Draft_MMB_PWS.pdf

SECTION C – DESCRIPTION/SPECIFICATIONS/WORK STATEMENT

C.1 OVERVIEW

The Rural Housing Service of USDA (hereinafter referred to as USDA) intends to procure contractor provided services for the purpose of:

1. 310,745 properties for single family direct portfolio of loans.

2. Providing 330,384 loans due to multiple loans for some borrowers. The Contractor selected by USDA will be awarded a contract for all existing loans and loans that require services described herein and that are originated during the period of the contract.

C.1.1 Background

USDA provides loans to low and moderate income applicants located in rural geographic areas to assist them in obtaining single family housing through multiple programs. As of December 31, 2012 USDA had approximately 325,000Direct Single Family Housing loans that represent approximately 298,000 borrowers.

Section 502 Direct loans are generally secured by first mortgages on modest dwellings located on non-farm tracts of one acre or less. A limited number are larger than one acre of land with the home. The Single Family Housing Direct loans are located in each of the 50 states and U.S. territories that include Puerto Rico, Guam and its islands and the Virgin Islands. Since multiple loans may exist on a single property, service may be necessary on multiple loans for one account. Approximately 11,000 single family loans are originated per year.

NOTE TO OFFERORS: Offeror’s should indicate ability to handle the default and legal services for U.S. Territories and ability to provide service on a Nationwide portfolio with and without subcontracting for a regional and/or national portfolio that includes U.S Territories and Tribal Lands.

USDA currently processes all loan originations through State Offices and approximately 550 Field Offices. The Centralized Servicing Center (CSC), located in St. Louis, Missouri provides support to the field offices for loan originations and is responsible for most servicing functions. Currently the Single Family Direct loan program is 81% current.

USDA is currently utilizing MortgageServ (Loan Serv, et al) loan servicing and UNIFI loan origination system.

The focus of our centralized default management division is to minimize risk to the Federal Government and taxpayer.

It is further designed to reduce the cost associated with servicing defaulted customers.

The Foreclosure and REO portfolios are currently serviced in a “mixed servicing” environment. Approximately 60% of the states are serviced by CSC with the remainder being serviced throughout the country by the State and/or Field Offices.

All Servicing is in accordance with Code of Federal Regulations, USDA Handbook 3550, state laws/statutes, and Housing Act of 1949. This is required for any interested contract provider.

C.1.2 Objectives

USDA expects, with the assistance of the selected Contractor(s), to achieve the following goals (please note it is the goal of USDA to award four regions and potentially four contractors under these requirements):

• Comply with all laws, regulations, statutes and CFR that governs the Single Family Housing (SFH) Direct borrowers.

• Provide the Agency with services related to Default Management processing of at risk, defaulted, foreclosed and/or inventory properties.

• Maintain a centralized function within USDA for the tracking and administration of property maintenance, preservation and disposition.

• Establish consistent procedures, on a national level, for the processing of delinquent customers that have advanced through the default processes, entered foreclosure, bankruptcy and/or property acquisition.

• Reduce the hold time of foreclosure and/or inventory properties that result from borrowers defaulting on mortgages.

• Implement innovative cost effective/automated methods of servicing default, foreclosed, bankrupt or acquired properties.

• Complete USDA mission of providing supervised credit for homeownership in rural America.

• Utilize a Contractor to obtain data, services, appraised value (appraisals are a separate contract as are legal services and awardees of other contracts must utilize the USDA awarded vendor), legal services, maintenance, preservation and disposition in a timely cost efficient manner.

• Establish a consistent service for CSC and all defaulted borrowers properties to allow for disposition of the property timely, effectively and efficiently.

• Providing Check printing service when requirements are made by the local jurisdiction for a cashier’s check or certified funds at no additional costs to USDA.

• Only for the purpose of Disaster Recovery in a Catastrophic Level 4 situation (e.g.; Regional devastation with excessive damage to USDA office in St. Louis, MO; earthquake, bridge infrastructure depletion, nuclear detonation), Continuity of Operations Plan which incorporates the use/renting of the contractor’s facilities and equipment.

• Provide a conversion cost in the event there is a conversion cost such as data base extraction for initiation of the contract.

NOTE: Award of this contract does not guarantee the Contractor any minimum number of accounts during the term of this contract, although an estimate of the number of accounts is provided.

The contractor shall be responsible for filtering the data based on mutually agreed business specifications to identify the government’s exposure to loss and/or compliance to regulations. The contractor shall provide immediate coverage for the portfolio during any transition or development phases.

The Contractor shall be, at minimum, regional in scope since it will be supporting an USDA portfolio that is located in all 50 states as well as U.S territories. These states and territories are being divided into four regions. The contractor shall meet the following minimum qualifications in order to meet the servicing criteria:

• Have a minimum of five (5) years experience in the Real Estate Property Management, Maintenance, Inspection and all other Default Services industry;

• Service or have serviced more than one client with a minimum of 50,000 customers;

• Service more than one client with MortgageServ, or have a system interface that gets data into MortgageServ, using the standard or custom default programs with electronic interface and reporting; and

• Must use automated interfaces with USDA

• Vendor will not utilize overseas or foreign operations to complete work

USDA expects that the Contractor will enhance USDA’s ability to provide supervised credit in rural America in its role of lender of first opportunity.

