Title 12, Banks and BankingRelease 119-110
§1739 Mortgage Insurance Benefits
Title 12 › CHAPTER 13 — NATIONAL HOUSING › SUBCHAPTER VI — WAR HOUSING INSURANCE › § 1739
Summary
When a lender forecloses on a mortgage insured under this law or otherwise takes the property after a borrower defaults, the lender can hand the title and its claims to the Secretary and stop paying insurance premiums. The Secretary will then give the lender government IOUs called debentures and a certificate of claim so the lender gets the insured benefit. The “value” used to decide how much the lender gets adds the unpaid principal at the start of foreclosure to payments the lender made for taxes, special assessments, insurance, and mortgage insurance premiums, and then subtracts money the lender collected or rents received (after reasonable expenses). If less than 10% of the appraised value had been paid on the mortgage principal when insurance began, certain foreclosure costs the lender actually paid and the Secretary approves can be included in the debentures up to limits: either up to 2% of the unpaid principal (but no more than $75) or up to two‑thirds of the cost, whichever is larger. For debentures issued on or after September 2, 1964, the Secretary, with the lender’s consent, may instead include up to one‑third of the approved foreclosure/acquisition/conveyance costs in the debentures (never more than actually paid). The Secretary may also add an amount to cover losses if foreclosure was delayed for military service under the Soldiers’ and Sailors’ Civil Relief Act, including up to three months after service. Debentures are issued in multiples of $50, dated at foreclosure (or at default for claims filed on or after September 2, 1964), and pay interest up to 3% per year, with interest paid January 1 and July 1. Debentures for mortgages accepted on or after May 26, 1942, mature in ten years; older ones have a different three‑year rule but a lender may choose a ten‑year maturity. A cash adjustment up to $350 may be paid to make up small differences. Debentures are signed for the General Insurance Fund, are negotiable, exempt from most local and state taxes (but not surtaxes or estate, inheritance, and gift taxes), and are guaranteed by the United States; if the fund can’t pay, the Treasury will. The certificate of claim is sized so that, together with debentures and any cash, it equals what the lender would have received if the borrower had redeemed the property; it earns a simple 3% per year increment (not compounded). If sale of the property later brings more money than was paid out, that excess generally goes first to pay the certificate and then to the borrower, except that after September 2, 1964, any remainder after paying the certificate goes to the General Insurance Fund. The Secretary can manage, fix up, insure, rent, sell, or otherwise handle the property and pursue assigned claims, but any suit against a borrower on an assigned claim must start within six months after assignment or six months after the last payment on the claim, whichever is later. The lender or borrower gets no ownership or control of property or claims once they are conveyed to the Secretary, and the Secretary has no duty to them about how the property or claims are handled. (One‑line definitions: debentures = government IOUs given to the lender; certificate of claim = a paper promise for extra payment to make up what the lender lost.)
