source:
  type: guide
  id: hud-4000-1-iii-j-home-disposition-options
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part III — j. Home
    Disposition Options (12/30/2025)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part III — j. Home
    Disposition Options (12/30/2025).
  coverage_tier: operative
obligations:
- id: hud-4000-1-iii-j-home-disposition-options-full
  canonical_id: hud-4000-1-iii-j-home-disposition-options-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part III — j. Home Disposition
    Options (12/30/2025)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part III — j. Home
      Disposition Options (12/30/2025)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'j. Home Disposition Options (12/30/2025) i. Standard The Mortgagee
      must review Borrowers for Home Disposition Options who are unable to sustain
      the Mortgage with the assistance of a Loss Mitigation Home Retention Option.
      III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward
      Mortgages 2. Default Servicing Handbook 4000.1 1253 Last Revised: 11/26/2025
      The Home Disposition Options include: • Pre-Foreclosure Sale (PFS); and • Deed-in-Lieu
      (DIL). The Mortgagee must notify the Borrower that they may be able to avoid
      foreclosure by selling their home with a traditional sale or a PFS Option. If
      the Borrower advises that their financial situation has improved during the
      PFS or DIL process and wants to retain the Property, the Mortgagee must review
      the Borrower for one additional Loss Mitigation Home Retention Option. ii. Pre-Foreclosure
      Sales (A) Definition A Pre-Foreclosure Sale (PFS), also known as a Short Sale,
      refers to the sale of real estate that generates proceeds that are less than
      the amount owed on the Property and in which the lien holders agree to release
      their liens and forgive the deficiency balance on the real estate. There are
      two PFS Options: • Standard PFS; and • PFS for Servicemembers. (B) Requirements
      for all PFS Options (1) PFS Outreach Requirements (a) Form HUD-90035, Information
      Sheet: Pre-foreclosure Sale Procedure When the Mortgagee has identified a Borrower
      as a qualified candidate for a PFS or a Borrower has expressed an interest in
      participating, the Mortgagee must provide to the Borrower, electronically or
      by mail, form HUD-90035, Information Sheet: Pre-foreclosure Sale Procedure,
      adding its toll-free or collect telephone number to the form. (b) Disclosure
      Requirements for PFS Transactions Prior to approving the Borrower for the PFS
      Option, the Mortgagee must notify the Borrower of the following in writing:
      • The Mortgage must be three or more full monthly payment due and unpaid (61
      Days or more past due) on the date the Mortgagee approves the Borrower’s participation
      in a Standard PFS. • On the date the PFS for Servicemembers transaction closes,
      the Mortgage must be in Default status (minimum 31 Days Delinquent). • Until
      the PFS transaction has closed, the Borrower must maintain the Property in “ready
      to show” condition, make basic property repairs, and perform all normal property
      maintenance activities (e.g., interior cleaning, lawn maintenance, etc.). III.
      SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages
      2. Default Servicing Handbook 4000.1 1254 Last Revised: 11/26/2025 o The Borrower
      must report all damage and/or repair expenses resulting from fire, flood, or
      other natural causes immediately to the insurance company and Mortgagee. • PFS
      transactions are reported to consumer reporting agencies and will likely affect
      the Borrower’s ability to obtain another Mortgage and other types of credit.
      • If the Borrower is a servicemember, it is recommended that the Borrower obtain
      guidance from their employer regarding the PFS’s impact on their security clearance
      and employment. Where the Property is encumbered with a PACE obligation, the
      property sales contract must indicate whether the obligation will remain with
      the Property or be satisfied by the seller at, or prior to closing. Where the
      obligation will remain, all terms and conditions of the PACE obligation must
      be fully disclosed to the buyer in accordance with applicable law (state and
      local) and made part of the sales contract. (2) Required Documentation for PFS
      The Mortgagee must maintain all required Borrower Income and Assets and hardship
      documentation in the Servicing File and the Claim File. (C) PFS Options (1)
      Standard PFS (a) Definition A Standard PFS Option is available for Owner-Occupant
      and Non-Occupant Borrowers and does not require verification of hardship. (b)
      Standard PFS Standards [This section is impacted by a waiver.] The Mortgagee
      must ensure that the Owner-Occupant or Non-Occupant Borrower meet the following
      requirements: • the Borrower indicates a Financial Hardship affecting their
      ability to sustain the Mortgage; • the Borrower must be 61 Days or more Delinquent
      on the FHA- insured Mortgage as of the date of the Mortgagee’s approval; • each
      Borrower has a credit score of 620 or below; and • the Borrower must have exhausted
      or been deemed ineligible for all permanent Loss Mitigation Home Retention Options.
      III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward
      Mortgages 2. Default Servicing Handbook 4000.1 1255 Last Revised: 11/26/2025
      (c) Corporations or Partnerships Requesting PFS Option The Mortgagee must submit
      a variance request for HUD approval via EVARS to use the PFS Option when the
      Property is owned by a corporation or partnership. (2) PFS for Servicemembers
      (a) Definition A Streamlined PFS for Servicemembers with PCS Orders is a Streamlined
      PFS that may be offered to servicemembers with PCS Orders who must relocate
      to a new duty station at least 50 miles away from their existing residence.