C.1.3 Current Single Family Housing Direct Loan Portfolio

As stated above, USDA currently maintains a portfolio of approximately 325,000 Direct Single Family Housing loans for 298,000 borrowers. As of December 31, 2012, the outstanding principal due on these loans was $16.9 billion.

Attachment 1 details the existing portfolio by state. Approximately11,000 new single-family housing loans are originated each year. This number can go up or down depending on the needs of the public and funding.

USDA originates loans on existing dwellings and provides for the construction of single family dwellings that become permanent mortgage loans when the construction is completed. USDA will provide financing to qualified borrowers for the parcel of land and provide interim disbursements during the construction period (including tribal land). USDA typically issues mortgage loans for thirty-three (33) year term, with a maximum of thirty-eight (38) years. The term of the permanent loan is shortened by the length of time the construction loan was in effect. USDA will also provide financing on manufactured housing that has been placed on a permanent foundation. Mortgages on manufactured housing cannot exceed a thirty year term.

USDA provides supervised credit to borrower’s that is intended to be temporary in nature. It is anticipated that through agency supervision borrowers will become successful homeowners and will graduate to permanent financing that is available through mortgage lenders in the private sector. Borrowers that meet USDA criteria will be reviewed every two years to determine the availability of financing through private sector. Borrowers that meet agency defined criteria will be solicited for graduation to financing in the private sector. Borrowers that meet USDA criteria will be reviewed every two years to determine the availability of financing through private sector lenders. Local supervisors are required to maintain contacts with local lenders and survey the current rates and terms that might be available to USDA borrowers who are considered eligible for graduation to private sector financing. Once the borrower has found financing in the private sector the obligation with USDA will be satisfied. Under certain situations USDA may elect to subordinate a portion of its debt to the new lending institution. When subordination occurs USDA will typically cease some servicing related activities.

C.2 Default Management of USDA Loans-Current Processes

C.2.1 Loan Servicing

USDA is currently utilizing a decentralized model for servicing foreclosure and inventory properties in approximately 40% of the country. CSC services the remainder of the country. In all states, foreclosure services are contracted through a decentralized contract acquisition process. Once a property is vacant or in the Agency’s custody through the “custodial” process and/or REO, CSC utilizes a nationwide vendor to handle the 60% of those properties that CSC has responsibility to service (this is commonly referred to as “Centralized States”).

CSC and State Office Staff currently work case files with either Office of General Counsel (OGC), Department Of Justice (DOJ) and/or private attorneys in all cases.

2.2 Loan Originations

USDA is a nationwide lender. Loan originations are currently handled by field staff located in approximately 550 Local Offices that process 3,500 new applications monthly, with a current inventory of 60,000 loan applications. Local offices are responsible for all program outreach and loan origination activities including initial applicant review; loan application processing; appraisal ordering and tracking; credit report ordering and tracking’ underwriting’ loan closing activities. The Local Office Staff performs most loan origination activities, and prepares all loan documents through automation. The new loans are uploaded from the Unifi system to MortgageServ.

USDA provides payment assistance for approximately 60% of its current borrowers. During the origination process borrowers are qualified as to their ability to meet Agency guidelines. Borrowers are also qualified as to their need of financial assistance in order for them to become successful homeowners. While the typical borrower will not meet the income and down payment requirements of the private sector, borrowers must fall within specific income levels based on the size of the household established by USDA for each locale. USDA will consider multiple loans to borrowers for purchasing a home and for subsequent improvements.

Funds that are available for RH lending activities are appropriated by Congress on an annual basis. The current direct lending activity is static with funding for approximately 15,000 new loans annually. Since 1949 the new origination volume has averaged in excess of 40,000 new originations annually. During the peak lending years new originations have been in excess of 75,000 new loan originations. USDA has little control over the number of new originations closed since the funding for such financing is controlled by Congress. These volumes indicate that USDA has the ability to issue a large volume of loans in a single year.

C.3 Loan Originations- Automation

USDA is not able to issue a guarantee of new origination volumes to forecast the default volume, since funding is ultimately controlled by Congress.

USDA’s new Loan Origination (UNIFI)/Loan Servicing (Mortgage Serv) system will have the capability to interface with the contractor’s system for the purpose of establishing the identical data throughout the servicing environments should a loan reach a default level that requires services from contractor.

The Contractor shall utilize electronic transmission of data from the USDA loan servicing system (Attachment 2 are the system requirements)

The frequency with which automated interfaces will occur for the purposes of establishing new loans to complete data base sync for service will be monthly, however, if it is anticipated there is a mutually beneficial timeframe for this purpose that can be determined between the vendor and USDA.

All defaulted loans will be considered under service immediately upon submission by USDA to contractor.

The Contractor shall be responsible for obtaining all data to protect the Government’s interest during the default process.