Full Legal Text
Title 12, §1739
Banks and Banking, Source: USLM XML via OLRC
(a)Conveyance and assignment by mortgagee after foreclosure; debentures and certificates of claim; cost of foreclosure
In any case in which the mortgagee under a mortgage insured under section 1738 of this title shall have foreclosed and taken possession of the mortgaged property, in accordance with regulations of, and within a period to be determined by, the Secretary, or shall, with the consent of the Secretary, have otherwise acquired such property from the mortgagor after default, the mortgagee shall be entitled to receive the benefit of the insurance as hereinafter provided, upon (1) the prompt conveyance to the Secretary of title to the property which meets the requirements of rules and regulations of the Secretary in force at the time the mortgage was insured, and which is evidenced in the manner prescribed by such rules and regulations; and (2) the assignment to him of all claims of the mortgagee against the mortgagor or others, arising out of the mortgage transaction or foreclosure proceedings, except such claims as may have been released with the consent of the Secretary. Upon such conveyance and assignment the obligation of the mortgagee to pay the premium charges for insurance shall cease and the Secretary shall, subject to the cash adjustment hereinafter provided, issue to the mortgagee debentures having a total face value equal to the value of the mortgage and a certificate of claim, as hereinafter provided. For the purposes of this subsection, the value of the mortgage shall be determined, in accordance with rules and regulations prescribed by the Secretary, by adding to the amount of the original principal obligation of the mortgage which was unpaid on the date of the institution of foreclosure proceedings, or on the date of the acquisition of the property after default other than by foreclosure, the amount of all payments which have been made by the mortgagee for taxes, ground rents, and water rates, which are liens prior to the mortgage, special assessments which are noted on the application for insurance or which become liens after the insurance of the mortgage, insurance of the mortgaged property, and any mortgage insurance premiums and by deducting from such total amount any amount received on account of the mortgage after either of such dates, and any amount received as rent or other income from the property, less reasonable expenses incurred in handling the property, after either of such dates: Provided, That with respect to mortgages which are foreclosed before there shall have been paid on account of the principal obligation of the mortgage a sum equal to 10 per centum of the appraised value of the property as of the date the mortgage was accepted for insurance, there may be included in the debentures issued by the Secretary, on account of the cost of foreclosure (or of acquiring the property by other means) actually paid by the mortgagee and approved by the Secretary an amount—
(1)not in excess of 2 per centum of the unpaid principal of the mortgage as of the date of the institution of foreclosure proceedings and not in excess of $75; or
(2)not in excess of two-thirds of such cost, whichever is the greater: Provided further, That with respect to any debentures issued on or after September 2, 1964, the Secretary may, with the consent of the mortgagee (in lieu of issuing a certificate of claim as provided in subsection (e)), include in debentures, in addition to amounts otherwise allowed for such costs, an amount not to exceed one-third of the total foreclosure, acquisition, and conveyance costs actually paid by the mortgagee and approved by the Secretary, but in no event may the total allowance for such costs exceed the amount actually paid by the mortgagee: And provided further, That with respect to mortgages to which the provisions of section 302 and 306 of the Soldiers’ and Sailors’ Civil Relief Act of 1940, as now or hereafter amended, apply and which are insured under section 1738 of this title and subject to such regulations and conditions as the Secretary may prescribe, there shall be included in the debentures an amount which the Secretary 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 insurance premiums by reason of its having postponed the institution of foreclosure proceedings or the acquisition of the property by other means during any part or all of the period of such military service and three months thereafter.
(b)Consent to release of mortgagee or property
The Secretary may at any time, under such terms and conditions as he may prescribe, consent to the release of the mortgagor from his liability under the mortgage or the credit instrument secured thereby, or consent to the release of parts of the mortgaged property from the lien of the mortgage: Provided, That the mortgagor shall not be released from such liability in any case until the Secretary is satisfied that the mortgaged property has been sold to a purchaser satisfactory to the Secretary, and that such purchaser has paid on account of the purchase price, in cash or its equivalent, at least 10 per centum of the Secretary’s estimate of the value as of the date the mortgage is accepted for insurance.
(c)Debentures; form and denomination
Debentures issued under this subchapter shall be in such form and denominations in multiples of $50, shall be subject to such terms and conditions, and shall include such provisions for redemption, if any, as may be prescribed by the Secretary with the approval of the Secretary of the Treasury, and may be in coupon or registered form. Any difference between the value of the mortgage determined as herein provided and the aggregate face value of the debentures issued, not to exceed $350, shall be adjusted by the payment of cash by the Secretary to the mortgagee from the General Insurance Fund.
