Need Advice on Closing SNAFU - Occupancy for 12 months required?!

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Need Advice on Closing SNAFU - Occupancy for 12 months required?!

Sean Sullivan
Investor · South Portland, ME · Member since 2014 · 21 posts · 25 votes

Hi All, I completed a cash-out refinance of my primary residence 2-unit on Friday, but may have to cancel it due to some specific language. I have until tomorrow night at midnight to cancel - so I am seeking your help.  Has anyone else heard of this? Thanks in advance for any advice or thoughts.

Briefly - this is my primary residence, and we are doing cash-out refi to remove PMI as the initial loan was FHA-backed. We landed at 75% LTV for this new loan - a traditional 30-yr fixed rate, cash out re-fi. The lender is United Wholesale Mortgage - which came through my mortgage broker. However, we are considering/ buying another property in the next 6 months due to some family changes, and so some language obligating us to occupy for 12 months worries me.

The issue is that while the mortgage container boilerplate language regarding occupancy, there is an additional single-page document which contradicts this language. Both of those sections are pasted below. 

My question is: Is the Loan Quality Initiative document MORE enforceable than they mortgage docs? If I decide to move before this term is over, due to job change, family change...etc. will the Loan Quality Initiative language be enforceable over Mortgage sect. 6? 

Mortgage Section 6, "Occupancy, I will occupy the property and use the property within 60 days after I sign this Security Instrument. I will continue to occupy the property and use the property as my principal residence for at least one year. The one year period will begin when I first occupy the property. However, I will not have to occupy the property and use the property as my principal residence within the time frames set forth above if Lender agrees in writing that I do not have to do so. Lender may not refuse to agree unless the refusal is reasonable. I also will not have to occupy the property and use the property as my principal residence within the time frames set forth above if extenuating circumstances exist which are beyond my control."

VS.

Loan Quality Initiative Disclosure "Primary Residence - I understand that I must occupy the property within the 60 days of closing and maintain said occupancy for a minimum of 12 months."

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Jeshua Patrick
Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes
8y
Sean Sullivan have you tried calling the lender and asking them to shorten the period to 6 months?
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  • Jeshua Patrick
    Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes
    8y
    Sean Sullivan have you tried calling the lender and asking them to shorten the period to 6 months?
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  • Jimmy Dudley
    Real Estate Broker · Westminster, MD · Member since 2017 · 159 posts · 101 votes
    8y

    Sean I am not an attorney, if you have an attorney ask him. However, it is all about intent. Do you intend to occupy your home for the next year? If so then don't worry about it. If however you know you intend on moving in the next 12 months and you proceed; then you run the risk of the bank calling the loan. Your question regarding which section is more enforceable is the wrong outlook at this juncture. You don't want to be tied up in litigating contract nuances. 

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  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    8y

    This one is easy!  When we receive owner occupant rates and low down payment amounts, funny enough, the lender expects that we occupy the property for 12 months.  

    When we obtain non-owner occupied mortgages with the higher down payment amounts and higher interest rates, the lender expects that a tenant will occupy the property. 

    I second the comment about intent.  Things happen.  People get ill, lose jobs, have reasons to move.  If you sign that paperwork, you intend to remain for 12 months.

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  • Sean Sullivan
    OP
    Investor · South Portland, ME · Member since 2014 · 21 posts · 25 votes
    8y

     @Jeshua Patrick, I did talk to the lender, but it is a Fannie Mae requirement that it be listed as 12 months, so they won't budge, as it would eliminate their ability to sell loan into the secondary market if it did not include this doc. I did also talk to a rep at Fannie Mae today (who was very helpful, honestly) and they confirmed that it is their requirement. Thank you for the suggestion in any case.

    @Jimmy Dudley - Thanks Jimmy, good insight. We do intend to occupy for 12 months, but we have had a family change which may have it make more sense for us to move, though we would have no intention of selling the property. In any case, I suppose if they call the loan, that is OK as we'll have solid equity in the house and could likely find another lender to offer a mortgage, assuming the lender didn't mind minimal 'seasoning' on the loan.

    @Kerry Baird - Thanks, I understand owner-occupied properties are a lower risk proposition for lenders, and thus rates are lower. I simply did not know that applying for a primary residence loan, particularly on a multi-family in a re-fi scenario would require that we stay in the same residence for 12 months. I feel as if I've heard a number of BP folks who use cash-out to pull equity from a house hack to move on to the next deal, but perhaps they sought investment loans, so was surprised when I saw the doc at the closing table. 

    I can understand the rationale of the lenders, it's the specific time period that's the sticking point for me, and more specifically - the confusion between two legal documents that contradict one another (ie. one says we'd have an out, one says we have no out). We have a very low-risk profile otherwise, are paying a premium on the rate due to cash out re-fi, and this loan is for 75% LTV, so not far off from a more traditional investment loan.

    For the sake of group learning here - the rep with whom I spoke at Fannie Mae explained to me the process for receiving a waiver from the 12-month requirement:

    • Send email to fanniemae_firstlookATfanniemaeDOTcom
    • Offer explanation of extenuating circumstances that would show cause for waiver of owner occupancy agreement
    • include any supporting documentation
    • include confirmation of current occupancy (proof of residency at the current property)
    • include a list of any improvements made on the home since purchase.
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