(iv) Attorney's fees not exceeding 15 per cent of the amount collected by the attorney on the defaulted note;

(v) Handling fee of $5 for each loan, if Judgment is secured, plus 5 percent of amounts collected subsequent to return of unsatisfied property execution;

(vi) An insured institution may not waive its claim against the borrower for attorney fees and subsequently call upon the Administrator for payment of such an item.

(3) Claim shall be made on a form provided by the Administrator, filled out completely and executed in duplicate by a duly qualified officer of the insured institution. If the regulations have been complied with, payment of the loss will be made on audit of the claim and upon proper assignment to the United States of America, of the note upon which the loss occurred, together with any security taken to secure payment thereof. Any security or judgment taken must be assigned, and if any claim has been filed in bankruptcy, insolvency or probate proceedings, such claim shall likewise be assigned to the United States of America.

(4) Where a real estate mortgage, deed of trust, or a conditional sales contract, chattel mortgage or any other security device has been used to secure the payment of loans for eligible purposes, the insured institution may not both proceed against such security and

also make claim under its contract of insurance, but shall elect which method it desires to pursue. If claim is made, such security device shall be assigned, in its entirety, to the United States of America. If the security taken is nonassignable, all rights in such security shall be exhausted by the insured institution or the claim against the Administrator reduced by the full face amount of the security taken before claim will be paid by the Administrator.

(5) The following form of assignment properly dated shall be used in assigning a note, judgment, real estate mortgage, deed of trust, conditional sales contract, chattel mortgage or any other security device in event

of claim:

(b) Claim for reimbursement for loss on a qualified class 3 loan shall be made as provided in this paragraph.

(1) If the borrower fails to make any payment, or to perform any other covenant or obligation under the mortgage, and such failure continues for a period of 30 days, the note shall be considered in default and at any time within 1 year from the date of default the insured institution, at its election shall either

(1) Acquire by means other than foreclosure of the mortgage, possession of, and title to, the mortgaged property; or

(ii) Commence foreclosure of the mortgage; Provided, That if the laws of the State in which the mortgaged property is situated do not permit the commencement of such foreclosure within such period of time, the lending institution shall commence such foreclosure within 60 days after the expiration of the time during which such foreclosure is prohibited by such laws.

(iii) Nothing herein contained shall be construed so as to prevent the lending institution, with the written consent of the Administrator, from taking action at a later date than herein specified.

(2) For the purposes of this section, the date of default shall be considered as 30 days after (1) the first uncorrected failure to perform a covenant or obligation, or (ii) the first failure to make a monthly payment which subsequent payments by the mortgagor are insufficient to cover when applied to the overdue monthly payments in the order in which they became due.

(3) If after default and prior to the completion of foreclosure proceedings, the borrower shall pay to the insured institution all monthly payments in default and such expenses as the insured institution shall have incurred in connection with the foreclosure proceedings, no claim for reimbursement under the contract of insurance can be made and the insurance shall continue as if such

default had not occurred.

(4) If the default is not cured as aforesaid, and if the lending institution has otherwise complied with the provisions of this section, and at any time within 30 days (or such further time as may be necessary to complete the title examination and perfect such title) after acquiring possession of the mortgaged property by foreclosure, or by other means in accordance with this section, tenders to the Administrator possession of, and a deed conthe acts of the lending institution and all taining a covenant which warrants against claiming by, through, or under it, conveying good merchantable title to, such property undamaged by fire, earthquake, flood, or tornado, the Administrator shall promptly accept conveyance of such property and, subject to § 501.16 payment of loss sustained by the institution will be made as follows:

(1) Net unpaid amount of advance actually made or the actual purchase price of the note, whichever is the lesser;

(11) Uncollected earned interest (after default interest is not to be claimed at a rate to exceed 4 percent per annum for the first 6 months nor thereafter to exceed 3 percent per annum and will be calculated to the date the claim is approved for payment);

(iii) Actual legal expenses incurred by the lending institution and approved by the Administrator in connection with the foreclosure proceedings, or the acquisition of the mortgaged property otherwise, and the conveyance thereof to the Administrator up to but not to exceed $75.

(iv) The amount of all payments which have been made by the lending institution for taxes, ground rents, special assessments, and water rates which are liens prior to the mortgage, and fire and hazard insurance

(v) The Administrator will credit to the insurance reserve of the insured institution conveying property to him under the provisions of this section the net amount which he may realize from the sale of the property, such credit to be made at such time as the Administrator may determine.

(5) Evidence of title of the following types will be satisfactory to the Administrator:

(1) A fee or owner's policy of title insurarce, a guaranty or guarantee of title, or a certificate of title, issued by a title company, duly authorized by law and qualified by experience to issue such; or

(ii) an abstract of title prepared by an abstract company or individual engaged in the business of preparing abstracts of title and accompanied by the legal opinion as to the quality of such title signed by an attorney at law experienced in examination of titles; or

or

(iii) a Torrens or similar title certificate;

(iv) evidence of title conforming to the standards of a supervising branch of the Government of the United States or of any State or Territory thereof.

(v) Such evidence of title shall be furnished without cost to the Administrator and shall be executed as of a date to include the recordation of the deed to the Administrator, and shall show that, according to the public records, there are not, at such date, any outstanding prior liens, including any past due and unpaid ground rents, renewal taxes, or special assessments. If the title and title evidence are such as to be accept able to prudent lending institutions and leading attorneys generally in the community in which the property is situated, such title and title evidence will be satisfactory to the Administrator and will be considered by him as good and merchantable.