      (b) Streamlined PFS for Servicemembers with PCS Orders Standards The Mortgagee
      must ensure that servicemembers meet the following requirements for a Streamlined
      PFS for Servicemembers with PCS Orders: • The servicemember has PCS Orders to
      relocate to a duty station at least 50 miles away from their existing residence
      and provides the Mortgagee with a copy of such orders. • The servicemember submits
      an affidavit certifying that: o the Property securing the FHA-insured Mortgage
      is or was their Principal Residence when the PCS orders were issued; and o new
      permanent housing has been or will be obtained as a result of the orders. On
      the date the PFS closing occurs, the Mortgagee must ensure that the Mortgage
      is in Default status (minimum 31 Days Delinquent). (D) Property Valuation (1)
      Appraisals (a) Standard The Mortgagee must obtain a standard electronically-formatted
      appraisal performed by an FHA Roster Appraiser pursuant to the following requirements:
      • The appraisal must contain an “As-Is” Fair Market Value (FMV) for the subject
      Property and must be completed in accordance with the Pre-Foreclosure Sale Program
      requirements in the Appraiser and Property Requirements for Title II Forward
      and Reverse Mortgages section; and • A copy of the appraisal must be provided
      to the homeowner, sales agent, or HUD, upon request. III. SERVICING AND LOSS
      MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default
      Servicing Handbook 4000.1 1256 Last Revised: 11/26/2025 (b) Required Analysis
      and Reporting of a Property Assessed Clean Energy Obligation The Appraiser must
      review the sales contract, if applicable, and property tax records for the Property
      to determine the amount outstanding and the terms of the Property Assessed Clean
      Energy (PACE) obligation: • if the Mortgagee notifies the Appraiser that the
      subject Property will remain subject to a PACE obligation; • when the Appraiser
      observes that the property taxes for the subject Property are higher than average
      for the neighborhood and type of dwelling; or • when the Appraiser observes
      energy-related building components or equipment or is aware of other PACE-allowed
      improvements during the inspection process. The Appraiser must report the outstanding
      amount of the PACE obligation for the subject Property and provide a brief explanation
      of the terms. Where energy and other PACE-allowed improvements have been made
      to the Property through a PACE program, and the PACE obligation will remain
      outstanding, the Appraiser must analyze and report the impact on value of the
      Property, whether positive or negative, of the PACE-related improvements and
      any additional obligation (i.e., the PACE special assessment). (c) Appraisal
      Validity Period The as-is appraisal used for a PFS transaction is valid for
      180 Days from the effective date of the appraisal report. If a Mortgagee determines
      that a subsequent as-is appraisal is required, the Mortgagee may obtain a new
      as-is appraisal, even if the Property was appraised by an FHA Roster Appraiser
      within the preceding 180 Days. If a third or any subsequent appraisal is required,
      the Mortgagee must submit a variance request for HUD approval via EVARS. (d)
      Required Documentation The Mortgagee must retain a copy of the appraisal in
      the Servicing File and the Claim File. (2) Validation of Appraised Value (a)
      Standard Prior to authorizing the marketing of the Property, the Mortgagee must
      review the appraisal to determine if further HUD approval is required to proceed
      with III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs
      Forward Mortgages 2. Default Servicing Handbook 4000.1 1257 Last Revised: 11/26/2025
      the as-is appraised value of the Property, as determined by the appraisal performed
      by an FHA Roster Appraiser. The Mortgagee must obtain a Broker’s Price Opinion
      (BPO) or Automated Valuation Model (AVM) if the as-is appraised value of the
      Property is: • less than the unpaid principal balance by an amount of $75,000
      or greater; or • less than 50 percent of the unpaid principal balance. If a
      BPO or AVM is required, the Mortgagee must submit a variance request for HUD
      approval via EVARS, before proceeding with the PFS using the as-is appraised
      value. If a BPO or AVM is not required, the Mortgagee is not required to submit
      a request for a variance through EVARS. (b) Requirements for Variance Request
      for Property Valuation When required to submit a variance request to validate
      the as-is appraised value via EVARS, the Mortgagee must: • note on the variance
      request the specific reason for the request; and • upload the following attachments:
      o the as-is appraisal; o the BPO or AVM; and o any additional supporting documents
      needed for HUD review, if applicable. The Mortgagee must obtain approval before
      authorizing the marketing of the Property. (c) Required Documentation The Mortgagee
      must retain in the Claim File a copy of the BPO or AVM and the approved variance,
      if required. (3) List Price The Mortgagee must ensure that the Borrower lists
      the Property for sale at no less than the “As-Is” value as determined by an
      appraisal completed in accordance with the requirements in Pre-Foreclosure Sale
      Program. (E) Property Condition A Property that is condemned or that the Mortgagee
      determined is abandoned is not eligible for PFS. III. SERVICING AND LOSS MITIGATION
      A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing
      Handbook 4000.1 1258 Last Revised: 11/26/2025 (1) Surchargeable Damage (a) Definition
      Surchargeable Damage is damage to a Property caused by fire, flood, earthquake,
      tornado, hurricane, boiler explosion (for condominiums only), or Mortgagee Neglect.
      (b) Standard The Mortgagee is responsible for the cost of Surchargeable Damage.
