Buying HUD home with tons of extenuating circumstances

11 Replies

Hi, I am looking to buy a HUD home but have several extenuating circumstances concerns. How hard is it to prove extenuating circumstances as a reason to move out of a home early, and who is the judge of what is an acceptable "extenuating circumstance?" Would not be getting a traditional 203K / rehab loan and lender wouldn't care - only concern is being blacklisted from HUD for using an extenuating circumstance to exit the deal. Anyone have experience here?

Before we get into fraud, this is not an attempt at fraud; it is a genuine attempt to serve out the one-year occupancy requirement since I'd rather pay long term capital gains anyway or no gains at all if staying for two years. However given so much that is up in the air with different family members and career changes, what are the true consequences of defaulting on an owner occupancy certification and who is the judge of what is a viable extenuating circumstance.

Are there HUD homes for sale where you live and ones for sale that you would want to live in?

Last time I looked in Texas a couple of months ago there were something like only 40 HUD foreclosures for sale in the entire state. Many of them were in rural areas. Great for the people who live there, but not typically places where there is big demand for people moving there.

You can get an idea on HUDHomeStore.com to see what is available in your area.

That may or may not answer your question. Not sure what/who is watching the sales, but I know people do watch and probably file complaints. Might be your competition. The people who bid and loose to you may still watch the property. Might be they rent in the neighborhood. When they see you buy, see you rehab and put up for sale again in 3 months, and never move in, then they complain, and investigation probably starts. Maybe you're banned from FHA loans, or maybe banned from buying another HUD foreclosure, every now and then people go to jail for loan fraud....and you sign a document at closing normally that acknowledges that.

My thought is if you are telling me today, that there is a good possibility that you won't be there a year, then rent and don't buy anything.  Wait until your circumstances are extenuating and then buy.  Don't test the system.

@Brandon Berkowitz

You will sign a form stating that you intend to live in the property for one year. There is little enforcement of this by HUD and the reality is even when reported there is little enforcement. However, you loan must be an owner occupant loan or HUD will terminate

As far as what is considered extenuating circumstances?   A job change, divorce and the like.  My best advice is to only act on what you plan to defend

@Bruce Lynn

Currently there are zero in the state of Texas and have not been any for 6 weeks or so.  Normal inventory is 150-175 at any given time.  

@Bruce Lynn I am in downstate NY. A few near me, all reasonably able to be rehabbed by a noob and in neighborhoods I would want to live in. And I would move into it, it is just a question of that homes I have purchased in the past stuff came up and I left before a full year. Was not HUD, but like I said big family with many different extenuating circumstances that can possibly come up at any time. What may be an extenuating circumstance to one person (need to move closer to an aging relative, need larger housing due to another family member being unable to afford their rent), may not be one to HUD. I am not trying to test the system as you are implying, but I do not want to be locked into something that I really cannot get out of without getting banned or getting a $250K fine.

@Greg H. Thank you for your input. "Only act on what you plan to defend" is great advice. Like I said there is genuine intent to move, but without them publishing an extenuating circumstances list it could be hard to make the decision to say "oh jeeze I want to trap myself here for a year, unable to help members of my family who are struggling with rent" or "aw man my mom needs help with her medicine but HUD told me no" if taking in an additional family member is not a valid reason to move out of a homepath/HUD property. OR even if someone currently in the house needs to move out and you want to downsize. So many possibilities of things that can change and warrant new housing.

@Brandon Berkowitz  

Here's my $0.02 ....

You cannot really have 2 FHA loans concurrently.

As long as you are not using an FHA loan for the new home you want to purchase, you usually won't run into problems with extenuating circumstances.

If you just want to move out of the property prior to 1 year, make certain that you either do not buy another home as your primary residence prior to the 1 year expiration date or be prepared to document your extenuating circumstance. 

Extenuating circumstances are usually a change in familial status/size and/or a change in employment. 

Hope this helps! 