(d)Debentures; execution; negotiability; terms; tax exemptions
The debenture issued under this section to any mortgagee shall be executed in the name of the General Insurance Fund as obligor, shall be signed by the Secretary by either his written or engraved signature, and shall be negotiable. All such debentures shall be dated as of the date foreclosure proceedings were instituted, or the property was otherwise acquired by the mortgagee after default, except that debentures issued pursuant to claims for insurance filed on or after September 2, 1964, shall be dated as of the date of default or as of such later date as the Secretary, in his discretion, may establish by regulation. The debentures shall bear interest from such date at a rate determined by the Secretary, with the approval of the Secretary of the Treasury, at the time the mortgage was accepted for insurance, but not to exceed 3 per centum per annum, payable semiannually on the 1st day of January and the 1st day of July of each year. Such debentures as are issued in exchange for property covered by mortgages accepted for insurance under this section on or after May 26, 1942, shall mature ten years after the date thereof. Such debentures as are issued in exchange for property covered by mortgages accepted for insurance under this section prior to May 26, 1942, shall mature three years after the 1st day of July following the maturity date of the mortgage on the property in exchange for which the debentures were issued: Provided, That any mortgagee entitled to receive such debentures may elect to receive in lieu thereof debentures which shall mature ten years after the date thereof. Such debentures shall be exempt, both as to principal and interest, from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by any Territory, dependency, or possession of the United States, or by the District of Columbia, or by any State, county, municipality, or local taxing authority, and shall be paid out of the General Insurance Fund, which shall be primarily liable therefor, and they shall be fully and unconditionally guaranteed as to principal and interest by the United States, and such guaranty shall be expressed on the face of the debentures. In the event that the General Insurance Fund fails to pay upon demand, when due, the principal of or interest on any debentures issued under this subchapter, the Secretary of the Treasury shall pay to the holders the amount thereof which is authorized to be appropriated, out of any money in the Treasury not otherwise appropriated, and thereupon to the extent of the amount so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such debentures.
(e)Certificate of claim
The certificate of claim issued by the Secretary to any mortgagee shall be for an amount which the Secretary determines to be sufficient, when added to the face value of the debentures issued and the cash adjustment paid to the mortgagee, to equal the amount which the mortgagee would have received if, at the time of the conveyance to the Secretary of the property covered by the mortgage, the mortgagor had redeemed the property and paid in full all obligations under the mortgage and a reasonable amount for necessary expenses incurred by the mortgagee in connection with the foreclosure proceedings, or the acquisition of the mortgaged property otherwise, and the conveyance thereof to the Secretary. Each such certificate of claim shall provide that there shall accrue to the holder of such certificate with respect to the face amount of such certificate, an increment at the rate of 3 per centum per annum which shall not be compounded. The amount to which the holder of any such certificate shall be entitled shall be determined as provided in subsection (f).
(f)Division of excess proceeds
(1)If, after deducting (in such manner and amount as the Secretary shall determine to be equitable and in accordance with sound accounting practice) the expenses incurred by the Secretary, the net amount realized from any property conveyed to the Secretary under this section and the claims assigned therewith exceed the face value of the debentures issued and the cash paid in exchange for such property plus all interest paid on such debentures, such excess shall be divided as follows:
(i)If such excess is greater than the total amount payable under the certificate of claim issued in connection with such property, the Secretary shall pay to the holder of such certificate the full amount so payable, and any excess remaining thereafter shall be paid to the mortgagor of such property: Provided, That on and after September 2, 1964, any excess remaining after payment to the holder of the full amount of the certificate of claim shall be retained by the Secretary and credited to the General Insurance Fund; and
(ii)If such excess is equal to or less than the total amount payable under such certificate of claim, the Secretary shall pay to the holder of such certificate the full amount of such excess.
(2)Notwithstanding any other provisions of this section, the Secretary is authorized, with the consent of the mortgagee or mortgagor, as the case may be, to effect the settlement of certificates of claim and refunds at any time after the sale or transfer of title to the property conveyed to the Secretary under this section and without awaiting the final liquidation of such property for the purpose of determining the net amount to be realized therefrom: Provided, That the settlement authority created by the Housing Amendments of 1955 shall be terminated with respect to any certificate of claim outstanding as of September 2, 1964.