      (c) PFS Request for Damaged Property The Mortgagee must submit a variance request
      for HUD approval via EVARS before approving the use of the PFS Option for a
      Property with Surchargeable Damage as follows: • The Mortgagee must first obtain
      the Government’s Estimate of the Cost to Repair the Surchargeable Damage by
      contacting HUD’s Mortgagee Compliance Manager (MCM). • Upon receipt of the Government’s
      Estimate of the Cost to Repair, the Mortgagee must submit form HUD-90041, Request
      for Variance: Pre- foreclosure Sale Procedure, via EVARS to obtain HUD approval
      prior to entering into a PFS Agreement with the Borrower. The Mortgagee must
      note on the variance request the specific reason for the request and attach
      any supporting documents needed for HUD’s review. (d) “As-Is” Subject to Surchargeable
      Damage If the Property is being sold “As-Is” subject to the Surchargeable Damage,
      the Mortgagee must deduct the Government’s Repair Cost Estimate of the damage
      from its PFS Claim. (e) “As Repaired” Subject to Surchargeable Damage If the
      Property is being sold “As Repaired” and funds for Surchargeable Damage repairs
      are escrowed or provided as a credit to the Borrower at closing, the Mortgagee
      must not include in its Net Sale Proceeds calculation the amount of the repair
      escrow or repair credit. (2) Damage other than Surchargeable Damage If the damage
      is not considered Surchargeable Damage, the Mortgagee is not required to obtain
      HUD approval prior to approving the PFS Agreement. III. SERVICING AND LOSS MITIGATION
      A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing
      Handbook 4000.1 1259 Last Revised: 11/26/2025 (3) Hazard Insurance Claim Where
      applicable, the Mortgagee must work with the Borrower to file a hazard insurance
      claim and either: • use the proceeds to repair the Property; or • adjust the
      PFS Claim by the amount of the insurance settlement (Non- Surchargeable Damage)
      or the Government’s Repair Cost Estimate. (4) Disclosure of Damage after PFS
      Approval In the event the Mortgagee becomes aware that the Property has sustained
      significant damage after a Borrower has received the Approval to Participate
      (ATP) in the PFS Program, the Mortgagee must re-evaluate the Property to determine
      if it continues to qualify for the PFS Program or terminate participation if
      the extent of the damage changes the Property’s FMV. (F) Condition of Title
      The Mortgagee must ensure that all FHA-insured mortgaged Properties sold under
      the PFS Program have marketable title. Before approving a Borrower for participation
      in the PFS Program, the Mortgagee must obtain a title search or preliminary
      report and determine whether the title is impaired by: • unresolvable title
      problems; • liens that cannot be discharged as permitted by HUD; or • a PACE
      obligation. (G) Owner-Occupant Borrower Compensation (1) Compensation Amount
      HUD offers Owner-Occupant Borrowers who act in good faith and successfully sell
      their Properties using the PFS Option a compensation of up to $3,000. (2) Use
      of Compensation The Owner-Occupant Borrower may: • apply the entire amount of
      the $3,000 compensation or a portion of it to resolve liens, including a PACE
      obligation; • offset the sales transaction costs not paid by HUD (including
      a home warranty plan fee, costs of optional repairs, and the buyer’s closing
      expenses); and/or • use the compensation for relocation or transition assistance.
      The Mortgagee must instruct the Closing Agent to: III. SERVICING AND LOSS MITIGATION
      A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing
      Handbook 4000.1 1260 Last Revised: 11/26/2025 • pay the HUD relocation or transition
      assistance from Net Sale Proceeds; and • itemize on the Closing Disclosure or
      similar legal document any relocation or transition assistance received by HUD
      or from other entities. (3) Required Documentation The Mortgagee must ensure
      that the Closing Disclosure or similar legal document accurately reflects the
      use of any Borrower compensation amount. (H) PFS Program Participation Requirements
      (1) Approval to Participate (a) Definition A Pre-Foreclosure Sale (PFS) Approval
      to Participate (ATP) is an agreement signed by the Borrower to confirm their
      willingness to comply with the PFS Program requirements. (b) Standard After
      determining that a Borrower and Property meet the PFS eligibility requirements,
      the Mortgagee must notify the Borrower by sending: • an ATP for the PFS Program
      (form HUD-90045, Approval to Participate: Pre-foreclosure Sale Procedure Property
      Sales Information Property Occupancy & Maintenance), including the date by which
      the Borrower’s Sales Contract must be executed under Pre- Foreclosure Sale Marketing
      Period guidance; and • a Pre-Foreclosure Sale Addendum. The Mortgagee must send
      these documents to the Borrower via methods providing confirmation or a timestamp
      of delivery. The Mortgagee must receive the signed ATP within 10 Days of the
      date of delivery of the ATP. (2) Use of Licensed Real Estate Broker (a) Borrower
      Retention of Licensed Real Estate Broker The Borrower is responsible for retaining
      the services of a licensed real estate broker/agent within seven Days of the
      date of delivery of the ATP. III. SERVICING AND LOSS MITIGATION A. Title II
      Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1
      1261 Last Revised: 11/26/2025 (b) Required Listing Disclosure The Mortgagee
      must ensure that the established Listing Agreement between the seller and the
      agent/broker includes the following cancellation clause: “Seller may cancel
      this Agreement prior to the ending date of the listing period without advance
      notice to the agent/broker, and without payment of a commission or any other
      consideration if the property is conveyed to the mortgage insurer or the mortgage
      holder. The sale completion is subject to approval by the mortgagee.” (c) Real
      Estate Broker Duties The real estate broker/agent must market the Property within
      the preestablished time frame stated in the ATP and list the Property in accordance
      with the property valuation requirements. (d) Real Estate Broker Conflicts of
      Interest The real estate broker/agent selected must have no conflict of interest
      with the Borrower, the Mortgagee, the Appraiser or the buyer associated with
      the PFS transaction. The broker/agent must not claim a sales commission on a
      PFS of a broker’s/agent’s own Property or that of a spouse, sibling, parent,
      or child. Any conflict of interest, appearance of a conflict, or self-dealing
      by any of the parties to the transaction is strictly prohibited. (3) Arm’s Length
      PFS Transaction (a) Definition An Arm’s Length PFS Transaction is between two
      unrelated parties that is characterized by a selling price and other conditions
      that would prevail in an open market environment and without hidden terms or
      special understandings existing between any of the parties involved in the transaction.
