The U.S. Department of Housing and Urban Development (HUD) recently took concrete steps toward addressing industry concerns and uncertainty related to the Claims Without Conveyance of Title (CWCOT) foreclosure bidding process. Ultimately, mortgagees still must bid the Commissioner’s Adjusted Fair Market Value (CAFMV) at foreclosure sale to file a CWCOT claim with HUD, but pursuant to Mortgagee Letter 2026-03, mortgagees now also have the option to bid less than the CAFMV and file a conveyance claim with HUD. This conveyance claim option provides a potentially workable solution to concerns raised in 2025 related to HUD’s last round of CWCOT-related guidance.

The Fair Housing Administration’s (FHA) CWCOT program allows mortgagees to market foreclosure sales or post-foreclosure sales of properties securing FHA-insured loans to the public. Opening foreclosure sales to the public is generally intended to result in quicker and higher priced sales of foreclosed properties to third parties, benefiting the overall available housing supply and FHA’s Mutual Mortgage Insurance Fund. In July 2025, HUD issued “FHA Info 2025-36 – Reminder Guidance for FHA-Approved Mortgages Regarding Claims Without Conveyance of Title Bidding Policy” (“Reminder Guidance”). The Reminder Guidance emphasized that “mortgagees are required to submit a foreclosure sale bid at either” CAFMV or “the state-mandated foreclosure price, where applicable.” The CAFMV is a HUD-generated estimate of the property’s market value, which accounts for expected expenses and risks associated with selling the property. The Reminder Guidance also acknowledged “that in some cases a mortgagee’s total debt may be lower than the CAFMV, which may require mortgagees to advance funds at the foreclosure sale.” In short, the Reminder Guidance indicated CAFMV and total debt are not the same concepts, meaning bidding total debt at a foreclosure sale would not necessarily entitle a mortgagee to file a CWCOT claim.

The Mortgage Bankers Association (MBA) sent a letter to HUD detailing its concerns with the Reminder Guidance. The letter outlines how, pursuant to past guidance and training from HUD, industry participants historically operated with the understanding that “CAFMV should be adjusted to equal” the total debt “when the CAFMV exceeds” the total debt. The letter points out several concerns with abandoning this historic approach for the more hardline position in the Reminder Guidance, including:

• Bidding more than total debt at a foreclosure sale would require mortgagees to “send representatives to every foreclosure sale as a buyer with cash or [a] cashier’s check to cover any portion of the bid exceeding” total debt;
• HUD would be required to reimburse mortgagees for any amount paid in excess of total debt, but the current HUD processes do not clearly outline such a reimbursement mechanism; and
• Requiring mortgagees to bid more than total debt runs the risk of a higher number of properties not selling to third parties, which would undercut part of the fundamental purpose for the CWCOT program.

To address these concerns, the letter advocated for HUD to issue formal guidance stating the “CAFMV should be adjusted to equal” total debt “when the CAFMV is greater than” total debt.

While Mortgagee Letter 2026-03 does not provide the solution advocated for in the MBA’s letter, it does seemingly address many of the key concerns. The Mortgagee Letter makes several changes to the text of FHA’s Single Family Housing Policy Handbook 4000.1 governing the CWCOT program, including:

• Adding a new concept of the mortgagee being able to bid less than CAFMV at a foreclosure sale, with mortgagees now having the following options for bidding at foreclosure sales:
  • Mortgagee may bid an amount equal to CAFMV – if the mortgagee is the winning bid at the foreclosure sale, the mortgagee may then do one of the following:
    • Retain the property and file a CWCOT claim with HUD;
    • Convey the title to the property to HUD and file a conveyance claim with HUD; or
    • Proceed with post-foreclosure sales efforts.
  • Mortgagee may bid less than CAFMV – if the mortgagee is the winning bid at the foreclosure sale, the mortgagee may then do one of the following:
    • Convey the title to the property to HUD and file a conveyance claim with HUD; or
    • Retain title and not file a claim with HUD.
  • Mortgagee may bid greater than CAFMV – if the mortgagee is the winning bid at the foreclosure sale, HUD will view the mortgagee as electing to retain title to the property, unless the mortgagee was required to bid greater than CAFMV by a relevant local authority.
• Meaningfully expanding the post-foreclosure sale guidance, including providing mortgagees the following claim options based on whether a third party is the successful bidder at the post-foreclosure sale:
  • If a third party is the successful bidder for less than CAFMV, the mortgagee may not file a claim for any insurance benefits;
  • If a third party is the successful bidder for an amount equal to or greater than CAFMV, then the mortgagee may submit a CWCOT claim; or
  • If the property is not sold at the post-foreclosure sale, the mortgagee may either:
    • Retain title to the property and not file a claim with HUD; or
    • Convey the title to the property to HUD and file a conveyance claim with HUD.
• Providing for reimbursement of funds advanced above total debt, stating “HUD will reimburse Mortgagees 100 percent of amounts actually paid by the Mortgagee over the credit bid necessary to acquire the Property at CAFMV at the foreclosure sale.”
• Removing the small servicer exemption to the CWCOT program, meaning small servicers are now effectively required to participate in the CWCOT program.

Mortgagee Letter 2026-03 “may be implemented immediately but must be implemented for foreclosure sales scheduled on or after April 29, 2026.” As a result, mortgagees should start reviewing and implementing the various foreclosure bidding and associated claim options now available under the updated CWCOT program. Additionally, small servicers that have historically relied on the small servicer exemption to the CWCOT program should begin to prepare in earnest for the April 29, 2026, implementation deadline.