C.4 Conversion

C.4.1 Accounts

Default accounts will be established for service on a case by case basis. All accounts are subject to default services and that activity is not predictive. There are two conditions under which loans will be established for service.

1. New Loans underwritten by USDA.

2. Loan already in default stages of foreclosure, bankruptcy (USDA is procuring legal services only for this function under separate contract), custodial transactions and acquired at the time of contract award.

NOTE: The “special” servicing actions that constitute USDA assistance will be defined as Re-amortization, Assumption and Delinquent Workout Agreement (DWA). The DWA is similar to the mortgage industry’s Forbearance Agreement and is established when a borrower requires more than four months to repay the arrearage on the loan.

C.4.2 Conversion of Existing Loans currently in Default, Custodial or Acquired Stages

USDA currently has approximately 16,186 loans that are currently in foreclosure with varied contract vendors for varying default services throughout the country. There are currently 6,104 bankruptcy accounts that USDA will engage legal services through a separate contract and there are 1,269 inventory properties which will be serviced under this contract.

The Contractor that is selected by USDA shall be responsible to convert these loans to its data base utilizing electronic transfer of records from the mortgage system, CSC’s foreclosure, REO online templates and/or through existing Contractors. The conversion of the existing loans that are carrying data shall be completed at no cost to the Government.

The process of converting existing loans to a new service will take place immediately upon the official contract execution date.

C.4.3 Default Servicing Conversion of Existing Account Numbers.

USDA currently identifies each loan by a unique borrower identification number (maximum of ten digits). This borrower identification number is the basic identifier for all single family housing loans from endorsement to maturity or payoff.

The borrower identification number is used to link multiple loans to a single borrower.

In the event that USDA establishes a new account number for the existing portfolio, USDA will deliver to the contractor within thirty calendar day’s documentation that identifies the old account number and the corresponding new account number. In this instance, the Contractor shall disregard the common industry practice of considering a change in account number to be a new loan that is subject to a full fee. The contractor shall treat this change in account number as data maintenance with no cost to the Government.

This change in account number will be performed by utilizing electronic transmission of data that includes the old account number, new account number, and the borrower’s name. The Contractor shall accept the method of communicating the account number change that is deemed to be most advantageous to USDA.

Notices of any default actions will be made electronically on all accounts and the accounts shall contain the new account number provided by USDA within thirty day calendar days of this information being provided by USDA.

The Contractor shall provide USDA with a listing (scanned copy or electronic transmission) of those records that are either deemed to be incorrect, or that have no matching record identified. This information shall be provided by the Contractor within ten business days of receipt of the new account number from USDA.

USDA will then supply corrected data to the Contractor within thirty calendar days. The Contractor shall then reflect the corrected account number on all information provided to USDA within thirty calendar days of receipt of the correction.

C.4.4 Default Service Conversion Method

Default service shall be established for the existing loans utilizing a combination of automated data transfer ( See Attachment 2) and images of loan documents. USDA images mortgage documents and any partial releases. The Contractor shall have the ability to accept these documents in any electronic format designated by the Govenment or any other agreed to automated format.

C.4.5 Verified Conversion

All existing loans will be converted in “verified manner”. “Verified manner” is defined as utilizing USDA provided information concerning the mortgaged property and other pertinent identification numbers assigned to the property by USDA or another authority. The USDA provided information includes the case number, borrower’s name, mailing address and the state in which the property is located.

The Contractor shall undertake all actions deemed necessary to assure that status of property condition that are provided to USDA are accurate and appropriate for the individual loan that has been established on the Contractor’s records.

The Contractor shall be responsible for providing accurate and complete information, bills and condition of property after a 30 calendar day verification period but no later than thirty calendar days prior to the next calendar month for each individual loan.

The Contractor shall be responsible for any penalty, loss or incorrect disbursement should the Contractor fail to properly identify the correct land parcel during this verification. If USDA has provided incorrect data to the Contractor, the responsibility for penalties will reside with USDA.

C. 5 Requirements Unless otherwise specified, standard completion time is considered 7 calendar days from order. Rush orders are to be completed within 72 hours of order. Critical Rush is to be completed within 24 hours.

C.5.1 Foreclosure Services: The contractor shall provide an assessment if it is determined that the Management, Maintenance and Brokerage servicer can move the property legally and timely. It is the desire of the Government to engage in pro-active means with customers to have post acceleration borrower counseling via this contract by the prevailing vendor(s). .

C.5.2. Foreclosure -

5.2.1 Security Title The Contactor will perform all services, or utilize legal contract vendors as necessary, required to obtain security property title. A typical transaction is itemized below. Transactions may require more or less steps to complete a foreclosure action in accordance with Federal, State, and local laws, regulations, instructions, policy, practices, and procedures.

5.2.1.2 Communicate with debtors, senior lien holders and junior lien holders alternative resolution proposals.

The Contractor is not authorized to obligate the Agency to any alternative resolution proposals. Communicate all proposals to the Agency within 72 hours of receipt. The Agency will provide the contactor with written instructions and authorization to either reject said offers or consummate said offers. An example short sale requests.

