Sec. 05.06.01.19. Claims Procedures

A. Notification. In the event of a default on an insured loan, the lender shall notify the Fund in writing within 30 days of the default. For insured lenders other than the Community Development Administration, all notices shall be sent by certified mail addressed to the Director.

B. Preclaim Period-----Public Agency Lenders.

(1) The provisions of this section apply to all public agency insured lenders.

(2) During the first 6 months after an insured loan is in default, the insured lender may not assign the insured loan and its rights under the mortgage to the Fund and make a claim for insurance unless it receives the prior written consent of the Fund.

(3) After the insured loan has been in default for 6 months, either the Fund or the insured lender may, without the written consent of the other, require the filing of a claim and the assignment of the insured loan to the Fund.

C. Preclaim Period-----Private Lenders.

(1) At the sole discretion of the Fund, the provisions of §B of this regulation may apply to private insured lenders.

(2) If the provisions of §B of this regulation are not applicable to a private insured lender, then at any time after 30 days after the insured lender has notified the Fund of a default in accordance with §A of this regulation, either the Fund or the insured lender may, without the written consent of the other, require the filing of a claim and the assignment of the insured loan to the Fund.

D. Preclaim Action. Upon default and before assignment of the defaulted insured loan to the Fund:

(1) The Fund may require the insured lender to exercise any or all rights under the loan instruments or at law or in equity including, but not limited to:

(a) The appointment of a receiver,

(b) The assignment of rents and rent subsidies,

(c) The exercise of any or all remedies to enforce or collect the indebtedness against the collateral security, or exercising of any rights of offset,

(d) The exercise of any or all rights or the filing of any claims under the collateral project documents, including without limitation policies of title or casualty insurance,

(e) The enforcement of guarantees,

(f) An attempt to obtain a voluntary conveyance by means of a deed in lieu of foreclosure, and

(g) Any other actions as to the project, the borrower, and the insured loan as the loan documents permit and as the Fund may direct;

(2) The insured lender may not take any actions to foreclose, forbear, suspend payment, modify loan terms, or otherwise exercise any of the lender's rights upon default, without the prior written approval of the Fund;

(3) The lender shall:

(a) Advise the Fund as to the possibility of loan modification agreements, suspension of payments to escrows or reserve accounts, or other methods of forbearance or restructuring of the insured loans which would be helpful or appropriate,

(b) Consult with the Fund at all stages, advise the Fund of any possibility of contested proceedings, provide the Fund with monthly operating and management reports on the project, and notify the Fund in writing of all actions taken or proposed to be taken with regard to the project or the loan, and

(c) Propose alternative solutions to cure a default before assigning the insured loan to the Fund;

(4) If the lender fails to comply with §D(1) or (2) of this regulation, then in addition to the right of the Fund to terminate the insurance coverage as provided in Regulation .23B of this chapter, the lender shall pay to the Fund all costs incurred by or losses suffered by the Fund which arise directly or indirectly out of the lender's failure.

E. Foreclosure.

(1) If the lender's actions under §D of this regulation are unsuccessful and it has not made an assignment of the mortgage to the Fund under §B, C, or F of this regulation, the Fund may direct the lender in writing to proceed with a foreclosure action.

(2) The insured lender may not proceed with any foreclosure action without the prior written approval of the Fund. The insured lender shall consult with the Fund at all stages of the foreclosure proceeding, including without limitation any anticipated acquisition of the project by the lender in satisfaction of its debt and the management and final disposition of a project which is acquired by the lender at foreclosure.

(3) The lender shall notify the Fund in writing when a foreclosure sale occurs, which notice shall include the identity of the party that acquires title to the property through foreclosure and the purchase price of the foreclosed project.

F. Assignment of Mortgage to the Fund.

(1) If the lender assigns the insured loan to the Fund, it shall assign all documents evidencing or securing the insured loan. The assignment of the mortgage shall be in writing in a form suitable for recordation among the land records of the jurisdiction in which the project is located.

(2) The assignment shall include:

(a) An assignment to the Fund of all claims of the lender against the borrower;

(b) An assignment of all collateral agreements affecting the financing, construction, use, or operation of the project, including without limitation any leases, rents, federal, State, or local contracts for rent or operating subsidies, letters of credit, bonds, warranties, guarantees, and escrow accounts; and

(c) All policies of title or other insurance or surety bonds or other guarantees and all claims under them.