PLG Analysis: High Level Overview of Mortgagee Letter 2026-03- Updates to Bidding at Foreclosure and Post-Foreclosure Sales Effort.

Mortgagee Letter 2023 - 03 (Items Shown in Blue Indicate Newly Added Content):

Small Servicers:

• • Eliminates the exemption for small servicers because they can convey the Property to HUD instead if they are unable to meet the CAFMV bidding requirement.

Determining the CAFMV (page 4 & 5 of the ML- adds new language):

(b) Standard

(i) Foreclosure Sales:

After determining the Property’s appraised value using the most recent appraisal, the Mortgagee’s authorized employees must access the CAFMV link in FHAC to determine a Property’s CAFMV. The CAFMV remains valid and in effect for 120 Days from the date of the appraisal. Mortgagees may, but are not required to, update the CAFMV if the CAFMV is updated by HUD within the 120-Day validity period. If the 120-Day validity period expires, Mortgagees must update the CAFMV.

(ii) Post-Foreclosure Sales Efforts Prior to listing the Property for Post-Foreclosure Sales Efforts, the Mortgagee must check FHAC. If the CAFMV has been updated, the Mortgagee must use the updated CAFMV for Post-Foreclosure Sales Efforts. In addition, if the Property was valued through an exterior-only appraisal and is vacant following the foreclosure sale, the Mortgagee must obtain a new appraisal that includes both an interior and exterior inspection and update the CAFMV accordingly.

Bidding at the Foreclosure Sale (pages 5 & 6 - new language):

(C) Bidding at the Foreclosure Sale At the foreclosure sale, the claim and disposition requirements depend on whether the successful bidder is the Mortgagee or a third party and on the bid amount relative to the CAFMV.

The Mortgagee must bid the CAFMV to file a CWCOT claim.

All conveyances must meet the requirements for Conveyance of Acquired Properties (III.A.2.r)

Mortgagee as Successful Bidder (new language, page 6)

(a) Amount Equal to the CAFMV:

If the Mortgagee is the successful bidder for an amount equal to the CAFMV, the Mortgagee may:

• • retain the Property and file a claim for insurance benefits under CWCOT;

  • convey the title to the Property to HUD and file a claim for insurance benefits as a conveyance claim; or

  • proceed to Post-Foreclosure Sales Efforts.

Amount Less than CAFMV (this is new):

Where the Mortgagee is the successful bidder at the foreclosure sale for an amount less than the CAFMV, the Mortgagee may either:

• • convey the Property to HUD and file a claim for insurance benefits as a conveyance claim; or

  • retain title and not file a claim for any insurance benefits.

Third Party as Successful Bidder (new language page 7, use to state must):

(b) Amount Equal to or Greater than CAFMV Where a third party is the successful bidder at the foreclosure sale for an amount equal to or greater than the CAFMV, the Mortgagee may submit its claim for insurance benefits under CWCOT.

Borrower or Third-Party Redemption (new language page 7, use to state must):

Notwithstanding the foreclosure sale, the Borrower or a third party may exercise a legal right and redeem the Property. Where the Borrower or a third party redeems the Property and acquires title for an amount not less than the CAFMV, the Mortgagee may submit its claim for insurance benefits under CWCOT.

CWCOT Post-Foreclosure Sales Efforts (new language, page 7):

(1) Definition:

Post-Foreclosure Sales Efforts refer to an additional opportunity to attempt to sell a Property at the CAFMV prior to conveying the Property to HUD.

(2) Standard

(a) Eligibility

Mortgagees may participate in Post-Foreclosure Sales Efforts only if the Mortgagee bids the CAFMV at the foreclosure sale.

(b) Requirements for Post-Foreclosure Sales Efforts:

To facilitate CWCOT Post-Foreclosure Sales Efforts, the Mortgagee may contribute an additional amount needed to raise a third party’s bid to the CAFMV and allow the sale of the Property to such third party. HUD will not reimburse any contribution by the Mortgagee to facilitate the sale through the FHA insurance claim.

The Mortgagee or its third-party provider must indicate that the Property is being sold in an as-is condition, and the condition is unknown and may include defects, possible health or safety hazards, or debris, or the Property is located in a Special Flood Hazard Area (SFHA).

Third Party as Successful Bidder at Post-Foreclosure Sales Efforts (pages 8 through 9, new language):

(i) Amount Less than CAFMV:

Where a third party is the successful bidder at Post-Foreclosure Sales Efforts for an amount less than the CAFMV, including any Mortgagee contribution, the Mortgagee may not file a claim for any insurance benefits.

(ii) Amount Equal to or Greater than CAFMV:

Where a third party is the successful bidder at Post-Foreclosure Sales Efforts for an amount equal to or greater than the CAFMV, the Mortgagee may submit its claim for insurance benefits under CWCOT.

(iii) Property Not Sold at Post-Foreclosure Sales Efforts:

Where the Property does not sell to a third party at PostForeclosure Sales Efforts, the Mortgagee may elect to:

• • retain title to the Property and not file a claim for any insurance benefits; or

  • convey the title to the Property to HUD and file a claim for insurance benefits as a conveyance claim

This overview does not cover Foreclosure and Acquisition Costs (IV.A.2.a.ii(L)) pages 10 through 13 of ML.

Padgett Law Group has reviewed ML 2026-03 and attempted to identify all the changes contained therein. The items included below were copied/pasted and retyped, so manual error may have occurred. Further, FHA may at any time update, change, remove or otherwise alter any of the resources referenced herein, and readers are encouraged to regularly review FHA’s source materials for any relevant updates, changes or alterations. Please review the ML in its entirety and do not rely solely on this document. The information contained herein is general in scope and is being provided as a courtesy only and does not constitute legal advice nor is it intended to be relied upon as such. The information is general in scope and not intended to be specific to any particular loan or property. Due to the dynamic nature of governmental and agency guidelines, and the nature of interpretation of laws, regulations, rules and guidelines in general, PLG cannot predict, represent or guarantee how any information provided herein will impact any particular case or group of cases. PLG is not responsible for any third party links, documents or other materials that may be linked herein and subsequently updated, changed, or altered that may materially impact the information contained herein.