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I am looking at a house in the Cleveland Heights area OH.

The asking price is $9,000, and, obviously, it needs a lot of work.

The more I research the FHA 203K loan, the less I like it. First I am not so keen about the deadline for the completion of renovations. And second, the idea that they will dole out the money in increments, pending inspections, does not sit well with me. Also the requirement that all the work be done by certified workers is a pain, as I am able to do a large portion of the work myself, however I am not certified.

My idea is to get an FHA 203K, purposefully default the agreement by not beginning the work as I was supposed to. Then when the loan is called in, return the money, paying any interest that has accrued in the meanwhile.

I have enough to pay for the house, the $9000. So, if I default the agreement and am able to repay the FHA 203K when it is called in, are there any possible repercussions? My idea is then to pursue a different loan for the rehab, one that is not so strictly regulated.

Is this a viable loophole, or am I just crazy? Any advice is greatly appreciated. Thanks.

gmakerley · Posted: Tue Mar 17, 2009 12:31 pm Post subject:

just crazy in my estimation.

where do you anticipate finding a "not so strictly regulated" rehabilitation loan? from someone who will charge you oh let's say 10% or 12% interest and then let you fly with the cash? that won't happen either.

you are asking a lender to put out i dont know how many thousands of dollars on what is currently a $9000 property that is in need of lots of work. then you're asking them to give you carte blanche to do the work as you see fit, even though the thousands of dollars you're requesting is their money (their! money!) and their investment in you and in the property would then be suspect.

can you imagine that there are regulations for a reason? maybe someone else had the same mindset you have and defaulted on a loan and the federal government (hence the fha designation) had to eat the proceeds. dont' we have enough mess in this economy and in this country as a whole without your getting creative with someone else's money?

looking for loopholes is a way out of doing the right thing. i know you may only be using that term loosely, but there's a very troubling phenomenon in this country that is rampant - even despite all the things we are going through now - that looks to cut corners, eliminate the need for regulation, etc. look at all the scam artists out there taking advantage of the under-educated, the uneducated and the unaware.

Posted: Tue Mar 17, 2009 12:46 pm Post subject:

I didn't mean to offend anyone with my suggestion.

The problem is that I am not able to make fixing up this house my sole job for the next 6 months. I have to keep working my real job to provide for myself and family. I don't like the idea that I can work like a dog fixing up this property. And then the 6 months deadline comes up and since I don't get around to scraping the trim in one of the doorways all my work and money is taken away from me. It has nothing to do with me looking for an easy way out, it has to do with me not trusting HUD.

My father took care of some properties as I was growing up and they were FHA rentals, and so were inspected regularly. The properties were in great shape, but the inspectors never left without pulling some repair or another out of a hat that needed to be done. It got to the point where my Father was staging violations to give the inspector something obvious to point at, so that they would be placated.

We are planning on doing all the repairs necessary to bring the proerty up to code. But through the FHA 203K, we would be told who to hire, how to do it. I don't think for a second that they will do anything but make us use the companies that they are in cahoots with. And that we will end up paying much more than if we did the work ourselves and contracted ourselves.

I have to safe guard my interest in this venture, and I don't have that much in the FHA lender doing the right thing if it comes to it.

gmakerley · Posted: Tue Mar 17, 2009 1:05 pm Post subject:

if your lender is telling you "who to hire, how to do it," then you've gone to the wrong source. what you need is licensed contractors to do the work, and there is a consultant who's approved by fha and who will inspect, etc. that doesn't take all the power out of your hands, but certainly if the money is invested by a lender, they want to be certain that the folk doing the work are qualified.

"in cahoots" - well i guess there's no dissauding you from the feeling that the fha is out to mess with you.

Posted: Tue Mar 17, 2009 1:16 pm Post subject:

Do you know what will happen if we make every effort to address all of the violation, but come up short when the 6 month deadline comes around?

I read that they can call the loan in. And that means, to me that I could loose the property as well as all the $$$ I had invested in it. That doesn't seem paranoid, to me, that seems like they'd be out to get me.

Also, I read that most people end up not having a good experience with FHA 203K because of all the waiting around for a consultant to inspect every time a repair is ready to be made. Unless, of course you luck out and the FHA office is overstaffed or something.

So my worry is that I could, POTENTIALLY, be jerked around until the deadline is up and then loose the investment. I am not saying that I believe that it would happen, but it doesn't seem out of the question either.

gmakerley · Posted: Tue Mar 17, 2009 1:47 pm Post subject:

well, of course, extensions are available if the 6-month period ends and the repairs/renovations haven't been completed.

Posted: Tue Mar 17, 2009 1:55 pm Post subject:

Thanks for helping me with this stuff.

Are there penalties for the extensions? And after all the repairs are done, is HUD out of your hair, or do they come back with more inspections and orders later?

gmakerley · Posted: Tue Mar 17, 2009 1:58 pm Post subject:

there would not be a penalty, no. as for additional fees, that's a remote possibility but i doubt it.
once the property is completed, and the loan is fully disbursed, you just live in the house like any ordinary person and pay the mortgage, which is something out of the ordinary these days.
you're welcome.

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Getting round a 203K