      (b) Standard [Text was deleted in this section.] The Mortgagee must ensure that
      the following arm’s length requirements apply to parties involved in PFS transactions:
      • Any PFS proposed by the Borrower or their agent and approved by the Mortgagee
      must be an Arm’s Length Transaction between the Borrower and prospective buyer,
      subject to the exceptions in the Permitted Non-Arm’s Length Transactions section.
      • Except for real estate agents and brokers representing a party to the PFS,
      no party that is a signatory on the sales contract, including addenda, can serve
      in more than one capacity. III. SERVICING AND LOSS MITIGATION A. Title II Insured
      Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1262
      Last Revised: 11/26/2025 • The broker hired to sell the Property must not share
      a business interest with the Mortgagee. • If the Mortgagee knows that a shared
      interest exists between the Appraiser and sales agent, the Mortgagee must note
      this in the Servicing File and the Claim File. (c) Permitted Non-Arm’s Length
      Transactions HUD permits non-Arm’s Length PFS Transactions, to the extent necessary
      to comply with state law, where state law prohibits placement of an Arm’s Length
      Transaction requirement on property sales. If clauses (a) and (c) of the PFS
      Addendum are impermissible under state law, the Mortgagee may strike these clauses
      from the PFS Addendum prior to execution, provided that the transaction complies
      with all PFS Program requirements. (d) Relocation Service Contribution The Mortgagee
      may permit a relocation service affiliated with the Borrower’s employer to contribute
      a fixed sum toward the proceeds of the PFS transaction without altering the
      arm’s length nature of the sale, as long as the result is an outright sale of
      the Property and cancellation of the FHA mortgage insurance. (4) Mortgagee Monitoring
      of PFS The Mortgagee must monitor the PFS to ensure the Borrower’s compliance
      with the terms in the ATP and with all PFS Program requirements. The Mortgagee
      must terminate a Borrower’s participation in the PFS Program in the event of
      noncompliance. (I) Pre-Foreclosure Sale Marketing Period (1) Maximum Marketing
      Period The Borrower has four months from the date of the Borrower’s ATP to acquire
      a contract of sale. (2) Minimum Marketing Period The Mortgagee must ensure that
      PFS Properties are listed in the Multiple Listing Service (MLS) for a minimum
      of 15 Days before offers are evaluated. After this initial listing period, the
      broker/agent may evaluate offers as they are received. This 15-Day minimum marketing
      period must follow the date of the Borrower’s ATP. III. SERVICING AND LOSS MITIGATION
      A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing
      Handbook 4000.1 1263 Last Revised: 11/26/2025 (3) Extension to PFS Marketing
      Period HUD provides an automatic two-month extension to the deadline to initiate
      foreclosure for completion of a PFS transaction if there is a signed contract
      of sale, but settlement has not occurred by the end of the fourth month following
      the date of the Borrower’s ATP in the PFS Program. (4) Monthly Review of Marketing
      Status On a monthly basis, Mortgagees must review the Property’s marketing status
      with the Borrower and/or real estate broker/agent. (5) Property Inspection The
      Mortgagee must inspect Properties during the PFS period if: • the Property is
      vacant; • the Mortgagee has reason to suspect that the Property has become vacant;
      or • the Borrower or Authorized Third Party has not maintained contact with
      the Mortgagee. (6) Previously Initiated Foreclosures The Mortgagee may not initiate
      a four-month PFS marketing period for a Property after the first legal action
      to initiate foreclosure has occurred. If the Mortgagee has received an acceptable
      contract of sale that meets the PFS requirements, the PFS marketing period must
      only be issued for the time needed to close based on the close of escrow date
      on the contract of sale. The Mortgagee may only cancel or temporarily suspend
      the foreclosure action where such suspension is permissible under state law.
