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FHA · Mortgagee Letter ML 2026-03 · Published

Updates to Bidding at Foreclosure and Post-Foreclosure Sales Efforts

FHA requires mortgagees to bid the Commissioner's Adjusted Fair Market Value to utilize CWCOT procedures, eliminates the small servicer exception, and establishes mandatory default reporting codes for foreclosure and post-foreclosure outcomes. Mortgagees may now bid below CAFMV at foreclosure and elect to convey the property to HUD or forgo claim filing.

Action requiredEffective Apr 29, 2026 · may adopt nowChecks passed· adjusted automaticallyRead the letter ↗ (opens in a new tab)

Loan impact

From the letter text · needs review

Applies to: Applies to all FHA-insured Title II Single Family forward mortgages facing foreclosure or Post-Foreclosure Sales Efforts, except Hawaiian Home Lands Mortgages and Insured Mortgages on Indian Land.

Addressed to
All FHA-Approved Mortgagees
Investor
FHAFrom the publisher, not quoted from the text
Programs
FHAFrom the publisher, not quoted from the text
Affected areas
Valuation; Foreclosure
Affected documents
Appraisal
Exceptions
Hawaiian Home Lands Mortgages; Insured Mortgages on Indian Land
Effective
Apr 29, 2026Sellers may implement immediately
Applicability confidence
Needs review: some rows could not be matched to a quote from the source
Supporting quotes from the letter
  • exceptions“The provisions of this ML apply to all FHA-insured Title II Single Family forward mortgage programs, except for Hawaiian Home Lands Mortgages and Insured Mortgages on Indian Land.”
  • affected areas“This Mortgagee Letter (ML) updates the requirements for bidding at a foreclosure sale and for utilizing Claims Without Conveyance of Title (CWCOT), including Post-Foreclosure Sales Efforts.”
  • affected areas“Unless otherwise directed by HUD, Mortgagees must first obtain and review for accuracy an “As-Is” FHA appraisal, which includes both an interior and exterior evaluation of the Property.”
  • affected documents“Mortgagees must upload the appraisal information and related FHA case number through HUD’s system of record (P260) within 30 Days of the date of the appraisal.”

What changed

From the letter text · Sections III.A.2.p.iii(B)(3), III.A.4.a.ii(G)(6), III.A.2.p.iii(C), III.A.2.p.iii(A)(1)(f), IV.A.2.d.iii, III.A.2.p.iii(C)(1)(b), IV.A.2.a.ii(L)(2)
RequirementPreviouslyNow
Small Servicer ExceptionTightenedRequiredSection III.A.2.p.iii(B)(3)Not statedHUD eliminated the exemption for small servicers.
Foreclosure and CWCOT Outcome ReportingChangedRequiredSection III.A.4.a.ii(G)(6)Not statedMortgagees must report specific Default Default Status (DDS) codes for foreclosure, CWCOT, marketing periods, buyer types, and default terminations at the end of each reporting cycle.
CAFMV Bidding Mandate for CWCOT ClaimsTightenedRequiredSection III.A.2.p.iii(C)Not statedThe Mortgagee must bid the CAFMV to file a CWCOT claim and must use CAFMV for all foreclosure sales and Post-Foreclosure Sales Efforts to utilize CWCOT procedures.
Appraisal Upload to P260NewRequiredSection III.A.2.p.iii(A)(1)(f)Not statedMortgagees must upload appraisal information and the related FHA case number through HUD's system of record (P260) within 30 days of the appraisal date.
CWCOT Claim Form Parts A and B Electronic SubmissionChangedRequiredSection IV.A.2.d.iiiNot statedThe Mortgagee must submit Parts A and B simultaneously no later than 30 Days after the Mortgagee or a third party acquired good marketable title, the Borrower or other party redeemed the Property, the redemption period expired, or another date the FHA Commissioner requires. When filing via EDI, FHA Catalyst, or FHAC, Parts A and B are due no later than two Days after the date the form was prepared; when submitting via FHA Catalyst, the Mortgagee must also submit Parts C, D, and E. In all cases, the Mortgagee must also upload into P260 all Parts of form HUD-27011, the Closing Disclosure or similar legal document for post-foreclosure sales, the appraisal, appraisal invoices, a CAFMV worksheet (with the CAFMV adjustment percentage, any amount paid over the credit bid to acquire the Property at CAFMV and, where applicable, the state-mandated foreclosure price), and any third-party auction service fee invoice.
Bidding Below CAFMV at Foreclosure SaleRelaxedSection III.A.2.p.iii(C)(1)(b)Not statedMortgagees may bid below CAFMV at foreclosure sale and elect to convey the property to HUD as a conveyance claim or retain title and forgo filing an insurance claim.
Reimbursement of Foreclosure Costs Over Credit BidRelaxedSection IV.A.2.a.ii(L)(2)Not statedHUD reimburses Mortgagees 100 percent of amounts actually paid over the credit bid necessary to acquire the property at CAFMV at the foreclosure sale. Mortgagees must list the amount in Item 305 of Part D and provide documentation in P260.

What to do

AWACS interpretation · not source language

What to review: Review foreclosure bidding guidelines, default reporting workflows, and appraisal upload procedures to ensure mandatory CAFMV bidding and reporting updates are established for sales scheduled on or after April 29, 2026, alongside new options to bid below CAFMV.

Servicing

For foreclosure sales scheduled on or after April 29, 2026, bid the Commissioner's Adjusted Fair Market Value without applying small servicer exemptions when filing CWCOT claims, submit electronic claim Parts A and B within two Days of preparation, and report the required Default Status codes at each reporting cycle end.

Appraisal

Upload appraisal information and the related FHA case number into P260 within 30 Days of the appraisal date for foreclosure sales scheduled on or after April 29, 2026.

QC implications

  • Sample CWCOT foreclosure files to confirm bids meet the Commissioner's Adjusted Fair Market Value and that small servicer exemptions are no longer applied for sales scheduled on or after April 29, 2026.
  • Audit appraisal records to verify appraisal data and FHA case numbers are uploaded to P260 within 30 Days of the appraisal date.
  • Review default reporting and claim files to ensure mandatory Default Status codes are reported at each cycle end and electronic Parts A and B submissions occur within two Days of preparation.
  • Validate that any bids placed below CAFMV adhere to the permitted options to either convey the property to HUD or forgo claim benefits.

Source and record

Version 2 · archived

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  • Source verified: Passed

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  • Quotes match the source: Passed, adjusted automatically

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  • In scope: Passed

    The document is about residential mortgage lending.

  • Format and labels: Passed, adjusted automatically

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Version history

  1. Version 2 (current)
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  2. Version 1
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