5.2.1.3 Request the bidding instructions from the Agency. The Contractor is not authorized to bid on behalf of the Agency without written bidding instructions from the Agency. Bidding instructions provided by the Agency will include any funds required to carry out said instructions.

5.2.1.4 Attend the Foreclosure Sales and enter the bid on behalf of the Agency.

5.2.1.5 Report to the Agency within 48 hours of the sale who the successful bidder was and the successful bid.

This can be done via the telephone or e-mail.

5.2.1.6 The Contractor will then provide the Agency with a written report summarizing the Foreclosure Sale outcome and the original recorded Trustee’s Deed. Any proceeds due the Agency will be returned to the Agency within 5 working days of receipt by the Contractor.

5.3 Eviction/Possession The Agency will notify the Contractor if they are to engage in the eviction process. This could either be handled by MM&B contractor under this contract or Contractor can work with legal Contractor to process eviction. If the Contractor is to conduct an eviction, they are to prepare all documentation, record, post, mail, publish and serve said documentation in accordance with State law. If necessary, this can be issued to legal services Contractor of the USDA. The Contractor will notify the Agency once the home is vacant.

5.4 Deed in Lieu of Foreclosure

5.4.1 The Contractor shall negotiate a deed in lieu of foreclosure after the borrower posts case assignment. Final approval must be sought from the Agency. The Contractor must obtain the following items from the borrower: (1) a Quit Claim Deed; (2) Form USDA 1955-1, Offer to Convey Security; (3) Form USDA 1944-3, Budget and/or Financial Statement;

and (4) copies of any leases or other documents affecting the title to the property. The borrower must be informed that the deed will not be recorded unless the conveyance is accepted. The Contractor must coordinate with the borrower to vacate the premise, remove all personal property and leave the home in a clean, habitable condition.

5.4.2 Generally, borrowers will be required to satisfy liens and real estate taxes or assessments before conveyance is accepted. However, if the borrower is unwilling to do so, the Contractor shall notify the Contracting Officer’s Representative or designee. The Agency may elect to satisfy or settle these debts if it is in the best interest of the Government.

5.4.3 A deed in lieu of foreclosure does not automatically release the borrower from liability for any outstanding debt.

The borrower’s account will be credited with the actual net recovery value. If the actual net recovery value does not satisfy the debt, the remaining debt must be debt settled by the Agency’s Centralized Servicing Center. The Contractor shall notify the borrower that under a deed in lieu of foreclosure:

5.4.3.1 Foreclosure action will not be suspended while the offer for a deed inlieu of foreclosure is considered;

5.4.3.2 All costs related to conveyance paid by the Agency will be added to the debt;

5.4.3.3 A credit equal to the actual net recovery value will be applied to the debt;

5.4.4.4 If the borrower does not satisfy the debt, the borrower will not automatically be released from liability;

5.4.4 Title Defect Attorney will correct any title defect or deficiency, and will work with MM&B contractor in accomplishing task, protecting the Agency’s interest prior to proceeding with any foreclosure action.

5.5 Unusual Situations: The Contactor must report all situations that arise outside of the normal process to the Contracting Officer’s Representative or designee within 3 calendar days after the situation comes to the Contractors attention.

5.6 Deliverables

5.6.1 Acknowledgement of Assigned Cases Within 3 calendar days after physical acceptance of a borrower case file, the contractor shall acknowledge receipt by written memorandum to the COR. A single memorandum may acknowledge receipt of multiple cases. Memorandums may be delivered via e-mail or online automated portal.

5.6.2 Communication The contractor shall document all communication with the borrower in writing and provide a copy to the Contracting Officer’s Representative.

5.6.3 Status Report The contractor shall provide a monthly case status report by the 10th calendar day after completion of the month. Reports must include: Order number, Name of borrower, loan number, property address, date of order, status of the account, date Notice of Sale was recorded or sent, date of the sale, time of sale, address of sale, and outcome of sale. Additional information for Eviction/Possession, and Deed in Lieu shall be provided that includes all pertinent dates.

5.6.3.1 Notice of Sale. Copy of the recorded Notice of Sale within 30 calendar days of receipt.

5.6.3.2 Deed in Lieu. Original, recorded Deed in Lieu immediately upon receipt.

5.6.3.3 Trustee’s Deed. Original, recorded Trustee’s Deed immediately upon receipt.

These steps will be completed if the MM&B retains handling through this stage verses legal.

5.7 STANDARDS

5.7.1 Statutes, Laws and Regulations. All legal, enforcement and collection actions on the part of the contractor must be in compliance and consistent with all Federal, State and local statutes, regulations and ethical standards which apply to the liquidation of real estate collateral and collection of debt. These include but are not limited to:

• Privacy Act of 1974, as amended (5 U.S.C. 552a)

• The Fair Debt Collection Practices Act (15 U.S.C. 1692 st seq.)

