Los Angeles, CA · Member since 2009 · 717 posts · 50 votes
Hello, I came across something concerning. I've done some research and noticed a rehabber buying homes on HUD as a owner occupant but then a couple months later, flipping it to a end buyer. I'm not a tattle tale, but why can't people play by the rules? It seems like this business pushes people to the limits morally because of money and/or greed. I understand, but why? I'm not going to say anything to this guy or anyone else, but people shouldn't be doing this. On a side note, sometimes REO agents bring me deals before they hit the MLS, and I have a feeling it may not be morally right, so should I still buy them? Tough decisions..
If you have evidence this is happening, call your HUD office and report it. http://portal.hud.gov/hudportal/HUD?src=/localoffices. They will be interested. This business is hard enough without having to compete with criminals.
It's a tough spot, especially when you want to play by the rules and you lose out on good opportunities. We all know investors buy HUD houses; they are usually the only people who have the desire to put the time and effort into them. If nothing else, at least you know you're an ethical investor who trys to do the right thing.
... On a side note, sometimes REO agents bring me deals before they hit the MLS, and I have a feeling it may not be morally right, so should I still buy them? ...
Often you will find that the REO listing agent has been given an exclusive listing period, where the property is allowed to be kept off of the MLS while the listing agent identifies whether he can get a buyer for it. Once the period of time for the exclusive listing expires, then they are required to put it on the MLS for all agents to bring buyers. Keep in mind that the listing agent has a license to protect, and also has the real estate boards to answer to, should they engage in something considered mis-behavior.
Breaking the law vs not breaking the law to make a dollar. Don't let it bother you, not only is this un-ethical it is illegal. Claiming you're an owner occupant with the intent on flipping sounds like mis-representation/fraud to me. I also thought HUD makes you sign an affidavit that you are buying solely for an owner occupant home.
I think intent is the key word here. I've had a client of mine buy a HUD home as an owner occuapnt, all cash. He rehabbed it while living there, and then called me and asked what he could sell it for fixed up. He has decided to move to a better area now. His intent was to live in the home, which he has.
I told him to speak to a RE attorney about this, and the RE attorney said there its a gray area and that nothing in HUDs contract says any time frame.
Regarding time frame and intent, the HUD form 9548D, Individual Owner-Occupant Certification clearly spells out terms and conditions of the contract: I/We ... submit this offer to purchase the property located at ... as an owner-occupant purchaser. I/we certify that I/we have not purchased a HUD-owned property within the past 24 months as an owner-occupant. This offer is being submitted with the representation that I/we will occupy the property as my/our primary residence for at least 12 months.
I've never bought a HUD property as O/O but I understand from a broker that this O/O certification is required of all O/O purchases.
If you have evidence this is happening, call your HUD office and report it. http://portal.hud.gov/hudportal/HUD?src=/localoffices. They will be interested. This business is hard enough without having to compete with criminals.
I've seen the same thing happening here lately more frequently, but I haven't been able to identify any of the individuals. It's really aggravating as the good deals are few and far between, and there are "investors" coming out of the woodwork trying to flip houses. I certainly plan on reporting anyone who is knowingly violating the rules.
Chris Martin I've never seen that addenudum before to the HUD contract. I am going to review my files tonight on previous O/O homes I've closed with HUD. I do not remember that one. Is that in the initial packet you send to PEMCO?
PEMCO? The great unification made everyone go to hudhomestore.com. Here is a random HUDHomestore listing that has a link in it to the Owner Occupant Contract. The second page is the Individual Owner Occupant Certification (form 9548D)
Clarification: from the 'Property Details' page of the HUD listing, click on the 'Addendums' tab at the top to see the Owner Occupant Contract that contains the Owner Occupant Certification.
I still have to send contracts to PEMCO in Denver, CO. I can still browse Hudhomestore.com but every listing I find on the MLS is never on HUDHomestore. Frustrating
Some rules make sense. But look hard at this one - supposedly an owner-occupied house is better for the neighborhood, and better for the country. That's why they created this policy. (Is it a law?)
Well, this policy discriminates against investors. That's not fair, is it?
In 2012, in many neighborhoods in Denver, a professional landlord owner is much better than an owner-occupant buying with 3.5% down and living paycheck to paycheck.
