When is a HECM with a set-aside account for payment of property charges considered in default?

For Home Equity Conversion Mortgage (HECM) loans with set-aside accounts for the purpose of paying property charges, the mortgage will be considered in default if:

  • The set-aside account has been exhausted of available funds to make property charge payments; and
  • The borrower, after being notified of their outstanding property charge obligation, fails to remit the property charge payment in full within 30 days as required; and
  • The Principal Limit has been exhausted, requiring the Mortgagee to make the property charge payment using corporate funds.  

The guidance in Mortgagee Letter (ML) 15-11 will apply to all mortgages with a set-aside account either required by the mortgagee at origination or elected by the borrower.
For more information see ML 15-11 available at https://www.hud.gov/program_offices/administration/hudclips/letters/mortgagee
Any questions may be directed to the FHA Resource Center at Toll-Free (800) CALLFHA (225-5342) or by email to answers@hud.gov.  Persons with hearing or speech impairments may reach this number by calling the Federal Information Relay Service at (800) 877-8339.

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-04992