For the purposes of this subpart, the date of default shall be considered as 30 days after:

(a) The first uncorrected failure to perform any obligation under the mortgage; or

(b) The first failure to make a monthly payment which is not covered by subsequent payments made by the mortgagor when such subsequent payments are applied to the overdue monthly payments in the order in which they became due.

§ 204.292 Notice of default.

The mortgagee shall, within 60 days after the date of default as defined in this part, give written notice thereof to the Commissioner on a form prescribed by him, unless such default has been cured or unless the Commissioner has been notified of a previous default which remains uncured.

the period of coinsurance and while the mortgage is fully insured.

§ 204.301 Acquisition of property.

At any time within one year from the date of default, or such additional period of time as may be approved by the Commissioner, the mortgagee, at its election, shall either:

(a) Commence foreclosure of the mortgage; or

(b) Acquire possession of, and title to, the mortgaged property by means other than foreclosure.

§ 204.302 Notice of foreclosure.

The mortgagee shall give written notice to the Commissioner on a form prescribed by him within 30 days after the institution of foreclosure proceedings and shall exercise reasonable diligence in prosecuting such proceedings to completion.

§ 204.303 Deed in lieu of foreclosure.

(a) In lieu of instituting or completing a foreclosure, the mortgagee may acquire property by voluntary conveyance from the mortgagor. Conveyance of the property by deed in lieu of foreclosure is approved subject to the following requirements:

(1) The mortgage is in default at the time the deed is executed and delivered;

(2) The credit instrument is cancelled and surrendered to the mortgagor;

(3) The mortgage is satisfied of record as a part of the consideration for such conveyance; and

(4) The deed from the mortgagor contains a convenant which warrants against the acts of the grantor and all claiming by, through, or under him and conveys good marketable title.

§ 204.304 Notice of acquisition of title.

The mortgagee shall give written notice to the Commissioner on a form prescribed by him within 15 days of acquisition of good marketable title to the property.

§ 204.305 Disposition of the property.

(a) The mortgagee shall take possession of, preserve and repair the property, and within six months after date

of acquisition of marketable title, shall sell the property for the best price obtainable. Repairs shall not exceed those required by local law and, in cases where the sale is made with FHA-insured or VA-guaranteed financing, those necessary to meet the objectives of the FHA Minimum Property Standards; no other repairs shall be made without the specific advance approval of the Commissioner.

(b) The mortgagee shall not enter into a contract for the preservation, repair or sale of the property with any officer, employee, owner of ten percent or more interest in the mortgagee or with any other person or organization having an identity of interest with the mortgagee or with any relative of such officer, employee, owner or person.

§ 204.306 Application for insurance benefits.

(a) Within 15 days after the sale of the property the mortgagee shall notify the Commissioner on a form prescribed by him of the sale of the property, the purchase price, income, and expenses incurred in connection with the acquisition, repair and sale of the property and shall assign to the Commissioner without warranty any and all claims (other than the mortgage financing such sale) which the mortgagee has acquired in connection with the mortgage transaction.

recourse or

(b) If the property is not expected to be sold within six months after the date of acquisition of marketable title the mortgagee shall, at least 15 days prior to the expiration of the sixmonth period, notify the Commissioner who will promptly cause an appraisal of the property to be made by an independent appraiser. Within 15 days of receipt of the notice of the appraised value the mortgagee shall notify the Commissioner as provided in paragraph (a) of this section, utilizing the appraised value in lieu of the purchase price.

PAYMENT OF INSURANCE BENEFITS

§ 204.320 Method of payment.

If the application for insurance benefits is acceptable to the Commission

er, payment of the insurance claim shall be made in cash, in debentures or a combination of both, as determined by the Commissioner at the time of payment.

§ 204.321 Amount of payment.

(a) The basis for the computation of insurance benefits during the term of coinsurance shall be the sum of the original principal of the mortgage which was unpaid on the date of the institution of foreclosure proceedings or on the date of acquisition of the property otherwise after default, plus the amount of all payments made by the mortgagee and allowances for items as set forth in § 204.322, less all items as set forth in § 204.323.

(b) The amount of insurance benefits shall be 90 percent of the amount computed pursuant to paragraph (a) of this section.

(c) The originating mortgagee will be responsible for ten percent of the amount computed pursuant to paragraph (a) of this section.

(d) The aggregate amount for which a mortgagee will be responsible with respect to mortgages coinsured in any calendar year shall not exceed one percent of the total of the original principal amount of all mortgages coinsured by the mortgagee in such calendar year (excluding mortgages for which the coinsurance liability has been transferred), plus the total of the original principal amounts of all additional mortgages originated during such calendar year for which such mortgagee has assumed coinsurance liability. In the event an application for insurance benefits is accepted by the Commissioner which would cause the mortgagee's responsibility to exceed such limitation, the amount of insurance benefits shall be 100 percent of the amount computed pursuant to paragraph (a) of this section.