(3)With the consent of the holder thereof, the Secretary is authorized to settle, without awaiting the final liquidation of the Secretary’s interest in the property, any certificate of claim issued pursuant to subsection (e), with respect to which a settlement had not been effected prior to September 2, 1964, by making payment in cash to the holder thereof of such amount, not exceeding the face amount of the certificate of claim, together with the accrued interest increment thereon, as the Secretary may consider appropriate: Provided, That in any case where the certificate of claim is settled in accordance with the provisions of this paragraph, any amounts realized after September 2, 1964, in the liquidation of the Secretary’s interest in the property, shall be retained by the Secretary and credited to the applicable insurance fund.
(g)Handling and disposal of property; settlement of claims
Notwithstanding any other provision of law relating to the acquisition, handling, or disposal of real property by the United States, the Secretary shall have power to deal with, complete, rent, renovate, modernize, insure, make contracts or establish suitable agencies for the management of, or sell for cash or credit, in his discretion, any properties conveyed to him in exchange for debentures and certificates of claim as provided in this subchapter; and notwithstanding any other provision of law, the Secretary shall also have power to pursue to final collection, by way of compromise or otherwise, all claims against mortgagors assigned by mortgagees to the Secretary as provided in this subchapter, except that no suit or action shall be commenced by the Secretary against any such mortgagor on account of any claim so assigned with respect to mortgages insured under section 1738 of this title unless such suit or action is commenced within six months after the assignment of such claim to the Secretary, or within six months after the last payment was made to the Secretary with respect to the claim so assigned, whichever is later: Provided, That section 6101 of title 41 shall not be construed to apply to any contract for hazard insurance, or to any purchase or contract for services or supplies on account of such property if the amount thereof does not exceed $1,000. The power to convey and to execute in the name of the Secretary deeds of conveyances, deeds of release, assignments, and satisfactions of mortgages, and any other written instrument relating to real property or any interest therein heretofore or hereafter acquired by the Secretary pursuant to the provisions of this chapter, may be exercised by an officer appointed by him, without the execution of any express delegation of power or power of attorney: Provided, That nothing in this subsection shall be construed to prevent the Secretary from delegating such power by order or by power of attorney in his discretion, to any officer, agent, or employee he may appoint.
(h)Mortgagor’s or mortgagee’s interest in property or claim conveyed
No mortgagee or mortgagor shall have and no certificate of claim shall be construed to give to any mortgagee or mortgagor, any right or interest in any property conveyed to the Secretary or in any claim assigned to him; nor shall the Secretary owe any duty to any mortgagee or mortgagor with respect to the handling or disposal of any such property or the collection of any such claim.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
The General Insurance Fund, referred to in text, was established by section 1735c of this title. section 302 and 306 of the Soldiers’ and Sailors’ Civil Relief Act of 1940, referred to in subsec. (a)(2), are section 302 and 306, respectively, of act Oct. 17, 1940, ch. 888, 54 Stat. 1178. That Act was amended generally and renamed the “Servicemembers Civil Relief Act” by Pub. L. 108–189, § 1, Dec. 19, 2003, 117 Stat. 2835. As so amended, provisions of the Servicemembers Civil Relief Act that are similar to those contained in former section 302 and 306 of act Oct. 17, 1940, are now contained in section 3953 and 3959 of Title 50, War and National Defense. The Housing
Amendments
of 1955, referred to in subsec. (f)(2), is act Aug. 11, 1955, ch. 783, 69 Stat. 635. For complete classification of this Act to the Code, see
Short Title
of 1955
Amendments
note set out under section 1701 of this title and Tables. Codification In subsec. (g), “section 6101 of title 41” substituted for “section 3709 of the Revised Statutes” on authority of Pub. L. 111–350, § 6(c), Jan. 4, 2011, 124 Stat. 3854, which Act enacted Title 41, Public Contracts.
