Section 1005.749 - Corrected(a)General. A Section 184 Guaranteed Loan modification may include a change in one or more of the following: interest rate; capitalization of delinquent principal, interest, or escrow items; or re-Amortization of the balance due. A Section 184 Guaranteed Loan modification may not be used as a means to reinstate the Section 184 Guaranteed Loan prior to sale or assumption.(b)Eligibility. The Servicer must ensure that the Borrower is able to support the monthly loan payment after the loan is modified.(c)Borrower qualifications. The Servicer must ensure that the Borrower meets the following eligibility criteria:(1) At least 12 months have elapsed since the closing date of the original Section 184 Guaranteed Loan.(2) The Borrower has not executed a loan modification agreement in the past 24 months. The number of loan modification agreements may be limited as prescribed by Section 184 Program Guidance. The Servicer may approve the first loan modification agreement under the Loan, and HUD must approve any subsequent loan modifications.(3) The Borrower's default is due to a verified loss of income or increase in living expenses.(4) One or more Borrowers receive continuous income sufficient to support the monthly payment under the modified rate and term, although not sufficient to sustain the original Section 184 Guaranteed Loan and repay the arrearage.(5) The Borrower's minimum percentage of net income shall be prescribed by HUD.(6) The Borrower's monthly payment, which consists of principal, interest, taxes, insurance, and other escrow, can be reduced by the greater of 10 percent of the existing monthly Section 184 Guaranteed Loan payment amount but no less than $100, using an agreed upon interested rate in accordance with § 1005.451 and amortizing for a term up to 30 years or any other period as may be prescribed by HUD.(7) The Borrower has successfully completed a three-month trial payment plan based on the Section 184 Guaranteed Loan estimated modification monthly payment amount.(d)Property conditions. The Servicer must conduct any review it deems necessary, including a property inspection, when the Servicer has reason to believe that the physical conditions of the property adversely impact the Borrower's use or ability to support the debt as follows:(1) Financial information provided by the Borrower indicates large expenses for property maintenance;(2) The Servicer receives notice from local government or other third parties regarding property condition; or(3) The property is affected by a disaster event.(e)Trial payment plans. A trial payment plan is a written agreement executed by all parties on the Section 184 Guaranteed Loan, for a minimum period of three months, during which the Borrower must make the agreed-upon consecutive monthly payments prior to execution of the final loan modification.(1)Trial payment plan terms. The Servicer must ensure that the following apply to interest rates and monthly payment amounts under trial payment plan:(i) The interest rate for the trial payment plan and the loan modification must in accordance with § 1005.451 .(ii) The interest rate is established when the trial payment plan is offered to the Borrower.(iii) The established monthly loan modification payment must be the same or less than the established monthly trial payment.(2)Start of trial payments. The Servicer must send the proposed trial payment plan agreement to the Borrower at least 30 days before the date the first trial payment is due.(3)Trial payment plan signatures.(i) All parties on the Section 184 Guaranteed Loan and all parties that will be subject to the modified loan must execute the trial payment plan agreement unless:(A) A Borrower or co-Borrower is deceased;(B) A Borrower and a co-Borrower are divorced; or(C) A Borrower or co-Borrower on the Section 184 Guaranteed Loan has been released from liability as the result of an approved substitute Borrower.(ii) When a Borrower uses a non-Borrower household member's income to qualify for a loan modification, the non-Borrower household member must be on the modified note and Section 184 Guaranteed Loan and sign the trial payment plan agreement.(4)Application of trial payments. The Servicer must treat payments made under the trial payment plan as Partial Payments, held in a suspense account and applied in accordance with procedures in the Section 184 Program Guidance and applicable Federal regulations.(5)End of trial payment plan period. The Servicer must offer the Borrower a permanent loan modification after the Borrower's successful completion of a trial payment plan.(6)Trial payment plan failure. The Borrower fails a trial payment plan when one of the following occurs:(i) The Borrower does not return the executed trial payment plan agreement within the month the first trial payment is due;(ii) The Borrower vacates or abandons the property; or(iii) The Borrower does not make a scheduled trial payment plan payment by the last day of the month it was due.(7)Alternatives to foreclosure after trial payment plan failure. If a Borrower fails to successfully complete a trial payment plan, the Servicer must: (i) Provide notice to the Borrower of the failure to comply with the trial payment plan; and(ii) Offer the Borrower the opportunity for a deed-in-lieu/lease-in-lieu of foreclosure, with seven days to respond to the offer.(8)Funds remaining at the end of trial payment period.(i) At the end of a successful trial payment plan, any remaining funds that do not equal a full payment must be applied to any escrow shortage or be used to reduce the amount that would be capitalized onto the principal balance.(ii)Trial payment plan failure. If the Borrower does not complete the trial payment plan, the Servicer must apply all funds held in suspense to the Borrower's account in the established order of priority.(9)Reporting of trial payment plans. The Servicer must report the trial payment plans to HUD in the manner prescribed in Section 184 Program Guidance.(f)Loan modification documents. HUD does not require a specific format for the loan modification documents; however, the Servicer must use documents that conform to all applicable Tribal, Federal, and State laws.(g)Post-modification review and modification of Loan Guarantee Certificate. Upon completion of a successful trial payment plan and within 30 days of the execution of the loan modification documents, the Servicer shall provide copies of the loan modification documents to HUD. The Servicer shall comply with additional processing instructions as prescribed by Section 184 Program Guidance. 89 FR 20056 , 6/18/2024; 89 FR 22084 , 6/18/2024