(e) The Commissioner will pay the originating mortgagee 100 percent of the amount computed pursuant to paragraph (a) of this section and will debit to the Annual Coinsurance Reserve any payment in excess of the amount of insurance benefits, provided the credit balance in the Annual Coinsurance Reserve is equal to, or

more than, the amount of the mortgagee's responsibility under paragraph (c) of this section.

§ 204.322 Items included in payment.

The insurance benefits paid shall include the following items:

(a) Taxes, ground rent and water rates, which are liens prior to the mortgage, prorated to the date of disposition of the property;

(b) Special assessments, which are noted on the application for insurance or which become liens after the insurance of the mortgage, prorated to the date of disposition of the property;

(c) Hazard insurance premiums on the mortgaged property not in excess of a "reasonable rate" as defined in § 203.379(c), prorated to the date of disposition of the property.

(d) MIP;

(e) Taxes imposed upon any deeds or other instruments by which said property was acquired by the mortgagee;

(f) Foreclosure costs or costs of acquiring the property otherwise actually paid by the mortgagee and approved by the Commissioner, in an amount not in excess of two-thirds of such costs or $75, whichever is the greater. Where the foreclosure involves a mortgage executed in connection with the sale of property by the Secretary, the mortgagee shall be reimbursed (in addition to the amount determined under the foregoing) for any extra costs incurred in the foreclosure as a result of a defect in title which existed at or prior to the time the mortgage was filed for record, if the mortgagee establishes to the satisfaction of the Commissioner that such extra costs are over and above those customarily incurred in the area;

(g) Any uncollected mortgage interest allowed pursuant to forbearance relief granted under § 204.294;

(h) An amount which the Commissicner finds to be sufficient to compensate the mortgagee for any loss which it may have sustained on account of interest on debentures and the payment of any MIP by reason of its having postponed the institution of foreclosure proceedings or the acquisition of the property by other means under a mortgage to which the provisions of sections 302 and 306 of the

Soldiers' and Sailors' Civil Relief Act of 1940, as amended, apply during any part or all of the period of the mortgagor's military service and three months thereafter;

(i) Charges for the administration, operation, maintenance or repair of community-owned property or the maintenance and repair of the mortgaged property paid by the mortgagee with respect to which it certifies to the Commissioner that payment was made for the purpose of discharging an obligation arising out of a covenant filed for record and approved by the Commissioner prior to the insurance of the mortgage;

(j) An amount equivalent to debenture interest at a rate established pursuant to § 204.350, on the principal of the mortgage unpaid on the date of institution of foreclosure proceedings or on the date of acquisition of the property otherwise after default, from the date of default to the date of acquisition of marketable title except that when the mortgagee fails to meet any one of the applicable requirements of §§ 204.301, 204.302, 204.304, 204.305, or § 204.306 within the specified time and in a manner satisfactory to the Commissioner (or within such further time as the Commissioner may approve in writing), the interest allowance in such cash payment shall be computed only to the date on which the particular required action should have been taken or to which it was extended: Provided, That debenture interest shall not be payable for any period for which the mortgagee receives uncollected mortgage interest allowed pursuant to forebearance relief granted under § 204.294;

(k) An amount equivalent to mortgage interest on the principal of the mortgage unpaid on the date of institution of foreclosure proceedings or on the date of acquisition of the property otherwise after default, from the date of acquisition of marketable title to the date on which the insurance benefits are paid: Provided, That when a mortgagee fails to submit its claim within the time specified by § 204.306, no interest shall be paid for the period beginning on the date the action should have been taken and ending on

the date the mortgagee's claim is received by the Commissioner;

(1) Reasonable payments made by the mortgagee for:

(1) Preservation and maintenance of the property;

(2) Repairs necessary to meet the objectives of the FHA Minimum Property Standards, those required by local law, and such additional repairs as may be specifically approved in advance by the Commissioner;

(3) Expenses in connection with the sale of the property including a sales commission at the rate customarily paid in the community and, if the sale to a buyer involves an FHA or VA mortgage, a discount at a rate not to exceed the maximum allowable by the Commissioner, as of the date of execution of the discounted loan, on sales of properties acquired by him pursuant to §§ 203.295 through 203.426 of this chapter;

(m) An amount to compensate the mortgagee for overhead costs, not to exceed $40 plus $15 per month for each month, or a part thereof, from the date of acquisition of title to the date of disposition or appraisal of the property pursuant to § 204.306(b), whichever first occurs.

[41 FR 6446, Feb. 12, 1976, as amended at 45 FR 56801, Aug. 26, 1980; 51 FR 28551, Aug. 8, 1985]

§ 204.323 Items deducted from payment.

There shall be deducted from the total of the added items in §§ 204.321(a) and 204.322 the following cash items:

(a) All amounts received by the mortgagee on account of the mortgage after the institution of foreclosure proceedings or the acquisition of the property by direct conveyance or otherwise after default;

(b) All amounts received by the mortgagee from any source relating to the property on account of rent or other income after deducting reasonable expenses incurred in handling the property;

(c) All cash retained by the mortgagee including amounts held or deposited for the account of the mortgagor or to which it is entitled under the mortgage transaction that have not been