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FHA SUB2 Deal

maha_s7 profile photo
  • Sunday, February 08, 2004 @ 11:57 AM EST
  • 4 Comments

I have the following SUB2 deal
Payoff = 100K (Principal 96K, arrears = 4K), Seller wants 4.5K cash, Market value = 125K

The seller signed the deed to a Landtrust and then assigned the benefits of the trust to us. This was signed today in a kitchen table closing. I came back called the bank and found out that the bank wants the arrears to be settled by Fed 15 - if not the loan will be called due.

I also found out a few minutes back that this is a FHA loan stipulating that the Purchaser has to reside in this house as a 'Principal residence'.

Question - If I move ahead and take this SUB2, I need to convert the Insurance to a Landlord policy. Will that trigger the bank to call the loan due?

I understand from the archives of this board that an Inspector will be sent annually to check if the mortgage holder still resisides in this property. In case they find out that the mortgage holder does not reside in the property how long does the bank typically allow for me to get a new loan? Any penalties for violating the 'principal residence' stipulation?

I also read postings in this site that FHA loans are rarely called....

Please provide suggestions I need to move on this tomorrow.....

Comments(4)

  • no photo
    nebulousd6th February, 2004

    Read the mortgage and see what it says. I choose not to touch FHA loans personally.

  • no photo
    jeff120026th February, 2004

    FHA doesn't tell you you have to live there forever, there's a period of time usually 12 Months. As stated on the earlier post, read the mortgage.
    If their commitment as owner occupants is over, this should no longer be of concern.
    Good Luck,
    Jeff

  • no photo
    maha_s78th February, 2004

    Jeff:

    I have reviewed the Note and here are key points:
    Under "Grounds for Acceleration of Debt" it states "Lender shall require immediate payment in full if the property is not opccupied by purchaser as his principal residence" . There is no time limit ( 12 months or 24 months) stipulated in the NOTE. I do not have all the closing papers with me - this Seller is very unorganized...

    Does this mean this HAS to be principal residence for 30 years or is there a one or two year "unwritten rule"? This Seller has lived there for about 4 years...

    Also, worst case, I can refi this loan at 30 days notice...my fear is - will I be charged any penalty or am I violating any Federal rule ??

    Thanks for your input

  • JohnLocke
    JohnLocke8th February, 2004

    maha_s7,

    Glad to meet you.

    You really need a thorough understanding of FHA loans.

    Since this one reqires the owner to occupy the property with no time limit I would say some government subsidy is envolved. This is not uncommon with FHA loans.

    FHA loans are not tricky but if they are subsidized by any govenmental agency to help the home owner including the state where you live, do not do the deal.

    Even an address change will bring an investigation, let alone an insurance policy change.

    I have not reviewed your paperwork naturally, but from what you have said thus far not my idea of where I would want to be with this house.

    John $Cash$ Locke

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