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The U.S. Department of Housing and Urban Development (HUD) recently revised the requirements for bidding at a foreclosure sale and for utilizing Claims Without Conveyance of Title (CWCOT), including Post-Foreclosure Sales Efforts through the issuance of Mortgagee Letter 2026-03. The changes apply to all single-family forward mortgages under the Title II program, except for Hawaiian Home Lands Mortgages and Insured Mortgages on Indian Land. The changes may be implemented immediately, but must be implemented for foreclosure sales scheduled on or after April 29, 2026.
HUD advises that through the Mortgagee Letter it is:
- Restating its policy that a mortgagee may only participate in the CWCOT program if the mortgagee bids the Commissioner's Adjusted Fair Market Value (CAFMV) at the foreclosure sale. The CAFMV is the estimate of the fair market value of the property, less adjustments that may include, without limitation, HUD's estimate of holding costs and resale costs that would be incurred if title to the property were conveyed to HUD.
- Now permitting mortgagees to bid below the CAFMV at a foreclosure sale and then elect to convey the property to HUD or forgo filing a claim.
- Eliminating the exemption for small servicers under which they were permitted, but not required, to use the CAFMV. Prior to the current changes, services that were not small servicers had to use the CAFMV for all foreclosure sales and post-foreclosure sales efforts associated with defaulted mortgages when eligible for CWCOT. HUD explained that it is eliminating the exemption because small servicers can now convey the property to HUD instead if they are unable to meet the CAMFV bidding requirement.
Addressing the reasons for the changes, HUD advises that:
"The use of CAFMV ensures that this alternative to conveying the Property adequately offsets the losses to the Mutual Mortgage Insurance Fund (MMIF). In many cases, HUD potential losses exceed what a state allows to be included in a credit bid. For example, when the Borrower has received a Partial Claim, the amount of the debt would not be included in the Mortgagee's credit bid, and HUD has limited opportunity to recapture those losses. Nevertheless, HUD recognizes the challenges Mortgagees face when required to bid an amount greater than the credit bid at a foreclosure sale."
The revised language provides that when a mortgagee pays an amount over the credit bid in order to acquire a property at the CAFMV, HUD will reimburse the mortgagee for 100% of the amount paid over the credit bid.
The policy changes will be incorporated into Handbook 4000.1. The revised language to be inserted into the Handbook is set forth in the Mortgage Letter, which includes language to reflect the changes and also reorganize existing language.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