      (J) Evaluation of Offers (1) Standard The listing real estate broker/agent must
      provide the Mortgagee with an offer that: • yields the highest net return to
      HUD; and • meets HUD’s requirements for an acceptable contract of sale. The
      listing real estate broker/agent must ensure that: • all offers submitted to
      the Mortgagee for approval are signed by both the seller and the buyer prior
      to submission; and • the PFS Addendum is signed by all the applicable parties
      (except for the Closing Agent). III. SERVICING AND LOSS MITIGATION A. Title
      II Insured Housing Programs Forward Mortgages 2. Default Servicing Handbook
      4000.1 1264 Last Revised: 11/26/2025 (2) Back-up Offers Once an offer has been
      submitted to the Mortgagee for approval, the listing real estate broker/agent
      must retain any offer that the seller elects to hold for “back- up” until a
      determination has been made on the previously submitted offer. (3) Required
      Documentation The listing real estate broker/agent must retain all offers received,
      including offers not submitted for approval, in accordance with state law. (K)
      Contract Approval by Mortgagee (1) Standard In reviewing the contract of sale,
      the Mortgagee must: • ensure that the PFS sale is an outright sale of the Property
      and not a sale by assumption; • review the sales documentation to determine
      that there are: o no hidden terms or special agreements existing between any
      of the parties involved in the PFS transaction; and o no contingencies that
      might delay or jeopardize a timely settlement; and • determine that the Property
      was marketed pursuant to HUD requirements and that the minimum required Tiered
      Net Sale Proceeds have been met. The following anti-fraud measures apply to
      PFS transactions: • A Mortgagee must not approve a Borrower for a PFS if the
      Mortgagee knows or has reason to know of a Borrower’s fraud or misrepresentation
      of information. • All parties involved in a PFS transaction must sign and date
      a PFS Addendum as a contingency for a PFS transaction to close. (2) Sales Contract
      Review Period After receiving an executed contract of sale for a Borrower approved
      to participate in the PFS Program, the Mortgagee must send to the Borrower form
      HUD-90051, Sales Contract Review: Pre-foreclosure Sale Procedure, no later than
      five business days from the Mortgagee’s receipt of an executed contract for
      sale. (3) Net Sale Proceeds (a) Definition Net Sale Proceeds are the proceeds
      of a PFS sale, calculated by subtracting reasonable and customary closing settlement
      costs, and any outstanding III. SERVICING AND LOSS MITIGATION A. Title II Insured
      Housing Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1265
      Last Revised: 11/26/2025 balances on Partial Claim(s) or Payment Supplement(s)
      from the property sales price. (b) Standard Regardless of the Property’s sale
      price, a Mortgagee may only approve a PFS contract for sale if the Tiered Net
      Sale Proceeds are at or above HUD’s minimum allowable thresholds. HUD’s requirements
      for minimum Tiered Net Sale Proceeds are based on the length of time the Property
      has been competitively marketed for sale under an ATP as follows: • Days 1-30
      of marketing: The Mortgagee may only approve offers that will result in minimum
      Net Sale Proceeds of 88 percent of the “As-Is” appraised FMV. • Days 31-60 of
      marketing: The Mortgagee may only approve offers that will result in minimum
      Net Sale Proceeds of 86 percent of the “As-Is” appraised FMV. • Days 61-120
      of marketing: The Mortgagee may only approve offers that will result in minimum
      Net Sale Proceeds of 84 percent of the “As-Is” appraised FMV. The Mortgagee
      has the discretion to deny or delay sales where an offer may meet or exceed
      the Net Sale Proceeds of 84 percent, if it is presumed that continued marketing
      would likely produce a higher sale amount. The Mortgagee is liable for any FHA
      Insurance Claim Overpayment on a PFS transaction that closes with less than
      the required Tiered Net Sale Proceeds, unless a variance has been granted by
      HUD. (c) Settlement Costs (i) Allowable Settlement Costs [Text was deleted in
      this section.] The Mortgagee may include the following settlement costs in its
      Net Sale Proceeds calculation: • sales commission consistent with the prevailing
      rate but, not to exceed 6 percent; • real estate taxes pro-rated to the date
      of closing; • local/state transfer tax stamps and other closing costs customarily
      paid by the seller, including the seller’s costs for a title search and Owner’s
      Title Insurance; • compensation payable to the Owner-Occupant Borrower of $3,000,
      or to be used to resolve junior liens; • for Non-Occupant Borrowers, HUD will
      allow $1,500 of Net Sale Proceeds to be used to resolve junior liens; • the
      entire outstanding Partial Claim amount must be paid when calculating the Net
      Sale Proceeds. The seller, buyer, or other III. SERVICING AND LOSS MITIGATION
      A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing
      Handbook 4000.1 1266 Last Revised: 11/26/2025 Interested Party may contribute
      the difference if the amount of Net Sale Proceeds falls below the allowable
      threshold; and • up to 1 percent of the buyer’s first mortgage amount if the
      sale includes FHA financing. (ii) Unacceptable Settlement Costs The Mortgagee
      must not include the following costs in the Net Sale Proceeds calculation: •
      repair reimbursements or allowances; • home warranty fees; • Discount Points
      or mortgage fees for non FHA-financing; • Mortgagee’s Title Insurance fee; and
      • Third-Party Fees incurred by the Mortgagee or Borrower to negotiate a PFS.
