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c. Assumptions (05/09/2022)
i. Conditions for an Assumption
At the option of the Lender, an existing Title I Loan may be assumed, subject to the following conditions:
• a determination by the Lender that the assumptor is eligible;
• a determination by the Lender that the assumptor is an acceptable credit risk based on HUD’s underwriting requirements;
• the execution of an assumption agreement that is satisfactory to the Lender and is signed by the assumptor and the original Borrower(s) or previous assumptor(s) at the time of assumption. This agreement must obligate the assumptor for repayment of the Loan so that the original Note is valid and legally enforceable against the assumptor; and
• prior to execution of the assumption agreement, the Lender must provide the assumptor with a Notice to Borrower of HUD’s Role and obtain the assumptor’s acknowledgment.
The Loan to be assumed may be Delinquent. The security may be transferred to a new eligible Borrower.
ii. Release of Liability
If the conditions above are met, the Lender at its option may release the original Borrower(s) and any intervening assumptor(s) from liability for repayment of the Title I Loan. Approval from HUD is not required. The Lender must retain documentation of the release in the case binder.
iii. No Release of Liability
If a Lender opts not to release the original Borrower(s) and intervening assumptor(s), the Lender must comply with all the servicing requirements as they pertain to the previous Borrowers/assumptors as well as with the current Borrower/assumptor. In particular, the Lender must mail the Notice of Default and Acceleration to previous Borrowers/assumptors. If a Lender does not formally release the original Borrowers/assumptors at the time of the assumption then the Lender must use caution not to inadvertently release them during the servicing and liquidation of the Loan. The requirement that the Lender maintains and assigns to HUD a legally enforceable Note pertains to any Borrower who was not officially released from liability.
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III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs
1. Title I Property Improvement Loan Program
iv. Assumption Fee
The Lender may charge up to 1 percent of the unpaid principal balance as a fee for approving the assumptor and preparing the assumption agreement.
v. Reporting an Assumption to HUD
Lenders must report the assumption to the FOC in order to have the current Borrower’s name reflected on future insurance charge billing statements. When reporting an assumption, the Lender must supply the FHA case number, the name of the original Borrower and the name(s) and Social Security Number(s) (SSN) of the assumptor(s).