FHA Publishes Updates to Requirements for Foreclosure Bidding and Claims Without Conveyance of Title

FHA recently published ML 2026-03, significantly refining its appraisal and bidding requirements for the Claims Without Conveyance of Title (CWCOT) program.

FHA’s CWCOT program permits mortgagees to file an FHA insurance claim without transferring title of the property to HUD.  ML 2026-03 establishes that a Mortgagee may only participate in the CWCOT program if the Mortgagee bids the Commissioner’s Adjusted Fair Market Value (CAFMV) at the foreclosure sale.

The CAFMV for each FHA loan is provided by HUD and is HUD’s estimate of its “break-even” bid, taking into consideration HUD’s holding costs during the time it would normally own the asset.  Any bid placed below the CAFMV now requires the Mortgagee to either convey the property to HUD or forgo the FHA insurance claim entirely.  Previously, Mortgagees were permitted to utilize the CWCOT program if the Mortgagee was the successful bidder at foreclosure sale, with a bid less than CAFMV, but the Mortgagee was not able to find a third-party buyer before conveyance. 

Finally, HUD is eliminating the small servicer exemption, which previously permitted smaller servicers (5,000 or fewer qualifying mortgage loans for which the servicer was the creditor or assignee) to participate in the CWCOT program without the bidding constraints imposed on larger servicers.  Now, irrespective of size, servicers must meet the CAFMV bidding threshold to access CWCOT benefits. This move is designed to stabilize the Mutual Mortgage Insurance Fund and streamline post-foreclosure sales efforts by aligning HUD’s processes with broader industry standards.

While these provisions are available for immediate implementation, they become mandatory for all foreclosure sales scheduled on or after April 29, 2026.