Foreclosure is a process through which the lender or mortgagee seeks to regain the property because the borrower has failed to comply with an agreement between the two parties, most commonly by defaulting on payments.

Foreclosure procedures often begin when Supplemental Security Income (SSI) recipients lose the ability to remain in their homes or lose their property because they are unable to pay the obligations of their mortgages. For SSI purposes, foreclosure determines whether real property is a resource to a recipient. If determined to be a resource, we must determine whether to exclude the value of the real property or whether to count it.

Foreclosure - a process through which a lender or mortgagee seeks to regain the property because the borrower has failed to comply with an agreement between the two parties, most commonly by defaulting on payments.

Home - an individual’s home is property in which they have an ownership interest and that serves as their principal place of residence.

Real Property - land and the improvements made on it, for instance buildings, wells, dams, and other additions as well as what lies beneath it (e.g. oil or minerals).

Short Sale – the sale of the property for less than the amount of the secured loans or mortgage on the property. Short sale is usually made to avoid foreclosure. The lender generally has to approve a short sale in order for the sale to go to settlement. This usually requires a market analysis to show the market has declined and the property cannot currently sell for the amount still owed.

Consider all the potential exclusions and exceptions associated with the home before counting it as a resource.

Do not count any home property as a resource while the recipient continues to live there. If the person continues to live in the home without an obligation to pay the mortgage then this may result in the receipt of in-kind support and maintenance (ISM). For specific guidance regarding ISM in foreclosure situations, see SI 00835.115.

Consider all remaining SSI resource exclusions and exceptions that may apply to the home before counting it as a resource. For information on specific exclusions, see SI 01130.120E in this section.

The following guidance applies to SSI cases in which the foreclosure process is ongoing:

1. 1. 

   Determine the details of the foreclosure including:

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     the type of foreclosure involved;

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     the current stage of the foreclosure process;

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     what recourse, if any, exists for the borrower at any given stage in the process; and

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     the point in which the homeowner is legally restricted from transferring ownership.

     Be aware that the owner may suspend or avoid foreclosure by seeking refinancing, negotiating with the lender, or filing bankruptcy. Document the recipient’s allegation regarding their foreclosure status on a Report of Contact.

2. 2. 

   Identify the point at which the owner is unable to sell the real property. Ask the recipient if they intend on continuing to live in the foreclosed residence. The owner’s response determines the next action:

   1. a. 

      If no, obtain a certified copy of the court papers describing the foreclosure. If the court document includes an order to vacate the residence, determine the date that the recipient could no longer sell the property.

   2. b. 

      If yes, determine if the foreclosed property meets the definition of a resource as described in SI 01110.100B. Contact the court controlling the foreclosure and determine if the individual has the right to sell the property.

3. 3. 

   If the recipient has the right to sell the property, determine the property’s equity value (EV). Apply all exclusions or exemptions to the real property. If no resource exclusion or exemption applies to the real property, the value of the countable resource is the amount of a recipient’s or couple’s equity in it.

   The EV is the current market value (CMV) of a resource minus any encumbrance on it. The EV is zero in situations where there is not any CMV or the owner’s indebtedness on the property exceeds its CMV. Property does not cease to be a resource simply because it has no CMV.

4. 4. 

   If the recipient does not have the right to sell the property, determine the date that they could no longer sell the property. For more information on determining the fair market value (FMV) of a transferred resource see SI 01130.120F (in this section).

Determine whether any exception to counting the foreclosed property exists.

A recipient’s home, regardless of value, is an excluded resource.

Exclude real property that does not meet the definition of a home in the following cases:

1. 1. 

   the recipient has intent to return to their principal place of residence; or

2. 2. 

   a spouse or dependent relative of the recipient continues to live in the home while the recipient is institutionalized; or

3. 3. 

   the sale of the property would cause undue hardship, due to loss of housing, to a co-owner of the property; or

4. 4. 

   an individual leaves their home due to domestic abuse and has not:

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     established a new principal place of residence; or

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     taken action to render the home no longer excludable.

If no exception exists, determine the CMV of the foreclosed property. Obtain statements from the holder of the mortgage on the amount of equity the individual may have in the property after any penalties or fines are paid.

In most situations, determine whether a recipient received FMV when they transfer a resource. FMV is the CMV of a resource at the time the recipient transfers the resource.

Example 1: Illustrates the development of equity value of the foreclosed property

An SSI recipient submits a March 31^st demand letter. The letter states the recipient must pay all past due mortgage payments by April 20th, otherwise foreclosure by power of sale will start.

We make all resource determinations as of the first moment of a calendar month. In this case, the real property met all of the criteria of a resource as of March 1st and April 1st. The field office (FO) determines the real property is a resource for the months of March and April. The FO evaluates whether a resource exclusion applies for those months.

The real property serves as the recipient’s principal place of residence. The FO determines that the real property, regardless of value, is an excluded resource for March and April because it meets the definition of a home.

The FO re-contacts the recipient after April 20th to determine whether foreclosure proceedings have started and discovers that the recipient moved out of the home with no intent to return on April 15th. Although foreclosure proceedings have started, the FO evaluates whether the recipient can still legally sell the property and determines that the real property continues to meet the definition of a resource as of the first moment of May.

As of May 1st, the FO determines that the recipient’s real property is a countable resource because it is no longer the principle place of residence and no exception applies. The CMV is $145,000. The recipient owes the lender $160,000. The EV is $0 because the amount owed is more than the CMV. Since the EV of the real property is $0, the property does not affect the recipient’s SSI eligibility.

IMPORTANT: Determine whether conditional benefits apply if the EV of non-home real property would result in ineligibility. For more information on conditional benefits, see SI 01150.200.

Example 2: Illustrates development of undue hardship on a co-owner.

An SSI recipient defaulted on several mortgage payments. On February 2nd, the lender initiated a judicial foreclosure in which a court must issue a final judgment. We do not expect the court to issue final judgment of foreclosure for at least 3 months. On February 28th, the recipient leaves the house without any intent to return. The court issued a final judgment of foreclosure that transferred ownership of the real property to the lender on May 11. The FO determines the real property was a resource for the months of March through May.

The FO must evaluate whether a resource exclusion applies for those months. The recipient’s sibling, who is co-owner of the house, remained in the home until May 11. The FO determines the house is an excluded resource because its sale would cause undue hardship, due to loss of housing, to the co-owner.

The real property is not a resource as of the first moment of June. A foreclosed home is not a recipient’s resource effective with the month after the month of transfer. When there is a valid transfer, the recipient no longer owns the property. For provisions of resource transfers see SI 01150.001B. The FO correctly assumes that the recipient received FMV when they transferred of the title to the lender. This transfer does not assess a period of ineligibility in foreclosure cases.

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  SI 00810.035 Unstated Income

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  SI 00835.110 When Home Ownership is the Living Arrangement (LA) Basis

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  SI 00835.115 In-Kind Support and Maintenance Evaluation for Homes in Foreclosure

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  SI 00835.465 ISM and Households – Household Costs

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  SI 01110.100 Distinction Between Assets and Resources

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  SI 01110.400 What Values to Apply to Resources

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  SI 01110.600 First-of-the-Month (FOM) Rule for Making Resource Determinations

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  SI 01130.100 The Home Exclusion

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  SI 01130.130 Real Property Whose Sale Would Cause Undue Hardship, Due to Loss of Housing, to a Co-Owner

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  SI 01150.001 What is a Resource Transfer

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  SI 01150.005 Determining Fair Market Value

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  SI 01150.200 Conditional Benefits