USDA guaranteed loans: servicing options before foreclosure
7 C.F.R. § 3555.301
In plain words
If you have a USDA Rural Development guaranteed home loan, the lender must contact you promptly after a default, try to learn why you fell behind, and send a certified letter asking for an interview before you are 60 days behind. If you qualify, it must consider options in order: repayment agreement, special forbearance, loan modification, and a mortgage recovery advance. Streamline options may be available later.
Who is protected
Borrowers with a USDA Single Family Housing Guaranteed Loan who live in the home.
When it applies
- Only while you are behind but have no foreclosure notice yet, after a notice of default or once a sale date is set.
- Only for USDA loans.
- Only if the home is your primary residence.
- Traditional servicing requires that you live in the home, that the default is for a reason outside your control, and that you can likely repay going forward.
- These rules are for USDA guaranteed loans (7 C.F.R. part 3555). USDA direct loans follow different rules.
What you can do
Answer the lender's interview letter and apply
Respond to the certified letter, explain the cause of the default with proof, and send the documents the lender asks for.
Open the toolPlan your next steps
Use the strategy planner to compare the USDA options with other paths.
Open the tool
Honest limits
- Options are available only if you meet the eligibility conditions, and the lender is not required to approve any particular one.
- Note: these servicing rules for non-performing loans are in subpart G of part 3555 (§§ 3555.301–3555.307); subpart F covers loans that are current.
- These are rules the government sets for lenders. Whether you can enforce them in court depends on your state: some courts treat them as conditions a lender must meet before foreclosing, others do not.
- This is general legal information, not legal advice, and it does not promise any result. A HUD-approved housing counselor or a lawyer can look at your facts.
The law
- Federal regulationUSDA — general servicing techniques
7 C.F.R. § 3555.301
What it says: Lenders must act promptly, evaluate loss-mitigation actions, contact the borrower, and send a certified letter requesting an interview before 60 days past due.
Read the official texthttps://www.ecfr.gov/current/title-7/part-3555/section-3555.301 - Federal regulationUSDA — traditional servicing options
7 C.F.R. § 3555.303
What it says: Eligible borrowers must be considered, in order, for a repayment agreement, special forbearance, loan modification and mortgage recovery advance.
Read the official texthttps://www.ecfr.gov/current/title-7/part-3555/section-3555.303 - Federal regulationUSDA — streamline servicing options
7 C.F.R. § 3555.304
What it says: After traditional options are exhausted, streamline options may lower the payment without a full financial review.
Read the official texthttps://www.ecfr.gov/current/title-7/part-3555/section-3555.304
Court cases
- Homeowner lostSame topicMartins v. BAC Home Loans Servicing, L.P.
Martins v. BAC Home Loans Servicing, L.P., 722 F.3d 249 (5th Cir. 2013)
a mortgage servicer acting for a properly assigned mortgagee may foreclose in Texas without possessing the original note, and an oral promise to modify a large loan is not enforceable
- Homeowner lostSame topicLage v. Ocwen Loan Servicing LLC
Lage v. Ocwen Loan Servicing LLC, 839 F.3d 1003 (11th Cir. 2016)
a servicer's duty to evaluate a loss-mitigation application depends on its being submitted more than 37 days before the sale date scheduled at that time
- Homeowner lostSame topicGresham v. Wells Fargo Bank, N.A.
Gresham v. Wells Fargo Bank, N.A., 642 F. App'x 355 (5th Cir. 2016) (per curiam) (unpublished)
the federal dual-tracking bar applies only when the servicer receives a complete loss-mitigation application more than 37 days before the foreclosure sale
- Homeowner lostSame topicBoren v. U.S. National Bank Ass'n
Boren v. U.S. Nat'l Bank Ass'n, 807 F.3d 99 (5th Cir. 2015)
a lender may abandon a prior acceleration by giving notice that it seeks less than the full accelerated balance, which restarts the four-year limitations period
- Homeowner lostSame topicWhittier v. Ocwen Loan Servicing, L.L.C.
Whittier v. Ocwen Loan Servicing, L.L.C., 594 F. App'x 833 (5th Cir. 2014) (per curiam) (unpublished)
a RESPA claim against a servicer fails without evidence of actual damages caused by the violation
- Homeowner lostSame topicMilton v. U.S. Bank National Ass'n
Milton v. U.S. Bank Nat'l Ass'n, 508 F. App'x 326 (5th Cir. 2013) (per curiam) (unpublished)
an agreement to delay a Texas foreclosure falls within the statute of frauds and must be in writing to be enforced
Related rights
A fair, on-time review of your application for help
12 C.F.R. § 1024.41(b)(1)
When you apply for help (like a loan modification), your servicer must tell you within 5 business days whether your application is complete and what is missing, if you applied 45 days or more before a sale. If your complete application arrives more than 37 days before a sale, the servicer must review you for every option it has and tell you its decision in writing within 30 days.
Read this rightEarly contact and help information when you fall behind
12 C.F.R. § 1024.39(a)
When you miss a mortgage payment, your servicer must try to reach you live (by phone or in person) by the 36th day of the delinquency and tell you about options to avoid foreclosure. By the 45th day it must send you a written notice explaining loss-mitigation options and how to get help, including housing counselors.
Read this rightFHA loans: a meeting before foreclosure
24 C.F.R. § 203.604(a)(1)
If you have an FHA-insured mortgage, your lender must meet with you — or make a reasonable effort to arrange a meeting — before three full monthly payments are unpaid and at least 30 days before starting foreclosure. A reasonable effort means at least two verifiable attempts to contact you. HUD now decides how the meeting may be held.
Read this rightFHA loans: the lender must look at ways to avoid foreclosure
24 C.F.R. § 203.605(a)
If you have an FHA-insured mortgage, your lender must review loss-mitigation options every month before four full payments are unpaid, and take the appropriate action. FHA options can include special forbearance, loan modification, a partial claim (an interest-free second loan from HUD to cover arrears), a pre-foreclosure sale, or a deed in lieu.
Read this rightVA loans: servicing and workout options before foreclosure
38 C.F.R. § 36.4350(f)
If you have a VA-guaranteed home loan, the lender must have a system to work with delinquent borrowers: try to reach you by phone, send letters that explain your options, and make a face-to-face interview or a reasonable effort to arrange one when it has not reached you. VA lists workout options in order of preference: repayment plan, special forbearance, loan modification, short sale, and deed in lieu of foreclosure.
Read this rightNo foreclosure filing until you are more than 120 days behind
12 C.F.R. § 1024.41(f)(1)
Your servicer cannot make the first notice or filing to start a foreclosure until your loan is more than 120 days delinquent. This gives you time to apply for help. There are narrow exceptions, such as a due-on-sale violation.
Read this right