• The Debt Collection Act of 1982, as amended (P.L. 97-365)

• The American Bar Association Model Rules and Professional Responsibility (1983)

These statutes and standards, as well as other applicable Federal, State and local laws and regulations pertaining to the Government as a whole are incorporated by reference in this Performance Work Statement and are considered as a part of the contract. Violation of applicable law, regulation or ethical standards shall be cause for termination of the contract for default.

5.7.2 Clarification of Statutes, Regulation These statutes and standards, as well as other applicable Federal and State laws and regulations pertaining to the Government as a whole are incorporated by reference into this agreement and are considered a part of any resulting order. Violation of applicable law, regulation or ethical standards shall be cause for termination of this agreement or orders issued in accordance with this agreement.

5.7.3 USDA Role USDA will provide, upon request, any regulation and discussion of the same necessary to execute the duties under this agreement. FmHA/USDA Instructions/Regulations are available for review, on request, at the USDA Area Office nearest the contractor’s office and online at http://www.rurdev.usda.gov/RegulationsAndGuidance.html.

5.7.4 Appraisals - All appraisals shall be completed by USDA awarded vendor under separate contract. These will be obtained by MM&B vendor via USDA vendor on USDA business.

5.8 Property Preservation (will always be role of MM&B vendor as awarded by USDA)

5.8.1 Property Preservation (Before and after pictures MUST be included on all services)

5.8.2 Inventory Properties (REO)

5.8.3 Initial Inspection: (Occupancy Determination):

Contractor will complete initial inspection and determine vacancy status. If property is vacant, contractor will complete Initial Securing, Trashout, and document condition of property. Contractor will post Equal Housing Poster, No Trespassing Sign and USDA Contact Sign at property. Contractor will complete Transaction Screen Questionnaire, ASTM Standard E-1528 (TSQ). Photos of inspection are required as well as before and after pictures of Initial Securing and Trashout. Inspection shall include Utility Status as well as information to determine USDA Program Eligibility. The Contractor shall complete a comprehensive (thorough and complete) property inspection to include conveyance condition items, initial inspection items, systems check, Lead Based Paint (LBP) considerations and any other items USDA requires. If the property has damaged or missing basic components, the Contractor shall estimate the cost to replace or repair the missing or damaged components. The cost estimate is to be included with the initial inspection results. If the inspection identifies any health and safety conditions, or there is a need for any emergency repairs, the Contractor shall remedy those conditions within 1 calendar day of the inspection with before and after photographs within 2 calendar days of completion of the remedial action. The Contractor will complete systems functionality test to ascertain the functionality of all heating, cooling, plumbing, gas and electrical systems, appliances, the condition of the septic system or well and existence of any transferable warranties. This should also include any outstanding code violations, pending litigation, demolition orders, other legal actions that may impact the property.

5.8.4 Routine Inspections

The Contractor shall routinely inspect and take all actions necessary to ensure that properties are free from health and safety hazards, free of debris, refuse, and personal property, that corrective actions are taken on broken windows and doors, that properties are properly secured, that winterization is maintained, and active leaks are promptly addressed. At a minimum, the Contractor shall inspect the property once every two weeks. Based on geography, climate, age and community needs, some properties may require more frequent inspections and a higher level of maintenance than others.

This will all be reported back to the Agency via automated system.

5.8.5 Vacancy Inspection (Ongoing)

Contractor will complete inspection to determine vacancy status. Status will be reported to Agency.

5.8.6 Initial Securing

The Contractor shall perform initial services as discussed below. Initial services shall be completed within five (5) calendar days after completion of Initial Inspection http://www.rurdev.usda.gov/RegulationsAndGuidance.html

• Disposal of Debris, Refuse, and Personal Property – The Contractor shall remove and properly dispose of all debris, refuse and personal property from both the land and structures at USDA-Owned Properties. In some states, an eviction of personal property may be required. If required, the Contractor shall initiate the action.

• Post All Appropriate Signage – The Contractor shall post an USDA Owned and emergency contact sign on the property providing a name and toll free, 24-hour phone contact for emergency response.

• Repair Broken Windows and Doors - Repair all broken doors and replace broken windows unless the property is in an approved boarding area.

• Ensure Proper Access-In accordance with USDA guidance, the Contractor shall ensure that properties are re-keyed at assignment with a locking mechanism that provides access to USDA employees and Contractors. Upon assignment to an Asset Manager/Broker, the Contractor shall ensure that they have access to the property

• Winterization - The Contractor shall perform winterization of all operating systems and equipment including, but not limited to, shutting water off for external spigots and filling internal water systems with anti-freeze in accordance with the USDA requirements

• Contractor must stop active leaks that may cause deterioration of the property or pose an imminent health or safety hazard.

• Install Sign-In Sheets – Contractor must place and maintain a sign-in sheet in the property. A separate sign in sheet will be required in each unit of a multi unit property. The Contractor and all Subcontractors and workmen shall sign-in each time they enter the property.

• Health and Safety Hazards and Emergency Repairs - the Contractor shall remedy any health and safety conditions and make any emergency repairs within 1 calendar day of with work orders and before and after photographs within 2 days of completion of the remedial action.