Originally posted by Paul Welden:

@Brandon Berkowitz  

Here's my $0.02 ....

You cannot really have 2 FHA loans concurrently.

As long as you are not using an FHA loan for the new home you want to purchase, you usually won't run into problems with extenuating circumstances.

If you just want to move out of the property prior to 1 year, make certain that you either do not buy another home as your primary residence prior to the 1 year expiration date or be prepared to document your extenuating circumstance. 

Extenuating circumstances are usually a change in familial status/size and/or a change in employment. 

Hope this helps! 

@Paul Welden

You can actually have several FHA loans at a given time as long as the residency requirement is met along with a need to move such as a job or even an increase in family size

However, having an FHA loan or buying a HUD home have nothing to do with each other. HUD homes can be bought with any type of loan or cash. You are allowed to purchased a HUD home every 2 years as an owner occupant or an unlimited number as an investor

Originally posted by Paul Welden:

@Greg H. Except for extenuating circumstances, "FHA will not insure more than one Property as a Principal Residence for any Borrower."

Reference HUD SFH 4000.1 page 170/1149.

As I stated. However, a growing family or job transfer is considered extenuating circumstances therefore people end up with several FHA loans often

However, this has zero to do with the topic as buying a HUD home and securing more than one FHA loan have nothing to do with each other

@Greg H.  Thanks for your input as all comments are valued. 

There actually is a lot of enforcement by HUD for extenuating circumstances loans thanks to the HUD office of the Inspector General who routinely audits files where a borrower has multiple FHA loans.

@Brandon Berkowitz The FHA 203k loan is an amazing loan to use where you want to do rehab/improvements, but it has the same guidelines/rules at the traditional FHA loan (203b) but with a rehab component. So, Reference HUD SFH 4000.1, page 170/1149, which is actually page 145 of the manual, where it discusses extenuating circumstances.

Hope this helps! 

Originally posted by Paul Welden:

@Greg H.  Thanks for your input as all comments are valued. 

There actually is a lot of enforcement by HUD for extenuating circumstances loans thanks to the HUD office of the Inspector General who routinely audits files where a borrower has multiple FHA loans.

@Brandon Berkowitz The FHA 203k loan is an amazing loan to use where you want to do rehab/improvements, but it has the same guidelines/rules at the traditional FHA loan (203b) but with a rehab component. So, Reference HUD SFH 4000.1, page 170/1149, which is actually page 145 of the manual, where it discusses extenuating circumstances.

Hope this helps! 

@Paul Welden

The OP IS LOOKING TO BUY A HUD HOME AND STATED HE WILL NOT BE GETTING AN FHA OR 203K LOAN. So why is this part of the conversation? Obviously you are not familiar with HUD foreclosures and there is nothing wrong with that. Personally, I have purchased closed to 1000 over the last 30 years

@Greg H.  

Thanks for your input as all comments are valued.

Since you asked and I appreciate your curiosity, I mentioned 203k because OP referenced it and I skipped over the word "not" and thought the option for 203k was there. 

You do not know what I am or am not familiar with and your assumptions are incorrect, but everyone is entitled to their opinions.  

Thank you for disclosing your experience, as it appears to be superior to most others. Nice work and congrats on your success! Keep up the great work. 

@Brandon Berkowitz If you have extenuating circumstances that result in you moving out of the property prior to the 1 year owner occupancy guideline, then I would recommend to keep documentation in case your loan file gets audited or you get questions asked if you decide to do another FHA loan.

The FHA owner occupancy guideline is based on the borrower's intent. "At least one Borrower must occupy the Property within 60 Days of signing the security instrument and intend to continue occupancy for at least one year." Reference HUD SFH 4000.1 page 145 (169/1149).

So, as long as you intended to meet this requirement but circumstances changed (familial status or employment), I think you will be fine and will not be blacklisted by HUD.

 Hope this helps and let us know how things turn out.