Reselling a HUD home prior to 12 month occupancy period

15 Replies

I recently bought a HUD home with the intent or reselling within a year. The rationale for buying the house was to "ease" into rehab and reselling property while working a full-time job, and to allow my kids to finish their private school before they age out and we relocate.

I began the rehab myself at the beginning of June, and undoubtedly can have the work done relatively quickly. I want this house gone within six months to buy another. My realtor advised that my contract contains a 1yr occupancy clause...any advice? Am I really stuck the entire year? Thanks

Yes that is a legal document you likely signed at closing. You need to read your paperwork to see what the ramifications are.

No legal advice.

Did you buy the house while identifying yourself as an owner occupant? Are you currently using the house as your primary residence while you are rehabbing it?

I did make the offer during the 15-day owner occupant period (which was obviously accepted). The house is not my primary residence...but it will be at the end of the month.

My initial intent was to occupy for one year, but I have been bitten by the rehab and resell bug...

Pretty sure the penalities are a quarter-million dollar fine, etc, etc.

Yes, you are stuck there if you bought it as an owner occupant. . Look at the HUD document you signed stating you are an owner occupant. It is very clear and you already stated your intent was to resell the home in less than a year. The doc clearly states that is illegal. If you bought as an investor you can sell at any time.

In addition to what others have said, if you bought as an owner occupant, you're probably already in violation of the contract, as you're not currently living there and it's not your primary residence.

Thanks for the direct feedback. I appreciate the responses.

You know how many deals I pass because it's during the OO period.......then there people out there not playing by the rules. I'll stop here.

Originally posted by J Scott:
In addition to what others have said, if you bought as an owner occupant, you're probably already in violation of the contract, as you're not currently living there and it's not your primary residence.

HUD allows you to move in within 60 days; you don't have to move in on day 1. But yes, you are required to live there as your primary residence for at least a year.

Brandon, one of the "declarations" to which you responded on page 4 of the loan application says, "Do you INTEND to occupy the subject property as your primary residence? Y/N"

"Occupancy" is defined as beginning occupancy by the 31st day after loan closing and maintaining occupancy for 360 days. All borrowers--conventional or FHA--are subject to occupancy checks, especially in CA where occupancy fraud is high on the list of types of loan fraud.

http://www.dsnews.com/articles/mortgage-fraud-risk-ticks-up-in-q1-led-by-california-2013-06-12

All lenders employ third party contractors whose task is to uncover loan fraud through a variety of methods.

http://www.freddiemac.com/singlefamily/pdf/fraudprevention_practices.pdf

If you intended to occupy, but now you're not going to occupy, the worst that will happen is your name will go into FHA's database as someone who sold an FHA-insured property before the requisite 12 months owner-occupancy was completed. Thus, you won't be able to obtain another FHA loan until 12 months has passed, but this guideline is discretionary. FHA allows for "extenuating circumstances" but you'd have to prove that you could no longer occupy the property. If you develop a pattern of obtaining an FHA loan every 12 months, that's a red flag, too.

You don't have to worry about government jackboots coming to your home (if they could find you) to arrest you--although considering the current administration, anything is possible. ;-)

I am a newbie and am still learning the ropes. But based off of what I am reading, it appears to me that the owner occupancy rule is tied to a loan. So what if you pay for property outright with no loans involved. Do you still fall under the occupancy rule, I mean it is yours 100% at that point isn't it.

I echo what @Ryan M. said - I've missed HUD and FNMA properties because they sold during the "exclusive (OO) periods" before I, as an investor, had a chance to bid on them. In fact, it is happening to me right now on a property.

If you bought the home as an owner occupant then it is the law that you occupy as a primary residence for 1 year. If you are just starting your RE investment journey, I think it is best to start that journey along the right road.

@William Keith - the HUD rules are tied to the property, not the loan. HUD wants to allow sufficient time for prospective homeowners to not have to compete with investors to acquire HUD properties (other government agencies [FNMA, VA, etc) have similar exclusive periods.

That said, if you get a mortgage as an owner-occupant in order to take advantage of the lower rate (as compared to an investor), but do not fulfill the occupancy requirements of the mortgage, it could be cause for the lender to demand repayment of the note in full.

@Sam W. Ok I understand now, that makes since.

Thanks for all the beneficial information. After performing some research on the topic, it seems there is a general concensus to discontinue the OO requirements (but the gov't won't avail).

Catherine,
That may be true with the mortgage, but not HUD. HUD has very clear laws about owner occupancy. To intentionally buy an owner occupant home as an investor is a felony. They take these laws very seriously. Many brokers have lost the ability to sell HUD homes for the entire office for allowing investors to by owner occupant HUD homes. Not to mention the buyer could face Heavy fines and jail time.

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