Re: Renting or Rent to Own - Posted by JPiper
Posted by JPiper on January 28, 2001 at 09:42:40:
The fact that this is a VA loan doesn’t make any difference to my comments above. But what does make a difference is the fact that the Ohio Housing Finance Agency is involved.
This is the so-called “first time buyer” program…dubbed this way because the borrower cannot have owned a house in the prior 3 years. This program extends “bond money” to buyers who meet the requirements, ie they are “first time buyers” (according to the definition), their income doesn’t exceed certain limits (this varies according to the program), and the buyer intends to owner occupy the house.
Typically the bond money is for down payment assistance, but it could also be for a special interest rate. Most of the time when you see these programs the bond money is coupled with an FHA loan. But sometimes you see it with a VA loan…typically in the category of the special interest rate because VA is already a 0 down program.
The state financing authority then secures their “grant” with a mortgage which may be “assumed” by qualifying. Qualifying with the state authority means that you must be an owner occupant, a first time buyer, and your income cannot exceed the specified limits. You would also have to qualify for the underlying loan, in addition to qualifying with the state authority.
Depending on the program it may be released in a 10-12 year period…so that’s something to check.
The problem here is that the state restricts the house to owner-occupants…meaning that renting the house triggers the DOS clause at any time during the course of the mortgage securing it. The only exception to this is a hardship waiver granted in writing by the state and mentioned in your post.
Bottomline…you move out and you trigger the clause. This would be true if you rent the house…it would obviously be true is you lease/optioned the house.
To be honest with you I can’t tell you how closely these are enforced. You’re not just dealing with the lender here…you’re also dealing with the state financing authority. What’s particularly interesting here is that the state addendum is more restrictive than the federal law concerning the due on sale clause (Garn St. Germaine). Garn specifically exempts leases under 3 years. But in this case you have received a special grant or subsidy which carried with it more restrictive requirements ie that you must be an owner occupant.
I have seen ONE person rent a house out that was subject to this type of restriction. So that isn’t much to base an opinion on. I have never seen one of these clauses enforced (but that doesn’t mean they haven’t been, it just means I haven’t seen it). The particular individual that I saw lease his house leased it to his sister…and in all probability continued to have mail directed to the property address. It’s hard to imagine how anyone could have detected this violation of the addendum in this scenario.
However, one possible alert to the lender would be a change in the type of insurance policy to a landlord policy. Whether they follow up on this and alert the housing authority I can’t say.
The issue here is not whether a lease/option triggers the clause. It triggers every clause because of the option itself. The problem here is that even a lease triggers the clause. I think you could get around this…but you will have to change insurance policies.
I can tell you that I have walked past deals with this type of financing in place…because I thought it was a problem. It may be that others would have an opinion here, or some experience with it that will post. Where there’s a will there’s probably a way. But again, the problem here is that renting is prohibted without a special hardship, and therefore a change in the insurance policy may be problemmatical.
Check the financing addendum to see when it is released and how.