The Mortgagee must convey good and marketable title to the Secretary.
HUD regulations list certain specific and common exceptions to title to which HUD will not object. HUD may waive additional objections, based on local practice and the general marketability of title clouded by those objections, or if the Mortgagee is willing to accept a reduced claim for mortgage insurance benefits.
HUD will not accept title subject to liens, other than the following:
IRS Liens - HUD will not object to title where there is a lien in favor of the IRS, regardless of its position, if the following conditions are met:
- The IRS has been notified of the foreclosure.
- The IRS lien was established after the date of the mortgage lien.
- The Mortgagee bid at least the full amount of the indebtedness plus the cost of foreclosure.
Section 235 Liens - HUD will accept title subject to a junior lien securing the repayment of Section 235 assistance payments.
Property Assessed Clean Energy (PACE) Obligation - HUD will allow a notice of lien recorded in the land records securing repayment of a PACE obligation that may only become subject to an enforceable claim (i.e., a lien) for delinquent regularly scheduled PACE special assessment payments and otherwise complies with the eligibility and acceptability criteria for Properties encumbered with a PACE obligation provided in Section II.A.1.b.iv.(A)(6).
For policy information see:
- Handbook 4000.1 Section III.A.2.t.iii.(A) available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh