§1739 — Title 12 Banks and Banking | U.S. Code

Summary

When a lender forecloses on a mortgage insured under this program, or otherwise takes the property after a borrower defaults with the Secretary’s OK, the lender can get insurance benefits if it quickly gives the Secretary clear title that meets the Secretary’s rules and assigns its claims from the mortgage or foreclosure. Once that happens the lender stops paying insurance premiums. The Secretary will give the lender negotiable debentures (in multiples of $50) whose total face value equals the mortgage “value” (the unpaid principal at the start of foreclosure plus payments the lender made for taxes, insurance, certain assessments and similar items, minus amounts later received from the mortgage or rents). A cash adjustment up to $350 may be added. In some foreclosures where less than 10% of the appraised value had been paid toward principal, certain foreclosure costs may also be included (limits: not more than 2% of unpaid principal and $75, or two‑thirds of the actual cost, whichever is greater). For debentures issued on or after September 2, 1964, the Secretary may, with the lender’s consent, add up to one‑third of approved foreclosure costs. The Secretary must also issue a certificate of claim to make up any remaining amount the lender would have gotten if the borrower had redeemed the property. That certificate earns a 3% per year increment, not compounded. Debentures bear interest up to 3% per year, paid Jan. 1 and July 1, are dated as of foreclosure or default (with special dating rules after Sept. 2, 1964), and usually mature in ten years for post–May 26, 1942 cases (older debentures have different maturity rules or may be converted to ten years). Debentures are tax‑exempt (except certain taxes), are payable from the General Insurance Fund, and are fully guaranteed by the United States. After the Secretary sells or otherwise disposes of the property and pays expenses, any excess net proceeds are used first to pay the certificate of claim; if more remains it may go to the borrower except that excesses after Sept. 2, 1964, may be kept by the Secretary for the insurance fund. The Secretary may manage, renovate, insure, rent, sell, or otherwise handle the property and may collect assigned claims, but suits on assigned claims must start within six months after assignment or the last payment, whichever is later. Lenders and borrowers get no property rights or special duties from the Secretary after conveyance.

Title 12, §1739

Banks and Banking — Source: USLM XML via OLRC

(a)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 1940,11 See References in Text note below. 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)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 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)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)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)(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)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)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.

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”.

§1739 Mortgage Insurance Benefits

Summary

Title 12, §1739

Notes & Related Subsidiaries

Editorial Notes

References in Text

Amendments

Short Title

Amendments

Amendments

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