FHA Refinance Occupancy Question

marketingjoe · Joined: 07 Nov 2009 Posts: 6 2.54 Dollars($)

Hi, I have an FHA Refinance Occupancy question. I have owned and occupied a 4 unit dwelling for over 3 years now with an FHA Loan (I live in one unit and rent out the other 3). In June of this year I did a FHA refinance. I am not sure but I believe it was what they call a “streamline” refinance because I did not take any cash out of the home, the bank kept all the money I put into the first loan. What the refinance did for me was give me a better interest rate and lower my monthly payments. In addition the bank did not do another appraisal, all the loaner officer did for the refi was check my credit history, make sure I had no late payments on my loan within the last 12 months and asked me if I was still occupying the property. And there was a lot less papers to sign at the closing of the refi.

Here is my dilemma. I recently lost my job and I am struggling mightily to make the monthly payments each month as my savings account dwindles. Pretty much I am facing foreclosure eventually and the only way Ill be able to keep up with the mortgage payments is if I move out of my unit and rent it out, that’ll cover the mortgage each month (im going to move in with my parents rent free until I get back on my feet, sadly).

Now as we know FHA loans have a 1 year occupancy requirement. I fulfilled that on my first loan as I lived in the home for 2.5 years. Now my question is do I still need to occupy my home for one year from the closing of my refinance? If that’s the case then I have not yet reached the 1 year requirement as I refinanced in June.

I checked the loaner papers from my refinance and the language of the contract is very unclear and confusing because they used the SAME papers and same language that is in my original loan (I checked the the papers from the original loan too to verify)

In regards to occupancy, the papers from my refinance loan state (partially paraphrasing) “I have up to 60 days after the execution of the instrument to occupy the property and I must maintain residency for at least 12 months from the date of occupancy”

The exact statement also exists in the contract from my original loan.So I have 2 loans with the same exact papers stating the same exact thing. Nice!

Lets look at the first part of the statement “I have up to 60 days after the execution of the instrument to occupy the property”

How does this apply to me since I was already living in the property for over 2 years??

Now for the 2nd part: “I must maintain residency for at least 12 months from the date of occupancy”

Again, what are they talking about here? If they want me to maintain residency from the date of occupancy then my date of occupancy was over 3 years ago when I originally bought the house.

I am not a lawyer but if I still have the maintain residency for another year from the refinance than that is VERY sloppy language and it appears that if I were just to move out now (which I wont do) and the bank came knowing they wouldn’t have much of a leg to stand on with this. Nowhere in my papers does it clearly state I must maintain residency for one year after the closing of the refinance. It says 1 year form occupancy which for me was over 3 years ago.

If anybody has any experience with FHA loans and FHA refinance loans do any of you know if the 1 year occupancy requirement goes back into effect with a refinance?

Of course I know this is a matter I will have to take up with the bank or an attorney, but I’d like to hear your thoughts as well.

Sorry for the long winded post and thank you in advance.

sonjakracine · Posted: Mon Nov 09, 2009 8:05 am Post subject:

Your new loan has new requirements, it is as if the previous one did not exist. Although other than the interest rate it is the same EXACT loan. So there are certain qualifications that need to be met, and they are clearly remarked on.

With that being said, there is no "FHA police" that is going to come knocking at your door to check. If it comes down to you losing the home or keeping it, well, your intention was to be owner occupied but as the circumstance changed then you had to take measures to insure the loan did not default -something the bank would appreciate. If that means you had to fudge a little, I'm not sure who would know. The bank wants their payment and you want to keep your good credit seems to me like you have a reasonable solution given the circumstance. For heavens sake, don't default over a temporary situation in your life, it will haunt your financial life for years.

marketingjoe · Joined: 07 Nov 2009 Posts: 6 2.54 Dollars($)

Thank You for the response. What a bummer for me. So it seems that the bank or FHA wont throw you in jail for the occupancy thing aslong as you keep making payments lol.

If its as if the old loan doesnt exist and everything starts all over then why did I have to sign an occupancy affadavit at the refi closing stating that I lived in the house for over 2 years?

You're right, nobody has ever come and done an occupancy check on me with the first loan or with this refi loan. I guess I can call the bank and tell them about my situation and see what they say. I cant imagine them making a big fuss over 6 more months.

Thanks again.

marketingjoe · Joined: 07 Nov 2009 Posts: 6 2.54 Dollars($)

I have a finished cellar apartment in my home that is not legal with the city, if I were to move into that apartment and rent out my current unit would that satisfy the occupancy requirement or would the bank not want me living in an apartment deemed illegal by the city?

gmakerley · Posted: Wed Nov 18, 2009 9:07 pm Post subject:

joe i believe sonja told you not to worry about your residency. go ahead and move out and live with parents and rent out the unit and make your payments. the occupancy question is mandatory because all fha loans are intended for owner-occupants only. you've done your part, and as sonja pointed out, you didn't purchase this house, nor did you refinance it, with the intent of moving out and making it an investment.

again, as long as you make your payments, they'll probably never concern themselves with this issue, so you ought not to, either.

do what you have to do. if someone eventually determines that you've vacated and raises a stink, deal with it then by explaining the circumstances.

marketingjoe · Joined: 07 Nov 2009 Posts: 6 2.54 Dollars($)

Thanks George. It's just that you read about how the FBI is cracking down and throwing people in jail for fraud. I dont want to get wrapped up in anything!

Thanks again.

gmakerley · Posted: Thu Nov 19, 2009 10:09 am Post subject:

a fraud such as declaring occupancy when one fully intends to not occupy a property is not the kind of thing that's going to cause you to end up in jail, anyway. and i think the fbi has far more important things to do than worry about knuckleheads who fabricate lies on their mortgage applications.

Posted: Thu Nov 19, 2009 10:47 am Post subject:

HAHA. Good point.

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