I Fuc*ed up! need help

Tax, SDIRAs & Cost Segregation
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I Fuc*ed up! need help

Chris Mcmahan
Member since 2019 · 29 posts · 9 votes

Hey guys, i really messed up.  Out of desperation i bought a house for my family, we were pushed out of the west due to housing prices.  Its a freddie mac home that requires us to keep it as our primary residence for 1 year.  That was our intention but one month in we hate it here.  We have been struggling with what to do in life and where to go for the past 2 years and buying this house made me realize IT IS NOT HERE.  We have decided to follow our dreams and move to Hawaii where we will both be starting new lives and careers but dont know how to handle the house situation.  Here is how the contract reads.

I actually just met someone that wants to buy it as is for what I have into it, so i wouldnt be making a profit but if FM finds out they will stick me with 10k fine.  Is there a way we can structure a deal to sidestep this penalty?  I paid cash for the house and have considered offering him seller financing.  Technically I cant even rent to him.  My idea would be to keep the bills and everything in my name, he would move in and I could pay him like 1$ to be my live in caretaker while we take off for hawaii.  When the year is up we would make the transaction.  I dont want to pay the 10k but I also dont want to be illegal.  Can anyone advise?   I just want out.

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Caroline Gerardo
Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
4y

You need to increase the sale price by $15000 and expect to see that in the payoff. Soon as you order payoff the $10000 plus their costs will be due, not later, not negotiable. 

You could try and send a crying letter of explanation begging BEFORE you list and see what Fannie says, but you need to have a real reason other than we don't like it here...

Do not sneak or lie and try and do a wrap around or some lease option, you might end up wearing an orange suit plus the fine. 

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    4y

    @Russell Brazil

    In regards to mortgage fraud, I agree there is and has been enforcement. However, this is a cash purchase on a Freddie Mac foreclosure. The asset manager on the liquidation side has no enforcement budget 

    0Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    4y

    So where is this house?

    0Reply
  • Danny Grey
    Investor · La Jolla, CA · Member since 2016 · 66 posts · 169 votes
    4y

    If you were "pushed out of the west by housing prices" how can you afford housing in Hawaii?

    8Reply
  • Derek Joyner
    Flipper/Rehabber · Winston Salem, NC · Member since 2018 · 33 posts · 24 votes
    4y

    @Caroline Gerardo

    I agree with Caroline here. This is the government. Don’t mess with them. They basically can do what they want and there is no negotiation with them. Look at the irs. They can just come take what they want of yours and powers gives them special privileges that others don’t get.

    1Reply
  • Sebastian E.
    Flipper/Rehabber · Berkeley Springs, WV · Member since 2017 · 164 posts · 103 votes
    4y

    I side with @Greg H. on this. Your intention was to move in the property and stay there and that situation changed. You are not a serial flipper who is trying to put one over on the government. You had the honest intention to move in which you followed through with and now for reasons that are valid, you have decided that it is not a fit for you. It could be that you have been threatened, feel unsafe, are exposed to substance abuse in the area that may be dangerous for you and your family. So within the point that @Greg H. was making you are not who the government is after. 

    More broadly speaking there are different tolerances to all sorts of risk of enforcement, which explains the different approaches that have been laid out to you. My general, non-legal what I would do in that situation, is go ahead and document some legitimate reasons for your move and be prepared in case they come around and ask. I don't think there is a guy sitting around at HUD trying to catch people like you. The way I understand it is that the rare instances where enforcement does happen is when someone rats out another investor for doing it because it is giving an unfair advantage to the person who is purporting to live there. In your case you actually did live there and had then intention to stay.

    One note about mortgage fraud that I was told from someone who works in an investigative capacity in the government, is that since mortgage fraud is widely prevalent, it is often used as a tool to threaten someone into compliance for assistance in helping to solve other crimes. For example if they need information from someone on a crime they can oftentimes find an instance of minor mortgage fraud and threaten the hammer in order to acquire information or corroboration. 

    I wish you all the best in your new chapter. 

    0Reply
  • Chris Pasternak
    Real Estate Broker · Pueblo, CO · Member since 2013 · 366 posts · 303 votes
    4y

    I'm seeing a much bigger problem here.  You need to reconsider following your heart and dreams everywhere.  This sounds like a gypsy caravan going to a circus that's never open.  

    While you cited you bought a house for your family (in an area you apparently did zero research on) you've now put them in a worse position.

    Use both your heart and your brain to make decisions.  Unless your lives are literally at stake in your present location I suggest researching a place to live that is affordable and you have jobs lined up before moving, for starters.