Note - I'm not saying that breaking the rule is OK. I'm saying that let's worry less about the rule breakers and more about eliminating a rule that doesn't make sense anymore.
"Fair" is absolutely irrelevant. For whatever reason, the rule exists. Investor's pay higher rates for loans. Is that "fair"? Is it right to lie, yes LIE, on a loan application to get a lower rate? This kind of crap makes a difficult game more difficult for those of us who play by the rules. This kind of crap gives real estate investors a bad name.
Some rules make sense. But look hard at this one - supposedly an owner-occupied house is better for the neighborhood, and better for the country. That's why they created this policy. (Is it a law?)
Regarding the law, look hard at the document an O/O is required to sign. It says "Warning: Falsifying information on this or any other form of the Department of Housing and Urban Development is a felony. It is punishable by a fine not to exceed $250,000 and/or a prison sentence of not more than two years."
Originally posted by Kevin Dickson:
Well, this policy discriminates against investors. That's not fair, is it?
What? Investor loans, in general, carry a higher risk. This is fact, as detailed in Fannie Mae's latest 10-K on page 154.
"Occupancy type. Mortgages on properties occupied by the borrower as a primary or secondary residence tend to have lower credit risk than mortgages on investment properties."
The reality is that a lenders underwriting and pricing reflect the current risk of loans, taking into consideration the higher-risk characteristics based on performance history. That's on page F-68. You can find similar verbage from small commercial lenders.
Again, when a law is continually broken, the law itself must be reconsidered along with the enforcement methods.
Good point. And the only way HUD is going to know that the law is being continually broken (and therefore becomes a bit more circumspect about it) is if the people who commit the crime are turned in.
So, it sounds like we're all in agreement that the best thing to do here is to turn the guy in...for the sake of all investors...
Again, when a law is continually broken, the law itself must be reconsidered along with the enforcement methods.
You sound like one who argues you only broke the law if you get caught?
Rules are rules.
Read my signature and think about it. Do you do the right thing due to fear of being punished for doing the wrong thing... or because you are true, moral, and just and want to do the right thing?
Much like the guys who find people cheating on their taxes as part of due diligence on multifamily homes. I say turn em in. It's part of your civic responsibility.
Kevin Dickson Regarding "I agree with all your points. Unless I misunderstood, the OP wasn't talking about the loan, just the purchase offer/contract." In the act of buying a HUD property, all cash or not, the O/O buyer fills out an Individual Owner Occupant Certification (form 9548D). If an investor buyer says he is an O/O, then this buyer is committing fraud per the wording in the document.
[i]Mission and Vision Statements: HUD's Commitment to America
Our new mission statement returns us to the Housing Act of 1949 and the directive to create “a decent home and suitable living environment for every American family.” ... No longer does the “American Dream” refer to a singular vision of success, such as owning a home.[/i]
But for now, falsifying information on any form of the Department of Housing and Urban Development is a felony.
I do admire your respect for rules, and agree that we should follow them when they exist. But history has shown that not all rules are best for society in general, and since conditions change, sometimes rules should change.
Chris,
I agree, HUD's policies should evolve in response to a changing world.
Sorry for giving the impression that I "sound like one who argues you only broke the law if you get caught".
I especially like this from the HUD strategic plan: "new business model that creates more flexibility to provide greater choice for renters and attracts private capital to increase the number of affordable rental homes"
To me that sounds like a move away from the current policy of discrimination against investors.
I do admire your respect for rules, and agree that we should follow them when they exist. But history has shown that not all rules are best for society in general, and since conditions change, sometimes rules should change.
I absolutely agree with that sentiment. There are whole countries where this applies and people have been making the ultimate sacrifice to uphold your statement.
I just don't think violating this HUD rule, dumb as it may be, falls into that category.
Maybe you could blackmail the guy into flipping a great deal to you?
I might consider turning the guy in just to keep the field on which I am playing by the rules more level. That would be my only reason. I don't have any quams about the "morality" of the actions because the entire rules system in this case is a fabrication to transfer economic advantage from one place to another in an attemtp to make life "fair". I don't have much passion for agreeing or disagreeing with the implemented policy.