      (d) Third-Party Fees With the exception of reasonable and customary real estate
      commissions, the Mortgagee must ensure that third-party fees incurred by the
      Mortgagee or Borrower to negotiate a PFS are not included on the Closing Disclosure
      or similar legal documents unless explicitly permitted by state law. The Mortgagee,
      its agents, or any outsourcing firm it employs must not charge any fee to the
      Borrower for participation in the PFS Program. (e) Partial Claim and Payment
      Supplement Subordinate Mortgages The Mortgagee must ensure that all outstanding
      Partial Claims and Payment Supplements are paid in full. The Mortgagee must
      deduct any outstanding balances on Partial Claim and Payment Supplement Subordinate
      Mortgages from the Net Sale Proceeds. The Mortgagee must ensure sufficient proceeds
      from the PFS satisfy all Partial Claim and Payment Supplement balances, and
      the funds are remitted directly to HUD’s Loan Servicing Contractor. If, after
      satisfying the Partial Claim or Payment Supplement, the Net Sale Proceeds fail
      to meet the applicable Tiered Net Sale Proceeds requirement, the Mortgagee must
      request and obtain approval from HUD via EVARS before closing. (4) Title I Liens
      If the Mortgagee discovers that a Borrower has a HUD Title I Mortgage secured
      by the Property, the Mortgagee must contact the Title I subordinate lien holder
      to III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward
      Mortgages 2. Default Servicing Handbook 4000.1 1267 Last Revised: 11/26/2025
      advise the Borrower’s participation in a PFS. HUD may require the Mortgagee
      to negotiate the release of the lien in order to proceed with a PFS. If the
      Title I Mortgage has been assigned to HUD, the Mortgagee must contact HUD’s
      Financial Operations Center. (5) Discharge of Junior Liens [Text was deleted
      in this section.] The Mortgagee must provide for the discharge of junior liens
      as follows: • If the Borrower has the financial ability, the Borrower must be
      required to satisfy or obtain release of liens. • If the Owner-Occupant Borrower
      receives compensation ($3,000), this compensation may be applied toward discharging
      liens. • If no other sources are available, the Non-Occupant Borrower may obligate
      up to an additional $1,500 from sale proceeds toward discharging liens or encumbrances.
      (6) Section 235 Recapture The Mortgagee must first determine if the Mortgage
      is subject to recapture as referenced in Section 235 Mortgages. If a recapture
      amount is owed to HUD, the Mortgagee must contact HUD’s Loan Servicing Contractor
      prior to approving the PFS. (L) Closing and Post-closing Responsibilities (1)
      Mortgagee Responsibilities Prior to Closing The Mortgagee must provide the Closing
      Agent with: • form HUD-90052, Closing Worksheet: Pre-foreclosure Sale Procedure,
      which lists all amounts payable from Net Sale Proceeds; and • the PFS Addendum
      that was signed by: o buyers; o buyers’ agent; o sellers; o sellers’ agent (listing
      agent); and o transaction facilitators/negotiators, if applicable. The Mortgagee
      must receive from the Closing Agent: • a copy of the Closing Disclosure or similar
      legal document which includes a calculation of the actual Net Sale Proceeds,
      and • the executed form HUD-90052, which must be included in the Servicing File
      and the Claim File. The Mortgagee must review the Final Terms of the PFS Transaction
      to ensure that: III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing
      Programs Forward Mortgages 2. Default Servicing Handbook 4000.1 1268 Last Revised:
      11/26/2025 • the final terms of the PFS transaction are consistent with the
      sales contract; • only allowable settlement costs have been deducted from the
      seller’s proceeds; and • the Net Sale Proceeds will be equal to or greater than
      the allowable thresholds. (2) Closing Agent Responsibilities after Final Approval
      Once the Mortgagee gives final approval for the PFS and the settlement occurs,
      the Closing Agent must: • pay the expenses out of the Net Sale Proceeds and
      forward the Net Sale Proceeds to the Mortgagee; • forward a copy of the Closing
      Disclosure or similar legal document to the Mortgagee to be included in the
      Servicing File and the Claim File no later than three business days after the
      PFS transaction closes; and • sign the PFS Addendum on or before the date the
      PFS transaction closes, unless explicitly prohibited by state statute. (3) Satisfaction
      of Mortgage Debt Upon receipt of the portion of the Net Sale Proceeds designated
      for Mortgage satisfaction, the Mortgagee must satisfy the Mortgage debt and
      may file a claim for mortgage insurance benefits. (M) Early Termination of PFS
      Program Participation (1) Standard (a) Borrower-Initiated Termination The Mortgagee
      must permit a Borrower to voluntarily terminate participation in the PFS Program
      at any time. (b) Mortgagee-Initiated Termination The Mortgagee may terminate
      a Borrower’s PFS Program participation at its discretion for any of the following
      reasons: • discovery of unresolvable title problems; • determination that the
      Borrower is not acting in good faith to market the Property; • significant change
      in property condition or value; or • the Mortgagee has approved the Borrower
      for a Permanent Home Retention Option after the Borrower advised the Mortgagee
      that their financial situation has improved, and they want to retain their home.
