Made a mistake, now scared of HUD. What should I do?

Question

A couple months ago, I bought a home from HUD, and signed that I intended to occupy the property myself, which I honestly did intend to do. However, due to a variety of reasons, I may have to cancel this move to another state. Now I don't know what to do with the property. Would it be worse to re-sell it, or rent it out? Which is less likely to get me in trouble? I'm afraid of how this looks, not sure how to prove this wasn't a deceptive purchase other than friends and family vouching for our original intent. I paid cash, so there's no loan fraud involved, just the pre-purchase statement to HUD. How screwed am I?

Mike H. · Answer

That would be just like a typical govt agency. They create a policy and then, instead of just scrapping the policy altogether and selling the homes to all buyers from the get go, they're going to write a second policy to state they are no longer going to prosecute the 12 month requirement.

Whats the point?

Double speak is all it is.

That being said, I agree with the previous post. You may seem like you have legitimate reasons. But if HUD ever called you out on them, its going to seem awfully tricky to suggest otherwise.

Bottom line is that you didn't move out into the home.

If you are going to take your chances, I'd rent it before I'd try flipping it. If you try flipping it, your odds would have to be greatly increased for someone catching on.

Having seen the owner occupancy doc we have to sign here in illinois, I know I would not want to risk anything if my intent was actually valid.

By not doing anything and turning it into a rental now, it makes you look that much more guilty should someone actually catch on to what you did. I'm not sure that "I had an allergy" is going to hold much weight.

Good luck but I'd be getting hold of someone real quick that can tell you if this is a house or a mouse - pun intended. :-)

Chris Martin · Answer

With that out of the way, here is a HUD document entitled "HUD Controls Prevented Multiple Sales to Owner-Occupant Purchasers but Did Not Ensure That Owners Occupied Residences as Required"

This HUD Office of Inspector General report says "We recommend that HUD consider eliminating the 12-month requirement by evaluating whether it is needed since enforcement of the requirement may not be practical and violations do not constitute a monetary loss to HUD. If HUD concludes that the 12-month residency requirement is essential, as appropriate, it should monitor compliance and enforce the requirement." However, I warn you that this report was issued in 2007 and the wording on HUD OO Contracts remains.

Make of it what you will....

Chris Martin · Answer

I've never bought a HUD OO (many NOO), but here is an example document relating to Owner Occupant Certification: http://www.hudpemco.com/wp-documents/forms/2s_forms/PEMCO%20OO%20SALES%20CONTRACT%202S.pdf. Put owner-occupant in your PDF search bar.

The document says "Falsifying information on this or any other form of the Depatment of Housing and Urban Development is a felony. It is punishable by a fine not to exceed $250,000 and/or a prison sentence of not more than two years." And the certification says "This offer is being submitted with the representation that I/we will occupy the propery as my/our primary residence for at least 12 months."

See also this recent BP topic about HUD's Good Neighbor Next Door program. It has similar warnings/conditions.

Jon Holdman · Answer

HUD finds out about this stuff, in part, because people report it.  I know there are agents here in Denver who actively watch for houses that sell during the OO period and then show up as new listings (fix and flips) or rentals.  And they call HUD and encourage others to do so, too.

Think about this from a more skeptical perspective.  Vegas is still a pretty hot area for rentals.  You come to town, buy a HUD during the OO period, live there for a few weeks, then leave.  Didn't like the town you say.  Now its a rental.  All the things you mention sound like excuses.  You're choosing to leave town, not being forced to.  If you weren't sure you would like it, why buy right away.

Now, I'm not saying this is what you've done.  Only that a skeptical HUD person might take this perspective.  If you moved to Vegas based on a job offer and then got fired and had another job back in Oregon, you would have a pretty firm case that things didn't work out.  That's not the case.

In your situation, I would seriously give the local office a call and discuss the situation.  You don't have to give you name or the property address.  Just explain what you told us here, without the details of the location, and see how they react.  At least you can find out what's the worst that could happen.

Adam Selene · Answer

So guilty until proven innocent? No buyers remorse allowed? I really don't want to live in this house, but neither can I afford to hold two personal residences for a year, or whatever indeterminate amount of time may appease them.

I understand they could monitor sales easily enough, but if I rented it out, how would that be discovered? One day some HUD-cop is going to come banging on the door demanding the residents ID?

David Niles · Answer

Buying in the owner occupy period as an investor?  You bet they do and they prosecute costing a pretty good buck, in my opinion though they need to follow up and prosecute even more, a couple years ago I was chasing a couple huds and everything worthwhile went during the owner period to brokers I know were rehabbing and such. 
It should be as it is intended and a level playing field for all.

Adam Selene · Answer

I keep reading 1 year here, but I don't believe the statement I signed specified any time frame.

I may try talking to HUD, but worried about saying the wrong thing or raising a red flag when I might never get on their radar otherwise.

As for reasons.... Part of the reason I was moving from Oregon to Nevada was to escape allergies. But after spending a couple months there, my sinus problems got significantly worse, rather than improving as I'd expected.

In addition, I work from home, and have discovered that the neighborhood is extremely noisy; kids screaming and dogs barking constantly, I really can't exaggerate how overwhelming it is, and it's already driving me crazy and making it it difficult to concentrate on my work.

Finally, my longtime girlfriend has suddenly become very emotional about leaving all her friends behind, and that is putting some stress on our relationship.

You think HUD cares about any of this stuff?

Mike H. · Answer

Since it actually sounds like you had legitimate intent to occupy, I'd try to contact HUD now and let them know what happened. You're much better off finding out what the repercussions are before you do anything.

I almost want to say that there are stiff penalties for that and they're listed in the docs you sign as an owner occupant.

Check with your realtor that you used on the deal.
They might have something.

But don't rent it or sell it and hope for the best. The fine and/or possible damages might be more than the hit you'll take for holding it.
Find out what your options are from HUD first and then move forward accordingly.

Plus, if you go to them first and explain your intent and give them the reasons why things have changed, they may be able to give you some sort of dispensation on it.

To be honest, I have no idea why HUD does that nonsense anyway.  The bottom line is that the taxpayers are the ones that just got soaked on the foreclosure so the govt should be trying to get as much money back as possible to make us whole.

Not trying to use our money for any social engineering program they think is best.

Joel Owens · Answer

If you can prove YOUR INTENT then I don't see a problem. Of course this is no legal advice.

Someone that has a true hardship happen to where it makes you unable to live in the property is not misguided or misrepresenting things to HUD.

What HUD is looking at is misrepresentation to gain a financial edge. I believe the habitual offenders  or pattern offenders they would go after first. Do it once you can try to call it a mistake or a hardship with no bad intent. Do it over and over and over that is a pattern with willful intent to deceive and take advantage. Ignorance in those cases is no excuse to not be held accountable to laws and practices in place and will not serve as a valid defense.

Rob Knoles · Answer

I agree with Steven.
Most likely HUD placed a restriction on your deed that would prevent you from selling the property for a per-determined period, say 1 year.

If you do not discover a deed restriction, I would move on with your life-just realize you won't be purchasing another HUD home to be owner occupied for quite a while.

Best of luck.