Amendments
1967—Pub. L. 90–19, § 1(a)(3), substituted “Secretary” for “Commissioner” wherever appearing in subsecs. (a), (a)(2), (b) to (e), (f)(1), (f)(1)(i), (ii), (f)(2), (3), (g), and (h). Pub. L. 90–19, § 1(a)(4), substituted “Secretary’s” for “Commissioner’s” wherever appearing in subsecs. (b) and (f)(3) of this section. Subsec. (g). Pub. L. 90–19, § 1(d), substituted “an officer” for “the Commissioner or by any Assistant Commissioner”. 1965—Subsecs. (c), (d), (f)(1)(i). Pub. L. 89–117 substituted “General Insurance Fund” for “War Housing Insurance Fund”. 1964—Subsec. (a). Pub. L. 88–560, § 105(d)(1), (f), inserted “Provided further, That with respect to any debentures issued on or after
September 2, 1964, the Commissioner may, with the consent of the mortgagee (in lieu of issuing a certificate of claim as provided in subsection (e)), include in debentures, in addition to amounts otherwise allowed for such costs, an amount not to exceed one-third of the total foreclosure, acquisition, and conveyance costs actually paid by the mortgagee and approved by the Commissioner, but in no event may the total allowance for such costs exceed the amount actually paid by the mortgagee:” and struck out of third sentence “paid after either of such dates” after “mortgage insurance premiums”, respectively. Subsec. (c). Pub. L. 88–560, § 105(d)(2), increased limitation on difference between value of mortgage and aggregate face value of debentures issued from $50 to $350. Subsec. (d). Pub. L. 88–560, § 105(d)(3), substituted in second sentence “default, except that debentures issued pursuant to claims for insurance filed on or after
September 2, 1964, shall be dated as of the date of default or as of such later date as the Commissioner, in his discretion, may establish by regulation. The debentures” for “default, and”. Subsec. (f). Pub. L. 88–560, § 105(d)(4)–(8), designated introductory par. as par. (1) and substituted “If, after deducting (in such manner and amount as the Commissioner shall determine to be equitable and in accordance with sound accounting practice) the expenses incurred by the Commissioner, the net amount realized from any property conveyed to the Commissioner under this section and the claims assigned therewith exceed the face value” for “If the net amount realized from any property conveyed to the Commissioner under this section and the claims assigned therewith, after deducting all expenses incurred by the Commissioner in handling, dealing with, and disposing of such property and in collecting such claims, exceeds the face value”; redesignated former par. (1) as (i) and substituted “property: Provided, That on and after
September 2, 1964, any excess remaining after payment to the holder of the full amount of the certificate of claim shall be retained by the Commissioner and credited to the War Housing Insurance Fund; and” for “property; and”; redesignated former par. (2) as (ii); designated concluding par. as par. (2) and inserted proviso; and added par. (3), respectively. 1955—Subsec. (f). Act Aug. 11, 1955, authorized the Commissioner to effect the settlement of certificates of claim and refunds at any time after the sale or transfer of title to the property. 1950—Act Apr. 20, 1950, substituted “Commissioner” for “Administrator” wherever appearing. 1948—Subsec. (b). Act Mar. 31, 1948, substituted “value” for “necessary current cost”. 1946—Subsec. (b). Act
May 22, 1946, substituted “Administrator’s estimate of the necessary current cost” after “10 per centum of the” for “appraised value of such property as determined by the Administrator”. 1943—Subsec. (a). Act Oct. 14, 1943, inserted proviso dealing with losses due to nonforeclosure of mortgages to last sentence. 1942—Act
May 26, 1942, § 14(b), substituted “War” and “war” for “Defense” and “defense” wherever occurring. Subsec. (a). Act
May 26, 1942, § 5, substituted “section 1738 of this title” for “this subchapter”. Subsec. (c). Act
May 26, 1942, § 6, substituted “subchapter” for “section”. Subsec. (d). Act
May 26, 1942, § 7, amended subsec. (d). Subsec. (g). Act
May 26, 1942, § 8, substituted “subchapter” for “section” and inserted “with respect to mortgages insured under section 1738 of this title”.
Reference
Citations & Metadata
Citation
12 U.S.C. § 1739
Title 12, Banks and Banking
Last Updated
Sep 23, 2026
Release point: 119-110