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i. Denial of Insurance Claims (05/09/2022)
HUD may deny a claim for insurance in whole or in part based upon a violation of the regulations.
i. Invalid Debt
If the enforceability of the lien can be challenged, the Lender can obtain a Judgment against the Borrower and assign the Judgment to HUD. For example, improper wording of or method of mailing a legal notice may call into question whether a deficiency debt is valid. Acquiring a Judgment will prove the validity of the debt.
ii. Missing or Incomplete Work Description
HUD may deny the claim if the supporting documentation regarding the property improvements does not include sufficient detail to confirm that the loan proceeds were used solely for property improvements (and eligible fees/charges), that the costs were reasonable, and that all improvements were eligible. HUD will review the Completion Certificate, the inspection report, and any lender noncompliance reports in addition to the contract, Work Write-Up, or other written description of the proposed improvements. HUD may pay a claim despite a poor work description if the inspection confirms that 100 percent of the proceeds went to eligible improvements (and eligible fees/charges), but will deny a claim with a poor work description and other documentation that indicates misuse of loan proceeds.
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IV. CLAIMS AND DISPOSITION C. Title I Claims
1. Title I Claims for Property Improvement
iii. Claim Filing Past the Deadline
If a claim is filed after the Claim Filing Deadline, the Lender must request a waiver to document that the late filing was unavoidable. Note that a servicing error by the Lender is not considered a valid basis for a waiver.
iv. Unresolved Borrower Complaints
HUD may deny a claim if there are unresolved valid borrower complaints against the Dealer or the Lender because a Loan with an unresolved complaint may not be valid and enforceable against the Borrower. The Lender may resubmit the claim with additional documentation regarding the resolution of the complaint or if the Lender obtains a Judgment against the Borrower. Obtaining a Judgment against the Borrower will prove the validity of the debt.
v. Note and/or Assignment Not an Original
The Lender must file a Missing Document Statement if the Lender cannot locate the original Note and/or Assignment of Note.
vi. Evidence of Borrower’s Ownership Interest in the Property
The case binder must contain evidence of the Borrower’s ownership interest in the Property.
vii. Notice of Default and Acceleration Noncompliance
HUD may deny the claim when the Notice of Default and Acceleration does not comply with requirements.
viii. Missing or Incorrect Information on Form HUD-637, Title I Claim for Loss
The Lender will be notified by the FOC if a revised form HUD-637 is required due to missing or incorrect information. The revised form must be signed by an authorized official of the Lender prior to resubmitting the form to HUD.