5.8.7 Utilities

Immediately upon assignment, the Contractor shall notify the local utilities of USDA’s ownership of a property and shall order a final utility bill to determine if there are unpaid utility charges for the period prior to USDA’s acquisition. The Contractor shall ensure that USDA only pays those costs it is legally obligated to pay.

• Utility Liens - In areas where under local laws a utility lien was not wiped out at the mortgagee’s foreclosure, the Contractor shall pay the outstanding utility bill for the period prior to acquisition by USDA. USDA will only reimburse, as a pass-through expense, those payments made to satisfy utility liens incurred prior to acquisition.

• Utility Charges – The Contractor shall turn on the utilities for properties in areas where they determine it is necessary to have the utilities remain on to preserve the property from freeze or moisture damage. The Contractor shall be liable for any damages incurred as a result of a failure to do so. Utility expenses will be an accepted pass-through expense to USDA. When utility charges include late fees or penalties, the Contractor shall determine if these penalties or late fees were incurred by a mortgagee prior to conveyance of the property. If not, the Contractor shall reimburse USDA for any late fees or penalties incurred while maintaining the property.

• Purchaser Testing – The Contractor shall allow purchasers under contract the opportunity to activate and deactivate utilities for the purpose of performing a systems check prior to purchase. The Contractor shall not charge the purchaser a fee for the Contractor's efforts to facilitate this process. However, the purchaser is responsible for the actual costs to activate, deactivate and, when necessary, re-winterize the property

5.8.8 Trashout/Personal Property

Contractor will remove all materials and dispose/store as local ordinance dictates. Before and after pictures will be taken.

Contractor will complete a broom sweep of the property once the belongings have been removed.

5.8.9 Exterior Debris Removal

All exterior debris is to be removed and disposed of/stored as local ordinance dictates.

5.8.10 Vehicle Removal

Contractor will remove/store any left vehicle(s) in accordance with State/Local Ordinances. Vehicles include but are not limited to automobiles, tractors, campers and boats.

5.8.11 Lawn Service

Yards will be cut to an approximate 3” length, not be cut before length reaches 6”. Any debris impeding lawn maintenance must be removed prior to lawn being mowed. Lawns will be measured based on quarter of an acre increments. An initial cut is classified as any lawn over 10” in length that is being serviced by contractor for the first time. Refer to Section B for pricing. Before and after pictures are required on any lawn service.

5.8.12 Snow/Ice Removal

Contractor(s) will monitor and ensure that all snow/ice will be removed from property in accordance with local ordinances within 24 hours of accumulation. In the absence of local ordinances, snow/ice accumulations of 3 inches or more must be removed from the property within 24 hours of accumulation. Before and after pictures are required.

5.8.13 Pool Security

Contractor will secure pool in accordance with local ordinances to ensure no hazards and limit liability to the USDA.

Before and after pictures are required.

5.8.14 Property Maintenance

The Contractor shall maintain properties in a manner that is clean, safe, sanitary and secure. The Contractor shall be liable for damages to all acquired properties due to failure to inspect or secure property or other act, neglect, failure, or misconduct of the Contractor, a Subcontractor, or any Management Official of any of the foregoing. The Contractor shall indemnify USDA for losses due to any act, neglect, failure, or misconduct of the Contractor, a Subcontractor, or any Management Official of any of the foregoing. The Contractor shall not be held liable for casualty damage as long as, before and after such casualty, the Contractor takes immediate and reasonable action to protect the property.

5.8.15 Ready To Show Condition

Prior to the listing of any USDA-owned property for sale, the Contractor shall ensure that it is in Ready to Show Condition which means the property is free of debris, visible insect/rodent infestations and health and safety hazards. All cabinets, refrigerators, freezers, counter tops, and windows must have been wiped clean and the house must be free of bad smells. All floors and carpets must be clean. All repairs required to correct safety hazards and any approved repairs to be done prior to listing the property must be completed in order for the house to be in ready to show condition. The yard must be free of trash and debris. The grass must be cut, bushes trimmed and holes patched, and or properly secured to protect the public. Swimming pools and wells must be properly secured to protect the public. The Contractor shall also ensure that the property remain in the ready to show condition until sold.

5.8.16 Rents, Fees, Dues, and Assessments

The Contractor(s) shall research and process for payment, those expenses that USDA is legally obligated to pay, regardless of when incurred, including: ground rents, condominium or homeowner’s association fees, and dues or assessments. Any penalties or interest charges incurred by USDA as a result of late payment of ground rents, condominium or homeowner’s association fees, dues or assessments incurred during the period from assignment to settlement will be the responsibility of the Contractor. If the Contractor erroneously receives a tax bill and/or tax lien from a taxing authority or any third party, the Contractor shall forward it to USDA within two (2) calendar days of receipt.