(vi) The Administrator will not object to the title by reason of the following matters, provided they are not such as to impair the value of the property for residence purposes.

Customary easements for public utilities, party walls, driveways, and other purposes; customary building or use restrictions for breach of which there is no reversion and which have not been violated to a material extent;

Such restrictions when coupled with a reversionary clause, Provided, There has been no violation prior to the date of the deed to

the Administrator;

Slight encroachments by adjoining improvements;

Outstanding oil, water, or mineral rights, which do not impair the value of the property for residence purposes, or which are customarily waived by prudent lending institutions and leading attorneys generally in the commnnity.* [As amended Aug. 24, 1939, effective Sept. 1, 1939, and Sept. 15,

NOTE: Paragraph (b) (4) of this section was amended by adding subdivision (v), Sept. 15, 1939, effective Sept. 25, 1939; 4 F.R. 4063.

[Preceding section, in small type, superseded by following section during period covered by this Supplement]

§ 501.12 Claims. (a) Claim for reimbursement for loss on a qualified loan shall be made as provided in this paragraph.

(1) Claim for reimbursement for loss on a qualified loan may be made to the Administrator after default on any installment, provided demand has been made upon the debtor for the full unpaid balance.

(2) For the purpose of this paragraph, any payment received on an account, including payments on a judgment predicated thereon, shall be applied to the earliest unpaid installment, and whenever any installment is 6 months in arrears claim shall be made within 31 days.

(3) In the case of yearly installment notes, whenever an installment is 12 months in arrears claim must be made within 31 days thereafter.

(4) Upon presentation to him of the facts of a particular case within the allowable claim period prescribed in this paragraph, the Administrator may, in his discretion, extend the time within which claim must be made.

(b) Subject to § 501.12, claim may be made only for loss sustained by the institution itself, and may insured include:

(1) Net unpaid amount of advance actually made or the actual purchase price of the note, whichever is the lesser;

(2) Uncollected earned interest (after default interest is not to be claimed at a rate to exceed 4 percent per annum and will be calculated to the date the claim is approved for payment);

(3) Uncollected court costs, including fees paid for issuing, serving and filing

summons;

(4) Attorney's fees not exceeding 15 percent of the amount collected by the attorney on the defaulted note;

(5) Handling fee of $5 for each loan, if judgment is secured, plus 5 percent of amounts collected subsequent to return of unsatisfied property execution.

(c) Claim shall be made on a form provided by the Administrator, filled out completely and executed in duplicate by a duly qualified officer of the insured institution. If the regulations have been complied with, payment of the loss will be made on audit of the claim and upon proper assignment to the United States of America, of the note upon which the loss occurred, together with any security taken to secure payment thereof. Any security or judgment taken must be assigned, and if any claim has been filed in bankruptcy, insolvency or probate proceedings, such claim shall likewise be assigned to the United States of America.

(d) Where a real estate mortgage, deed of trust, or a conditional sales con

tract, chattel mortgage or any other security device has been used to secure the payment of loans for eligible purposes, the insured institution may not both proceed against such security and also make claim under its contract of insurance, but shall elect which method it desires to pursue. If claim is made, such security device shall be assigned, in its entirety, to the United States of America. If the security taken is nonassignable, all rights in such security shall be exhausted by the insured institution or the claim against the Administrator reduced by the full face amount of the security taken before claim will be paid by the Administrator.

(e) The following form of assignment properly dated shall be used in assigning a note, judgment, real estate mortgage, deed of trust, conditional sales contract, chattel mortgage or any other security device in event of claim:

(a) Shall not be in excess of $2,500, exclusive of financing charges to the borrower.

(b) Shall not have a maturity in excess of 10 years and 32 days from the date of the

note.

(c) Shall be expended in erecting a new structure on real estate owned by the borrower in fee simple, or held by the borrower under a lease expiring not less than 10 years after the maturity of the loan.

(d) Shall be secured by collateral security in the form of a duly recorded first mortgage, first deed of trust, or similar instrument which constitutes a first lien upon such fee simple or leasehold interest in the property upon which the new structure is to be built and all buildings, appurtenances and improvements thereon, except that in the case hibited by law or regulation from advancing of institutions publicly supervised and proan amount equal to the full loan insurable under Title I of the National Housing Act, the requirement relative to collateral security may be disregarded and the taking of such

security is left to the discretion of the in

sured institution.

(e) Shall be made to a borrower who has established to the satisfaction of the insured institution that after such mortgage, deed of trust or similar instrument has been rewhich is covered thereby will be free and corded, such fee simple or leasehold interest clear of all liens other than such mortgage, deed of trust or security instrument, and unpaid obligation contracted in connection that there will not be outstanding any other with the loan transaction except obligations which are secured by property or collateral owned by the borrower independently of the new structures as provided by the regulaproperty upon which the new structure or tions in this part are to be built.

(f) Shall be protected by fire insurance coverage which shall be obtained and kept in force by the insured institution in an amount at least equal to the unpaid principal of the loan, naming the lending institution as beneficiary. In event of loss or be payable to the lending institution and damage, the proceeds of such insurance shall shall either be applied to the reduction of the unpaid balance of the loan or, if the borrower desires to obtain the use of such proceeds for the purpose of repairing or recon

By Title

(Financial institution)

(date)

institution may release such proceeds to the borrower for such purposes. In areas where it is impossible to obtain full fire insurance coverage, the maximum allowed in that area will be acceptable.

(g) The insured institution may rely upon the statements made by the borrower on his signed certificate of conformity with respect to the collateral security requirements of

[Regs., June 20, 1939, effective July 1, 1939,