    1Reply
  • David Dachtera
    Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    4y
    Originally posted by @Chris Mcmahan:

    Thats why I wonder if its worth involving a lawyer, if i knew legally what constitutes primary residence... ive been living on the road for the past 2.5 years using my brothers house as primary residence yet i was never there.  thats why if i kept things in my name and just had my buddy move in as "caretaker" or something until the year is up.  that way he isnt renting and im also not selling prior to the 1 year

    Hhhmmm... Let's see now ... Pay a $10,000 fine or get an attorney involved ... Yeah - tough choice ... 

    0Reply
  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    4y

    If you and your family are truly miserable there, request however required that they eliminate your penalty.  If they don't grant it, then sell it by owner for minimum $10,000 higher than you paid, pay the penalty even if it means you lose some money in transaction costs, and consider it a valuable lesson learned for the future.  In today's market, it might not be difficult to sell high enough to cover your penalty.  

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Originally posted by @Danny Grey:

    If you were "pushed out of the west by housing prices" how can you afford housing in Hawaii?

    I was thinking the same thing ..   although you can buy cheap property on the south side of the big island on the big lava flows outside of HIlo.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Originally posted by @Jim K.:

    So where is this house?

    maybe Erie Pa. ??  cant imagine how different Erie would be than Huntington beach. 

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  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    4y

    No one is actually checking these. Lots of people will BS and tell you they check but I have never heard of any client being checked and I focus almost exclusively on owner occupant 2-4 units. In my experience even conventional lenders let you buy another owner occupant place 6 months out even when the paperwork on first purchase says 12 months none of this is very strictly enforced or something to lose sleep over. (I of course still advise you and any clients to do the legal thing and stay there for the contract terms).

    3Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    4y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Jim K.:

    So where is this house?

    maybe Erie Pa. ??  cant imagine how different Erie would be than Huntington beach. 

    The guy's so emphatic about how lousy a community the property is located in that I immediately thought Pittsburgh, of course.

    2Reply
  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    4y

    I know of seven enforcements, the Federal Government gave Chris tax free money with some handcuffs for a year. There is a deed restriction. FBI investigates and enforces not Fannie or Freddie when it appears planned. Since you are a month in, it gets flagged and in time when it's inconvenient pop up.  @Henry Lazerow  @Greg H. are you familiar with this HUD program? Buyer has to meet certain rules to be able to make an offer and are bound after closing. I say: write to Fannie here : https://singlefamily-fanniemae...   attach a pdf letter of explanation as to the HARDSHIP request to sell/rent/get out. Make the letter about the D' s I mentioned.  Do it right. Then increase sale price by $10000 or $15000 to cover your title and transfer taxes with no worries. 

    0Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    4y
    Originally posted by @Caroline Gerardo:

    I know of seven enforcements, the Federal Government gave Chris tax free money with some handcuffs for a year. There is a deed restriction. FBI investigates and enforces not Fannie or Freddie when it appears planned. Since you are a month in, it gets flagged and in time when it's inconvenient pop up.  @Henry Lazerow  @Greg H. are you familiar with this HUD program? Buyer has to meet certain rules to be able to make an offer and are bound after closing. I say: write to Fannie here : https://singlefamily-fanniemae...   attach a pdf letter of explanation as to the HARDSHIP request to sell/rent/get out. Make the letter about the D' s I mentioned.  Do it right. Then increase sale price by $10000 or $15000 to cover your title and transfer taxes with no worries. 

    Personally I have purchased north of 1000 HUD homes as it has represented 95% of my buys in 30+ years in this business. I can tell most HUD Asset Managers more about their policies and practices than most of them know

    First there is absolutely not nor has been a deed restriction with HUD. Actually there is nothing signed at closing but one signs a form with and "intent" to occupy for 1 year sent with the bid package. HUD only permits one owner occupied purchase every 2 years and this is tracked by SS# within the P260 system

    Fannie Mae and Freddie have gone back and forth with deed restrictions over the years. By deed restrictions I mean there is actual verbiage in the deed conveyed at closing. Typically 1 year for OO and a 90 day for investors

    Again, this is not tracked by any of these and they surely do not receive any notice of a reconveyance. In the past they have(HUD especially) had a hotline to report abuses but again very little enforcement. Investigations were handled by the IG and not the FBI. This gentleman's issue does not even come close to what they are looking for which is/was systemic abuse by investors

    2Reply
  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    4y

    1000 owner occupied properties or after day 16?

    0Reply
  • Axel MeierhoeferPro Member
    Rental Property Investor · Escondido, CA · Member since 2017 · 679 posts · 550 votes
    4y

    @Chris Mcmahan I agree with many of the posters in this thread that it is strange not to know at least the general location of this property and how Hawaii would be affordable.

