and conditions, and potentially high adjustment rates that are not clearly explained. But managing repayments under a HUD agreement presents its own challenges. For instance, HUD agreements typically have payment terms that a new owners’ property budget may not always be prepared to handle . HUD also has its own distinct method of calculating interest due on outstanding balances. Additionally, cultivating a good relationship with the HUD officials who oversee a property is critical in order to effectively work out any payment issues.
This section covers ways to avoid default under a HUD agreement and how to manage loan repayments.
Impact of Defaulting on a HUD Repayment Agreement
So, what happens when you default on a repayment agreement? HUD will ultimately initiate foreclosure proceedings that will result in a foreclosure sale of the collateral (typically the property itself). HUD will also enter a judgment against the borrower and/or guarantor for the amount of the outstanding indebtedness due from the borrower and recorded in the legal action. HUD can collect on this judgment by Federal Tax refund intercept and/or a Garnishment from one’s salary. Additionally, judgments are typically valid for 10 years and sometimes longer, depending on the state laws. The judgment will adversely affect one’s credit score, which can have added consequences in real estate transactions. Where the Judge enters the Judgment as a final judgment of foreclosure, the collateral will be sold at a Trustee’s sale with a deed being recorded thereafter.
Resources and Assistance for HUD Borrowers
On a broader scale, HUD offers an extensive range of resources for borrowers to support financial discipline on all aspects of a financed property. The HUD Exchange, for example, provides a list of resources that can enable HUD borrowers to better manage their business.
HUD also offers an extensive list of counseling services, including call boxes that can be contacted for 24-hour assistance on the foreclosure and pre-foreclosure process . There is also a help line for property owners and managers and general help center for other concerns related to buying a home or home loan.
Beyond these services, HUD also maintains a site that tracks and publishes housing regulations, which provide even more guidance for HUD borrowers. In particular, Section 221(d)(4) provides a summary of the regulations applicable to the various HUD loan programs.