Just thought I would mention that HUD employees themselves are the source of considerable misinformation. For example, the DOS clause used in FHA loans would be triggered by a transfer via contract for deed. Call 10 different HUD employees and you’re sure to get 10 different answers. The is a HUD guideline information on the internet that you can read for yourself. Unfortunately, I can’t give you the address. You might start with www.hud.gov.
More realtor speak… And an FHA question… - Posted by Mark (SDCA)
Posted by Mark (SDCA) on October 24, 2000 at 16:49:00:
I just got off the with a realtor. She said, “You cannot wrap an FHA loan. It is illegal here in Arizona.”
So I asked her for the statute. She said didn’t know but she had run it by her title company and they said no way. She also said it is against HUD guidelines. She said that it was ok to wrap a VA or a conventional but not FHA. They could call the loan…
Ok… I know she did not have the facts at her disposal. But is ANY of this correct? Is there any difference with respect to wrapping an FHA loan? Is this just the typical title company nonsense??
Illegal huh? The only HUD guideline that I’m aware of that would present a problem to “wrapping” would be the due on sale clause. As you know, this is not “illegal”…however the lender would have the right to call the loan under the due on sale provisions in the loan documents. By the way, this would also be true for conventional loans. VA will allow a contract for deed with no due on sale problems.
So unless there is a specific Arizona provision (I doubt it) then your only problem is the typical one…due on sale.
Re: More realtor speak… And an FHA question… - Posted by Mark (SDCA)
Posted by Mark (SDCA) on October 24, 2000 at 17:16:49:
That was pretty much what I figured. (Which is why I thought it especially strange that she said wrapping conventional loans was no problem). And yes, she did specifically use the word: ILLEGAL. Uh oh.
I have been at the web site poking around. There are some recent letters from HUD stating that they will revoke lenders’ authrorization to originate FHA loans if the lenders’ default rates are excessive. Maybe AZ lenders are getting tough on the DOS for FHA loans?? (I am grasping here… lol).
As a Phoenix area realtor working with investors, I have written FHA wrap contracts without any hitches. I do disclose to investors that a due on sale provision is a possibility, but unlikely if payments continue to be made on time. Sometimes you have to shop for or educate escrow officers who like many realtors like to work the straight and easy deals.
Posted by Mark (SDCA) on October 25, 2000 at 14:53:42:
I just spoke with HUD. This is their statement verbatim:
It’s NOT illegal. The original borrower DOES remain responsible for the loan. You have to do it on a contract for deed.
Posted by Mark (SDCA) on October 25, 2000 at 14:42:55:
Grand Canyon title claims that it IS illegal (according to FHA). Although the last time I checked, FHA was not a law making body.
The 2 things that she did say which may make sense are that
You can do it if you don’t want title insurance because no title company will insure title.
The policy has a due on sale clause. (When I pointed out that almost every loan nowadays has a due on sale clause, that didnt seem to phase her.)
Scarey.
Re: More realtor speak… And an FHA question… - Posted by Mark (SDCA)
Posted by Mark (SDCA) on October 25, 2000 at 14:33:10:
Greg,
What title company (and which office/escrow officer) do you work with?
The realtor I spoke with said Grand Canyon Title refuses to do it. (I am waiting a call back from them.)
I just spoke with my contact at Stewart Title and they said they will wrap a conventional or VA loan on a contract for Deed and will only wrap an FHA loan originated prior to 1986.
I also spoke with someone at Equity Title who said that FHA loans could not be wrapped per FHA guidelines. (Of course she could NOT point me to those guidelines.) She did also say that the person on the original loan must remain in the property and be responsible for the life of the loan which we know is not correct. That is an occupancy rider for the life of the loan which is not enforced.
So there seems to be a lot of 1/2 (and mis-) information out there.