Buying with Cash Avoids Owner Occupy Only Requirement?

13 Replies

I am not trying to get into Mortgage fraud here but my question is this. There is a REO deal I am interested in that just came on market advertised as owner occupy offers only then investors can come in after 21 days or so. I am seriously considering applying for FHA loan and moving into this place as live in flip as the numbers are good and it will need work that I can do while living there. I understand this has pros and cons. My question is this: What if I make a cash offer on this house with some of my money and some from hard money lender. Once I own the house free and clear am I right that I can either occupy or rent or do as I please. More importantly can I then refinance in three months after renovations are done and not have to owner occupy?

Since there is no mortgage, there is no mortgage fraud. however, if they say they are only accepting bids from owner occupants and you give an offer representing yourself differently than you are then I guess you are approaching general contract fraud. the extent to which and the repercussions would depend on the contract wording, and whether the banks wants to pursue you for damages after the fact (assuming there are no provable damages, not sure how this would play out)

hopefully someone with more knowledge surrounding REO deals can provide more insight, but I cant imagine you would buy it for cash, sell in three months, and then the bank would be upset enough to care, if they even notice. I think worse case scenario is they would flat out deny your offer, assuming an all cash offer was coming from an investor.

Is this a HUD property? They often offer properties for OO only at first, then investors. Certainly investors do scam the system and bid claiming to be OO. They also get reported by other investors who play by the rules. Whether you would get away with doing this or not is an open question.

Hard money is still financing, not cash.  If you're using hard money, write offers as financed, not cash.

No paying cash does not bypass the owner occupant requirements. Whether it is a hud, FNMA or any of the others, You will sign a form stating that you will owner occupy for 1 year

Thanks for the replies. This is not a HUD property. Bank has done nothing with this thing for 2 years. Selling now and requesting that it be owner occupied I image because they want more guarantee that the loan will be paid. I don't want to be un-ethical here and have a bad name with other investors. Here is what I am thinking. Make an offer with two options. FHA loan for 140k or close to asking price with all the contingencies they will have to deal with (turning water on, allowing for me to put appliances into house before closing so loan actually funds) and then have my agent also add offer for cash offer price of 120. They can decide what they want.

I don't know how to reply directly or add someone's previous comment in my reply.  Can someone please let me know how to do of find this.  Anyways.  This is for Jon Holdman. 

"hard money is still financing, not cash" I don't understand the implications for writing offer as financing vs. cash here? I guess If I am using a HELOC for other cash that is financing too. Why write the offer for financing? My plan is to fix up in three months and then Cash out finance after all the work is done.

"hard money is still financing, not cash" I don't understand the implications for writing offer as financing vs. cash here? I guess If I am using a HELOC for other cash that is financing too. Why write the offer for financing?

Its a common misunderstanding. With a HELOC the loan is secured by some other property. You pull the cash out and then could indeed write an all cash offer using that money. With a hard money loan, the loan is secured by the property you're buying. So that offer has to be written as financed and you need to include the appropriate financing contingency. The difference is that the HML will want an appraisal on the property you're buying, will need time to approve the loan, and might decline even at the last minute. If you write the offer as cash, you will 1) have to show proof you actually have the money to close in your bank account, and 2) will not have any financing contingency. So, if the HML can't close the loan, you'll lose your EM.

My plan is to fix up in three months and then Cash out finance after all the work is done.

Do you have a lender lined up to do that?  Many lenders will want six months before they will do a refi based on a new appraisal.

Originally posted by @Jon Holdman :
"hard money is still financing, not cash" I don't understand the implications for writing offer as financing vs. cash here? I guess If I am using a HELOC for other cash that is financing too. Why write the offer for financing?

Its a common misunderstanding. With a HELOC the loan is secured by some other property. You pull the cash out and then could indeed write an all cash offer using that money. With a hard money loan, the loan is secured by the property you're buying. So that offer has to be written as financed and you need to include the appropriate financing contingency. The difference is that the HML will want an appraisal on the property you're buying, will need time to approve the loan, and might decline even at the last minute. If you write the offer as cash, you will 1) have to show proof you actually have the money to close in your bank account, and 2) will not have any financing contingency. So, if the HML can't close the loan, you'll lose your EM.

My plan is to fix up in three months and then Cash out finance after all the work is done.

Do you have a lender lined up to do that?  Many lenders will want six months before they will do a refi based on a new appraisal.

Great feedback.  Thanks.  

Perhaps the banks look at financing with hard money lender more favorably than with scrutiny of fha or conventional loans? 

What if I only need to borrow 30k from hard money lender with all my Heloc cash in?   Still needing a full appraisal?  

 I do have a lender that can do 3 months upon finish.  But will run numbers for 6 months just in case. 

Most HMLs, and for that matter lenders in general, are not very interested in a $30K loan.  There's just not much profit in those small loans.  But if you can find one that will, yes, the process would be the same.

Stating that your offer is cash will require you to provide proof of funds immediately. Even when using Hard money it is usually easiest to state that your offer is dependent on financing. 

As far as the difference between using HELOC vs Hard money, that is usually answered by availability. You will likely get much more interest from HML by doing the entire amount.

I have originated loans for less than 50k before, but it is mostly as a favor to a friend or associated. Get your loan amount higher and you will be much better off negotiating rates. 

@Josh Reed - Regardless of if you offer $140k with FHA or $120k cash/HML they will still require you to sign a owner occupied addendum if it is within the 21 day period. In my area these are common on all REO's and require you to occupy withing 60 days and remain there a year or pay a $10k fine.

@Josh Reed in this context "owner occupied" has nothing to do with financing but you do need to occupy the property. When you sign closing documents, likely there is a form that declares whether it is owner occupied and where to send paperwork. Your mailing address is generally considered your primary residence. Your drivers license, utility bills, taxes, etc. will all reflect the address of your primary residence.

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