Posted by Ed Garcia on November 27, 2000 at 11:38:17:
Mr. Piper,
I’m sure you’ll agree that many times HUD can be complicated, contradictory, and encompassing. HUD is also capable of modification of policy contingent upon location and area. I assure you that during a period of between 1986 and 1989, HUD had a 2year liability restriction. Jim, I know this was not a figment of my imagination.
After calling you up and asking you to show me where the handbook could be found on the HUD site, only Sherlock Holmes, and yourself could find it, I read it.
Let me show you some contradictory paragraphs. Here is the section you directed me to.
4155.1 REV-4
CHAPTER 4
ASSUMPTIONS
4-1 GENERAL. HUD has placed certain restrictions on the assumability of
insured mortgages originated since 1986. Depending on the date of
loan origination, a creditworthiness review of the assumptor by HUD or
the DE underwriter may be required. Mortgages originated before
December 1, 1986, generally contain no restrictions on assumability.
Mortgages originated on or after that date may require a
creditworthiness review of the assumptor or contain other
requirements. To determine what restrictions to assumability have
been placed on the mortgage, the lender must review the legal
documents of the mortgage. Additional details regarding assumability
are contained in HUD Handbook 4330.1 Rev-2, “Administration of Insured
Home Mortgages.” Lenders should note that some mortgages executed in
1986 through 1989 contain language that is not enforced due to later
Congressional action. Mortgages from that period are now freely
assumable despite any restrictions stated in the mortgage.
{{{NOTE}}} In this paragraph it states, (Lenders should note that some mortgages executed in 1986 through 1989 contain language that is not enforced due to later
Congressional action. Mortgages from that period are now freely assumable despite any restrictions stated in the mortgage.) So you can see there were other restrictions that are no longer in effect.
CONTINUE??..
4-2 RESTRICTIONS OF THE HUD REFORM ACT OF 1989. Any person
assuming an insured mortgage subject to the 1989 Act must be found
creditworthy by HUD or a DE lender. This policy applies to borrowers
who take title to the property subject to the mortgage without
assuming personal liability for the debt and to those borrowers who
assume and agree to pay the mortgage. The creditworthiness review
requirement extends for the life of the mortgage. Assumptions without
credit approval are grounds for acceleration of the mortgage, if
permitted by applicable state law and subject to HUD approval, unless
the seller retains an ownership interest in the property or the
transfer is by devise or descent.
In addition, private investors are prohibited from assuming insured
mortgages that are subject to the restrictions of the 1989 Act. This
restriction applies whether or not there is a release of liability by
the lender of the selling mortgagor.
4-1 6/92
4155.1 REV-4
4-3 RELEASE FROM LIABILITY. HUD or the DE lender completes a form
HUD-92210, Request for Credit Approval of Substitute Mortgagor, or
other similar form used by the lender. Execution of this form does
not formally release the mortgagor from personal liability on the
mortgage note.
The execution of form HUD-92210-1, Approval of Purchaser and Release
of Seller, constitutes a formal release of liability. HUD does not
release a borrower from liability; only the lender can execute the
release of liability. The lender is required to release all parties
from liability when the assuming mortgagor is found creditworthy.
A. Mortgages subject to the 1989 Act require that the lender
automatically prepare the release from liability (form
HUD-92210.1), thereby releasing the original owner when he or she
sells by assumption to a creditworthy assumptor who executes an
agreement to assume and pay the mortgage debt, thereby becoming
the substitute mortgagor.
The due-on-sale clause is generally triggered whenever any owner
is deleted from title, except when that party’s interest is
transferred by devise, descent, or in other circumstances where
the transfer cannot legally lead to exercise of the due-on-sale,
such as a divorce in which the party remaining on title retains
occupancy.
B. Mortgages executed before December 15, 1989 require the lender
must honor all former owners’ written requests to process a formal
release from liability. Lenders must grant a release from
liability if the assumptor is creditworthy and agrees to execute a
statement agreeing to assume and pay the mortgage debt.
{{{NOTE}}} Again Jim. In paragraph (B) it notes lenders must honor all former owner’s written requests to process a formal release from liability, indicating that, that was a procedure to be followed at the time.
Now Jim, I would like to take you back to Chapter 2.
B.Contingent liabilities. A contingent liability exists when an individual would be held responsible for payment of a debt should another party jointly or severally obligated default on that payment. Unless the borrower can provide conclusive evidence that
there is no possibility the debt holder will pursue debt collection against him or her should the other party default, the following rules regarding contingent liability apply:
1)Mortgage Assumptions. When a mortgage applicant remains obligated on an outstanding FHA-insured, VA-guaranteed, or conventional mortgage secured by a property which has been sold or traded within the last twelve months without a release
of liability, or is to be sold on assumption without a release of liability being obtained, contingent liability must be considered unless:
{{{NOTE}}} Notice again it is pointed out without a release of liability, so you can see that such a release is not automatic, as you’ve suggested.
September 1995 2-28
4155.1 REV-4 CHG-1
a)The originating lender of the mortgage being underwritten obtains from the servicer of the loan assumed a payment history showing that mortgage has been current during the
previous 12 months; or, b)An appraisal or closing statement from the sale of the
property supports a value that results in a 75 percent loan-to-value ratio, i.e., the outstanding balance on the mortgage loan (minus any upfront MIP, if applicable)
cannot exceed 75 percent of the appraised value or sales price.
Jim, I left this last part in to demonstrate, what are the chances of a buyer purchasing a property with 25% down. There would be no reason to take a HUD, FHA loan under those circumstances. The value of a FHA loan is easy qualifying, and supposedly 3% down which turns out to be 7% after all cost.
There is no question that your point is valid and I appreciate your input. I just didn’t want you or our viewers to think that I make things up. You’ve got me on this Jim, because I didn’t really show you where it spells out two years, but at the same token you can’t show me where it points out 5 as we have discussed on the phone. It’s a mute point anyway because it’s changed, but I think it’s important for investors or just buyers to know what they’re getting into when doing a deal.
I think we can both agree that when you call up a FHA lender or HUD their self, you don’t always get a correct answer, so this could be a valuable lesson. I think for those who want to purchase FHA, that they should look up the guidelines their selves and not get their information second handed.
Again for those who would like to view the HUD handbook, go to http://www.hud.gov/fha/sfh/ref/sfhp2-03.html.
Ed Garcia