      III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward
      Mortgages 2. Default Servicing Handbook 4000.1 1269 Last Revised: 11/26/2025
      (c) Notification of PFS Program Participation Termination The Mortgagee must
      send the Borrower a written notice providing the reason for terminating their
      PFS program participation and the termination date of the PFS. (2) Required
      Documentation The Mortgagee must retain a copy of the Notification of PFS Program
      Participation Termination in the Servicing File. (N) Failure to Complete a PFS
      Transaction At the expiration of the PFS marketing period, should the Borrower
      be unable to complete a PFS transaction, the Mortgagee must re-evaluate available
      Loss Mitigation Options as follows: • If the Borrower’s financial condition
      has improved to the point that reinstatement is a viable option, review the
      Borrower’s eligibility for one of the Loss Mitigation Home Retention Options;
      and • If reinstatement is not feasible, review the Borrower for a DIL of Foreclosure.
      Within 90 Days after the expiration of the PFS marketing period, the Mortgagee
      must consider and approve the Borrower for an alternate Loss Mitigation Option
      or complete the first legal action to initiate foreclosure. Should additional
      time be needed to complete a DIL or to initiate foreclosure, Mortgagees must
      submit a request for an extension of time for HUD approval via EVARS. (O) Extensions
      of Foreclosure Time Frame for PFS (1) Standard After PFS early termination or
      option failure, HUD provides an automatic 90-Day extension to the deadline to
      complete a Loss Mitigation Option or to perform the first legal action initiating
      foreclosure. The automatic 90-Day extension begins the Day after the PFS ATP
      is terminated or expires. If the Mortgagee has not yet received the Net Sale
      Proceeds from the Closing Agent and the automatic 90-Day extension is nearing
      expiration, the Mortgagee must submit a request for extension for HUD approval
      via EVARS no later than 10 Days before the 90-Day extension expires. (2) Required
      Documentation The Mortgagee must retain in the Servicing File and the Claim
      File documentation of any extensions received from HUD. III. SERVICING AND LOSS
      MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default
      Servicing Handbook 4000.1 1270 Last Revised: 11/26/2025 (P) Deficiency Judgments
      If a foreclosure occurs after the Borrower unsuccessfully participated in the
      PFS process in good faith, neither the Mortgagee nor HUD will pursue the Borrower
      for a deficiency Judgment. (Q) PFS Incentive The Mortgagee may claim an incentive
      for each completed PFS transaction that complies with all HUD PFS requirements.
      (R) Mortgage Insurance Termination The Mortgagee must not submit a mortgage
      insurance termination on PFS transactions. HUD will only pay FHA mortgage insurance
      benefits when the status of the mortgage insurance is “active.” The Mortgagee
      must report the PFS Sale to consumer reporting agencies. iii. Deed-in-Lieu of
      Foreclosure (A) Definition [Text was deleted in this section.] A Deed-in-Lieu
      (DIL) of Foreclosure is a Loss Mitigation Home Disposition Option in which a
      Borrower voluntarily offers the deed to HUD in exchange for a release from all
      obligations under the Mortgage. (B) Disclosure Requirements for DIL Prior to
      approving a Borrower for a DIL, the Mortgagee must notify the Borrower in writing
      of the following: • The Mortgage must be in Default on the date the DIL special
      warranty deed is executed, pursuant to Section 204 of the National Housing Act
      (12 U.S.C. § 1710). • DIL transactions are generally reported to consumer reporting
      agencies, and will likely affect the Borrower’s ability to obtain another Mortgage
      and other types of credit. • If the Borrower is a servicemember, it is recommended
      that the Borrower obtain guidance from their employer regarding the DIL’s impact
      on their security clearance and employment. (C) DIL Options There are two types
      of DIL options: Standard DIL and DIL for Servicemembers. III. SERVICING AND
      LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages 2. Default
      Servicing Handbook 4000.1 1271 Last Revised: 11/26/2025 (1) Standard DIL A Standard
      Deed-in-Lieu (DIL) is a DIL transaction for Owner-Occupant Borrowers and Non-Occupant
      Borrowers. The Mortgagee must ensure that: • the Borrower has attempted to complete
      a PFS; • the Borrower and the Property meet the requirements for a Standard
      PFS; and • the Mortgage is 61 Days or more Delinquent as of the date of the
      Mortgagee’s approval. (2) DIL for Servicemembers A DIL for Servicemembers is
      a DIL for servicemembers with PCS orders who must relocate to a new duty station
      at least 50 miles away from their existing residence, without the Mortgagee
      verifying hardship. The Mortgagee must ensure that: • Servicemembers and the
      Property meet the requirements for a PFS for Servicemembers; • the Mortgage
      is 31 Days or more Delinquent on the date the DIL special warranty deed is executed;
      and • Servicemembers have attempted to complete a PFS Option. (3) DIL Exceptions
      for Borrowers with More than One FHA-Insured Mortgage The Mortgagee must obtain
      a certification from the Borrower that the Borrower does not own any other FHA-insured
      Property. If the Borrower owns more than one FHA-insured Property, the Mortgagee
      must submit a request for HUD approval via EVARS to offer a DIL Option to a
      Borrower who owns more than one FHA-insured Property. (4) Condition of Title
      The Borrower or Mortgagee must be able to convey a clear and marketable title
      to the Secretary. The Mortgagee must obtain a title search or preliminary report
      and determine whether the title is impaired by: • unresolvable title problems;
      • liens that cannot be discharged as permitted by HUD; or • a PACE obligation.
