24 C.F.R. § 1005.805 – Effect of noncompliance.

(a) When a claim case binder is submitted to HUD for consideration, HUD may conduct a post-endorsement review in accordance with § 1005.527. If HUD determines that the Section 184 Guaranteed Loan does not satisfy the requirements of subpart D, HUD will take one or more of the following actions:
1. (1) Reject the claim submission when the Holder is the Originating Direct Guarantee Lender.
2. (2) Pay the claim to the current Holder and demand reimbursement of the claim from the Originating Direct Guarantee Lender.
3. (3) Reconvey the property or reassign the deed of trust or mortgage in accordance with § 1005.849.
4. (4) Pursue sanctions against the Originating Direct Guarantee Lender or Sponsored Entity pursuant to §§ 1005.905 and 1005.907.
(b) When reviewing a claim case binder, if HUD determines:
1. (1) The Servicer failed to service the Section 184 Guaranteed Loan in accordance with subpart G of this part;
2. (2) The Servicer committed fraud or a material misrepresentation; or
3. (3) The Servicer had known or should have known of fraud or a material misrepresentation in violation of this part.
4. (4) HUD may take one or more of the following actions.
  1. (i) Place a hold on processing the claim for reimbursement of eligible reasonable expenses under § 1005.807(b) and provide the Servicer the opportunity to remedy the deficiency.
  2. (ii) Reject the claim for reimbursement of eligible reasonable expenses under § 1005.807(b) partially or in its entirety.
  3. (iii) Reconvey the property or reassign the deed of trust or mortgage in accordance with § 1005.849, where applicable, and require the Holder to refund the claim payment of the unpaid principal balance under § 1005.807(a) and expenses under § 1005.807(b). The Holder may resubmit the claim when the deficiencies identified by HUD are cured.
  4. (iv) Pursue administrative offset for any unpaid amounts owed to HUD pursuant to 24 CFR part 17.
  5. (v) Pursue sanctions against the Servicer or Holder pursuant to §§ 1005.905 and 1005.907.
  6. (vi) Pursue other remedies as determined by HUD.
(c) If a property is reconveyed or the deed of trust or mortgage is reassigned to the Holder, the Holder may not be reimbursed for any expenses incurred after conveyance or reassignment.
(d) If a claim is resubmitted after reconveyance or reassignment and HUD determines a decrease in the value of the property at the time of the resubmission, HUD may reduce the claim payment accordingly.