source:
  type: guide
  id: hud-4000-1-iii-e-loan-default-and-loss-mitigation-2
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part III — e. Loan
    Default and Loss Mitigation (05/09/2022)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part III — e. Loan
    Default and Loss Mitigation (05/09/2022).
  coverage_tier: operative
obligations:
- id: hud-4000-1-iii-e-loan-default-and-loss-mitigation-2-full
  canonical_id: hud-4000-1-iii-e-loan-default-and-loss-mitigation-2-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part III — e. Loan Default
    and Loss Mitigation (05/09/2022)
  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 — e. Loan
      Default and Loss Mitigation (05/09/2022)
    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: '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'
  judgment: false