    It had been suggested to rent the property long term. One other option could be to maintain the "hated" property as the primary residence, buy a second home/vacation residence in Hawaii and operate the "hated" primary as a short-term rental. The revenue only needs to cover the costs and for the vacation home in Hawaii a no doc loan could be used until the waiting period is over.

    It might turn out that the "hated" property generates good cash flow and never really needs to be sold. Just because you don't live there permanently means you have to sell it

    3Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    4y

    The text you posted says Freddie may elect to accept either the gain or the 10K and would accept the lesser if it determines you acted in good faith. If you sell it for what you paid or something close on a non-listed sale and apply for that "good faith" exemption because you guys are both moving to Hawaii? Sounds like the facts merit a good faith exemption. I'd try that. 

    Hawaii makes it especially dramatic too...not like you are moving a mile away.

    They don't want people profiting off of a homeowner incentive program, they aren't trying to get you. 

    1Reply
  • Gary Goodwin
    Member since 2018 · 1 post · 0 votes
    4y

    @Chris Mcmahan: What about “Subject To Lease?”

    Whereby, you lease the house to him for a year and he can purchase at the end of the term.

    0Reply
  • Chris Mcmahan
    OP
    Member since 2019 · 29 posts · 9 votes
    4y
    Originally posted by @Caroline Gerardo:

    Chris you posted on a public website and your name is not John Smith if you decide to tip toe and rent the house they will see this post. 

     touchette, this is why im looking for advice, suggestions or LEGAL loopholes etc.  Im not going to risk it, just want to see if anyone has some good ideas.  You have been very helpful though thank you!

    0Reply
  • Chris Mcmahan
    OP
    Member since 2019 · 29 posts · 9 votes
    4y
    Originally posted by @Danny Grey:

    If you were "pushed out of the west by housing prices" how can you afford housing in Hawaii?

     irrelevant.  but living in a work stay for free

    0Reply
  • Patrick FitzgeraldPro Member
    Investor · Member since 2019 · 19 posts · 16 votes
    4y
    Originally posted by @Danny Grey:

    If you were "pushed out of the west by housing prices" how can you afford housing in Hawaii?

    hahaha, speaking the truth

    0Reply
  • Chris Mcmahan
    OP
    Member since 2019 · 29 posts · 9 votes
    4y
    Originally posted by @Gary Goodwin:

    @Chris Mcmahan: What about “Subject To Lease?”

    Whereby, you lease the house to him for a year and he can purchase at the end of the term.

     i dont think that would work, im not allowed to rent it out either

    0Reply
  • Chris Mcmahan
    OP
    Member since 2019 · 29 posts · 9 votes
    4y

    excellent information everyone thanks so much.  We wanted to buy a house at the time, we could afford it here but not out west.  WE really really did desire a house (been living in a camper on the road for 2.5 years)  so we absolutely did intend to stay.  I have also been going through depression, feeling very lost on what to do next in life so we ended up in western KY where we could be closer to family and afford a house.  Through the past month I have realized we are so unhappy because we arent doing any of the things we love and used to do and we simply cannot do them here.  I thought we could stick it out since we are least close to family while we figured out what to do next.  However we have rediscovered what is important to us and its imperative for our happiness that we go do them NOW.  Poke fun or make your comments but if you have never been through 2 years of depression you will never understand... It changes(ruins) your life and is an extremely difficult hole to get out of.  If I can take a step back to hapiness I will do whatever it takes, even if it means losing money although being good with money all of my life im of course trying to (legally) avoid it.  I want to do whats best for our happiness as well as make a sound financial decision.  

    1Reply
  • Chris Mcmahan
    OP
    Member since 2019 · 29 posts · 9 votes
    4y

    What would consitute "primary residence"?  What if we continue to fix it up, live here for say 6.5 months and then take off for hawaii?  keeping our mail and bills here, etc.  I have used my brothers address as my primary for those past 2.5 years on the road because it legit was.. even though i never was there, i had to have some sort of primary in which to register my vehicles, pay taxes etc etc....   so whose to say I have to physically be at my primary residence?

    1Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    4y

    Thats right, it isn't even a loophole it would still be your primary residence until you declare differently if you are paying the taxes accordingly etc. 

    At that point (6.5) you are pretty much almost at the year anyway when you take into account listing/closing etc. so don't worry about it, just close after the 12 months.

    You are overthinking this and it will be fine. You aren't trying to profit against the intent of the program, and it sounds like you can meet all its requirements...your goals and needs have changed. 

    1Reply
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