• Homeowner’s Association Fees, Dues, Ground Rents and Non-Tax Assessments : Payment of homeowner’s association fees, condominium dues, ground rents and non-tax assessments will be a pass-through expense. The

Contractor shall obtain and pay all applicable Homeowner’s Association fees, condominium dues, ground rents and non-tax assessments. Any penalties or interest charges incurred by USDA as a result of late payment of HOA or condominium fees or ground rents during the period from assignment to settlement will be the responsibility of the Contractor. Any penalties or interest charges incurred prior to the assignment to the Contractor shall be the responsibility of the Mortgagee.

• Taxes: Contractor shall identify any property tax information on the title report to notify USDA of tax status to avoid penalty or alert of pending sale.

5.8.17 Environmental Compliance

USDA properties will be managed in compliance with applicable environmental laws and regulations.

• Lead Based Paint: Lead-Based Paint Hazard Reduction Act of 1992 (Title X of the Housing and Community Development Act of 1992) and the lead-based paint regulations (the Lead Safe Housing Rule) at 24 CFR Part 35, Subpart F, eliminate as far as practicable lead-based paint hazards in single-family properties built before 1978.

All USDA Lead Based paint regulations for testing and abatement must be followed as found at http://www.rurdev.usda.gov/rhs/pss/lead_based_paint_information.htm

• Mold: The Contractor shall notify USDA of any property with obvious evidence of mold or organic growth that, in the opinion of the Contractor, poses a potential health or safety hazard or inhibits marketing. At the direction of the USDA, the Contractor may be required to provide mold testing and abatement or to provide property access to a Contractor. All associated costs of testing or abatement pre-approved by the USDA and will be reimbursed as a pass-through expense.

• Other Environmental Hazards : The Contractor shall conduct a search of information in its possession, including but not limited to, information obtained from the Property Inspection Report, appraisal, BPO and any other available information to determine if environmental hazards exists at the property. Examples of environmental hazards include, but are not limited to, the presence of noxious fumes, radiation, underground storage tanks and chemical spills as well as the hazardous substances. If the search reveals any record of environmental hazards at the property, the Contractor shall immediately notify USDA. At the direction of the USDA, the Contractor may be required to provide environmental testing and remediation or work with a Certified Environmental Contractor.

All costs of testing and remediation pre-approved by the USDA and will be reimbursed as a pass-through expense.

Pest Control

The Contractor(s) shall remove all verified pests/animals within 3 calendar days of receipt of work order.

5.8.18 Pest Control/Termites and wood destroying organisms.

The Contractor(s) shall order a Wood Destroying Organisms (WDO) inspection within one (1) calendar day of receipt of work order issued by USDA for properties that meet the following conditions:

• Properties mandated by the state or local jurisdiction

For properties, which require a WDO inspection, the USDA may be required to provide a current termite/WDO clearance letter at closing if requested by the purchaser. In some areas this will require a re-inspection no earlier than thirty (30) days prior to closing. For these properties, the Contractor shall conduct an additional WDO at the USDA’s direction. The additional WDO inspection will be reimbursable by USDA as an allowable pass-through expense.

Active Infestation – All WDO inspections must be completed by a pest control officer. The inspection report, including any required treatment and/ or repairs necessitated by the infestation, must also be sent to USDA. For properties where inspections are mandated by the state or local jurisdiction or were approved by the USDA and the inspections results shows active infestation, the Contractor shall notify the USDA, and order/complete the treatment and any necessary repairs after receiving USDA approval.

The Contractor(s) shall inspect the work (treatment and repairs) after completion and ensure that the person who completed the inspection do not perform the treatment and/or any necessary repair. The cost of approved treatment and repairs will be reimbursed as a pass-through expense.

Pest Control

The Contractor(s) shall remove all verified pests/animals within 3 calendar days of receipt of work order.

5.8.19 Vandalism

Vandalism may occur prior to or after acceptance of a sales contract. In the event a property is vandalized prior to or after acceptance of a sales contract, the Contractor(s) shall, once vandalism is discovered: (1) remove all graffiti from private and public surfaces on the property even if the graffiti was present at acquisition; (2) repair to its prior condition any damaged locks, doors or windows; and (3) immediately repair any health or safety hazard. USDA shall reimburse the Contractor(s) for the cost of the approved repairs as a pass-through expense provided that USDA does not determine that the vandalism is due to the Contractor’s failure to properly secure the property against unauthorized entry or that the Contractor(s) has engaged in (or permitted) a pattern or practice of failing to secure properties.

Other Vandalism Repairs - If the damage is not a type which the Contractor(s) shall be responsible for repairing at its own expense, the Contractor(s) shall provide an estimate, using its cost estimating tool, with a repair recommendation to return the property to its condition at time of acceptance of the sales contract to the USDA. Once approved by the USDA, the Contractor(s) shall order repairs within five (5) days of repair work orders. USDA shall reimburse the Contractor(s) for the cost of the approved repairs as a pass-through expense provided that USDA does not determine that the vandalism is due to the Contractor’s failure to properly secure the property against unauthorized entry or that the Contractor(s) has engaged in (or permitted) a pattern or practice of failing to secure properties.

