FHA walks back Biden-era restrictions on foreclosed property sales

In walking back policies designed to boost participation in foreclosed property sales for nonprofit and government bodies, the Federal Housing Administration (FHA) said that policies put in place in 2022 that restrict certain sales to these entities for a 30-day period have produced “mixed results at best” and will now be rescinded.

Mortgagee Letter (ML) 2022-01 expanded the exclusive listing period for U.S. Department of Housing and Urban Development (HUD) real estate-owned (REO) properties for owner-occupant buyers, HUD-approved nonprofits and government entities from 15 to 30 days. And ML 2022-08 established a 30-day exclusivity period for the same types of entities on FHA’s Claims Without Conveyance of Title (CWCOT) process.

But ML 2025-13, released on Monday, is rescinding these policies and their subsequent incorporation into the Single Family Housing 4000.1 Handbook.

“HUD data over the past several years show, at best, mixed results from these efforts,” the letter reads. “During the new CWCOT exclusive listing period, very few properties have sold to owner-occupant buyers and even fewer were purchased by HUD-approved nonprofits and government entities.

“For REO, it’s unclear whether the longer exclusive listing period resulted in higher overall REO sales to owner-occupants or shifted sales from the original listing period (Days 1-15) and/or the regular listing period.”

Additionally, REO sales to HUD-approved nonprofits and government entities “remain at near-zero levels,” the FHA said. It added that this anemic sales activity “leads to continued deterioration of the properties, as well as additional holding costs, which leads to lower sales prices, greater losses to HUD, and an increase in time before properties are returned to the market.”

The agency will also be updating the relevant sections of the 4000.1 Handbook to reflect this new priority.

The ML updates CWCOT post-foreclosure sales efforts and eliminates both the post-foreclosure and extended post-foreclosure sales period. It also updates CWCOT default reporting requirements for single-family properties, and it rescinds current language while restoring language that existed before the 2022 guidance was handed down by the Biden administration.

CWCOT provisions of the new ML can be implemented immediately. These and the REO provisions of the ML must be implemented by May 30, the letter explained. The relevant 4000.1 Handbook update is forthcoming.