      III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward
      Mortgages 2. Default Servicing Handbook 4000.1 1272 Last Revised: 11/26/2025
      (5) Deficiency Judgment HUD will not accept a DIL when it has elected to pursue
      a deficiency Judgment against the Borrower. (D) DIL Owner-Occupant Borrower
      Relocation Assistance (1) Amount of Relocation Assistance HUD offers Owner-Occupant
      Borrowers a consideration of up to $3,000 in relocation assistance upon vacating
      the Property and satisfaction of the requirements of the DIL Agreement. HUD
      will not pay this relocation assistance if the Property is occupied at conveyance.
      (2) Use of Relocation Assistance The Owner-Occupant Borrower may apply the entire
      amount of the relocation assistance or a portion of it to resolve liens, including
      PACE obligation liens. (E) DIL Agreement (1) Standard The Borrower and the Mortgagee
      must execute a DIL Agreement in writing. HUD does not require a specific format
      for documenting a DIL Agreement. The Mortgagee must ensure that the DIL documentation
      complies with all applicable laws and regulations. (2) DIL Agreement Terms The
      Mortgagee must ensure that the DIL Agreement contains the following: • certification
      that the Borrower does not own other Property subject to a Mortgage insured
      by or held by HUD; • the Transfer Date; • notification of possible income tax
      consequences; • acknowledgment that Borrowers who comply with all requirements
      of the Agreement will not be pursued for deficiency Judgments; • a statement
      describing the physical condition in which the Property will be conveyed; •
      agreement with the Borrower to convey the Property vacant and free of Personal
      Property, unless HUD has approved an Occupied Conveyance; • itemization of keys,
      built-in-fixtures, and equipment to be delivered by the Mortgagee on or before
      the Transfer Date; • evidence that utilities, assessments, and HOA dues are
      paid in full by the Transfer Date, unless otherwise agreed to by all parties;
      and III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs
      Forward Mortgages 2. Default Servicing Handbook 4000.1 1273 Last Revised: 11/26/2025
      • the amount of relocation assistance payable to and/or on behalf of the Owner-Occupant
      Borrower will not exceed $3,000. (3) Required Documentation The Mortgagee must
      retain a copy of the executed DIL Agreement in the Servicing File and the Claim
      File. (F) DIL Conveyance to HUD (1) Mortgage in Default The Mortgagee must ensure
      that the Mortgage is in Default when the DIL is recorded and the Property is
      conveyed to HUD. (2) Discharge of Liens The Mortgagee must provide for the discharge
      of liens as follows: • The Mortgagee must complete a title search and ensure
      the release of liens and/or endorsements to the title policy are obtained. •
      HUD will not accept titles subject to most liens, including IRS and HOA liens.
      HUD will allow liens securing repayment of Section 235 assistance payments,
      Partial Claim advances, and Title I liens. • HUD will allow a notice of lien
      recorded in the land records securing repayment of a PACE obligation that may
      only become subject to an enforceable claim (i.e., a lien) for delinquent regularly
      scheduled PACE special assessment payments and otherwise complies with the eligibility
      and acceptability criteria for Properties encumbered with a PACE obligation
      provided in PACE Obligation Review. • If the Owner-Occupant Borrower receives
      relocation assistance, this assistance may be applied toward discharging liens.
      (3) Special Warranty Deed The Borrower and the Mortgagee must convey the Property
      through a special warranty deed and, when possible, the Borrower must convey
      title directly to HUD. The Mortgagee must cancel and surrender to the Borrower
      the original credit instrument, indicating that the Mortgage has been satisfied.
      If it is necessary to convey title to the Mortgagee, and then to HUD, the Mortgagee
      must document the reason in the Servicing File and the Claim File. (4) Conveyance
      Time Frame The Mortgagee must record the special warranty deed and deliver the
      original, recorded deed to HUD’s MCM within 45 Days of the date the clear and
      marketable title was conveyed to the Secretary. III. SERVICING AND LOSS MITIGATION
      A. Title II Insured Housing Programs Forward Mortgages 2. Default Servicing
      Handbook 4000.1 1274 Last Revised: 11/26/2025 (5) Occupied Properties The Mortgagee
      must ensure that the Property is vacant at the time of conveyance. HUD will
      not accept a DIL if the collateral Property is occupied at the time of conveyance
      to HUD, unless authorized for Occupied Conveyance. (6) Option Not to Convey
      The Mortgagee may elect not to convey title to HUD and to terminate the contract
      of mortgage insurance. If this occurs, the Mortgagee must use form HUD-27050-
      A, Insurance Termination, and select Voluntary Termination (Term Type 21) in
      FHAC to notify HUD. (G) DIL Incentive The Mortgagee may submit a claim for an
      incentive for each completed DIL transaction that complies with all HUD DIL
      requirements. (H) DIL Foreclosure Time Frames The Mortgagee must complete the
      DIL or initiate foreclosure within six months of the date of Default, unless
      the Mortgagee has qualified for an automatic extension or has received an extension
      approved by HUD via EVARS. If the DIL follows a failed PFS, the DIL must be
      completed or foreclosure initiated within 90 Days of the failure. (I) Reporting
      to Consumer Reporting Agencies and the IRS The Mortgagee must not report DIL
      transactions to consumer reporting agencies as foreclosures.'
  judgment: false
