Reselling a HUD home prior to 12 month occupancy period

[Brandon Sturgill]

I recently bought a HUD home with the intent or reselling within a year. The rationale for buying the house was to "ease" into rehab and reselling property while working a full-time job, and to allow my kids to finish their private school before they age out and we relocate.

I began the rehab myself at the beginning of June, and undoubtedly can have the work done relatively quickly. I want this house gone within six months to buy another. My realtor advised that my contract contains a 1yr occupancy clause...any advice? Am I really stuck the entire year? Thanks

[Catherine Coy]

Brandon, one of the "declarations" to which you responded on page 4 of the loan application says, "Do you INTEND to occupy the subject property as your primary residence? Y/N"

"Occupancy" is defined as beginning occupancy by the 31st day after loan closing and maintaining occupancy for 360 days. All borrowers--conventional or FHA--are subject to occupancy checks, especially in CA where occupancy fraud is high on the list of types of loan fraud.

http://www.dsnews.com/articles/mortgage-fraud-risk-ticks-up-in-q1-led-by-california-2013-06-12

All lenders employ third party contractors whose task is to uncover loan fraud through a variety of methods.

http://www.freddiemac.com/singlefamily/pdf/fraudprevention_practices.pdf

If you intended to occupy, but now you're not going to occupy, the worst that will happen is your name will go into FHA's database as someone who sold an FHA-insured property before the requisite 12 months owner-occupancy was completed. Thus, you won't be able to obtain another FHA loan until 12 months has passed, but this guideline is discretionary. FHA allows for "extenuating circumstances" but you'd have to prove that you could no longer occupy the property. If you develop a pattern of obtaining an FHA loan every 12 months, that's a red flag, too.

You don't have to worry about government jackboots coming to your home (if they could find you) to arrest you--although considering the current administration, anything is possible. ;-)