Missing Appliances – If appliances are removed from the property due to vandalism prior to acceptance of a sales contract, the Contractor(s) shall not be required to replace them. If appliances are damaged or removed from the property due to vandalism after acceptance of a sales contract, the Contractor(s) shall, with USDA approval, replace or repair the missing or damaged appliances. USDA, based on the following schedule, will reimburse the Contractor(s) as a pass through expense or credit the purchaser on the HUD-1 Settlement Statement for the installation or repair of new appliances: $200 for a range; $250 for a refrigerator; $150 for a dishwasher and $500 for a central air conditioner compressor. Appliance repair or replacement actually completed by the Contractor(s) shall be reimbursed as a pass-through expense based on actual costs not to exceed the replacement allowance, provided that USDA does not determine that either the damage is due to a failure to properly secure the property against unauthorized entry or the Contractor(s) has engaged in (or permitted) a pattern or practice of failing to properly secure properties against unauthorized entry.

5.8.20 Custodial Properties

Custodial properties are vacant properties secured by a secretary-held mortgage. By virtue of its security interest, USDA has certain rights and responsibilities to ensure that the property is preserved and protected. USDA does not hold title to custodial properties and therefore they are not offered for sale. Custodial properties will be assigned to the Contractor.

Within two (2) calendar days of notification of assignment the Contractor shall secure the property, and perform initial services in accordance with Section C to the extent that such requirements can be met without constituting an illegal trespass, and provide visual documentation of the property status. If the property is occupied, the Contractor shall immediately notify USDA and await instructions prior to taking further action. The Contractor shall maintain vacant custodial properties in accordance with the Contractor’s Property Management Plan and at the direction of the USDA, subject to the following conditions:

• Notifications – The Contractor shall not be required to provide notifications of ownership to police, utility companies, HOA’s, and non-tax assessment entities.

• Ready to Show Condition – The Contractor shall not be required to keep the interior of the property clean and ready to show as described in Section C, unless the unclean condition constitutes a health or safety hazard.

• Personal Property – The Contractor shall not remove any personal property unless it constitutes an imminent health or safety hazard or notified by USDA.

• Rents, Fees, Dues and Assessments – The Contractor shall not be responsible for payment of ground rents, fees, condominium or homeowner’s association (HOA) dues or special assessments.

• Environmental Compliance – Unless otherwise directed by USDA, the Contractor shall not be responsible for the environmental compliance requirements unless the environmental condition is an imminent health or safety hazard to the public or is contributing to the deterioration of the property.

• Rental Property Management –The Contractor shall not rent custodial properties.

5.8.21 Vacant Lots

Vacant lots are to be maintained at all times in a manner that result in properties that are clean, safe and sanitary.

5.8.22 Evictions/Eviction Assistance

The Contractor shall initiate and administer eviction actions consistent with state and local laws after having obtained USDA approval. Legal expenses associated with eviction actions, will be reimbursed on a pass-through basis when approved in advance by the USDA. The Contractor shall not incur any legal expenses for which reimbursement is expected without prior USDA approval. The Contractor shall conduct evictions in accordance with State and Local Laws.

5.8.23 Demolitions

At the direction of USDA, the Contractor shall obtain bids, select, contract for and oversee the demolition of property improvements, removal of debris and cleaning of the vacant lot. USDA will reimburse the costs of approved demolitions as a pass-though expense. The Contractor shall not perform any Lead Based Paint inspections for properties that are approved for demolition unless otherwise approved by USDA.

5.8.24 Historic Preservation Requirements

Prior to demolition of the improvements on any USDA-owned property, the Contractor shall comply with Section 106 of the National Historic Preservation Act (NHPA) (16 USC 470f) and the implementing regulation for Section 106 at 36 CFR Part 800. Compliance includes determining if the property is on the National Register of Historic Places, and if it is not listed on this register, consulting with the State or Tribal Historic Preservation Officer to determine whether the property is eligible for 44 inclusion on the register. If the property is on the register or is eligible for inclusion on the register, the Contractor shall consult with the State or Tribal Historic Preservation Officer and other consulting parties to resolve the adverse effects of demolition and shall prepare any required documentation or memorandum of agreement for review and execution by

USDA.

5.8.25 Tribal Lands

Properties located on Indian or tribal lands, and acquired as a result of foreclosure of a loan may have specialized property management requirements. The USDA will provide the Contractor with written instruction to the extent the property management requirements are not applicable, or additional property management tasks are required.

C. 5.8.26 Transmittal Processing

The Contractor shall be responsible for creating and submitting transmittals for payment of pass-through expenses. The Contractor shall submit a transmittal, along with supporting documentation (i.e. invoices, receipts) for all Allowable Pass-through expenses identified. Pass-through expenses consist of, but are not limited to, repairs, inspections, and record retention.

C. 5.8.27Cosmetic Enhancements and/or Repairs

Cosmetic enhancements and/or repairs may be requested by the USDA to increase marketability, the net return to USDA.

This includes but is not limited to malfunctioning heating, cooling, plumbing, gas and electrical systems, appliances, septic system or well or any outstanding code violation.