Every so often, you might come across a property listing that has a remark that it’s being sold according to HUD Guidelines 24 CFR 206.125. What that means is that the house is a reverse mortgage foreclosure and that it’s being sold following HUD guidelines Title 24, Vol.2, Section 206-125. There are many rules associated with these types of home sales, making purchasing such a property relatively tricky.
As many realtors are unfamiliar with these HUD guidelines, we’re going to thoroughly explain them and answer other relevant questions about reverse mortgage foreclosures.
Reverse mortgages are a type of mortgage loan where the lender pays a homeowner that has equity in their house. Basically, it’s the reverse of a traditional mortgage, as the lender will typically be making monthly payments to the owner. In some cases, the owner might opt for a lump sum payment over monthly payments.
Reverse mortgage loans are only available to borrows aged 62 or older who have equity in the home. Typically they need to own at least 20% of the house. Additionally, the property must be the borrower’s primary residence. This means that reverse mortgages are generally for retirees who have significant equity in their homes that they want to tap into as their monthly income might not be sufficient to get by.
You might be wondering how a reverse mortgage foreclosure works, especially since the owner is not required to make monthly payments to the lender. The truth is that a reverse mortgage can be foreclosed on, and this is precisely why HUD guidelines 24 CFR 206.125 were created - to dictate how such foreclosure sales will work. So when does a reverse mortgage enter foreclosure? Well, the loan must become due and payable for that to happen. Here are the things that can trigger a reverse mortgage foreclosure:
- The borrower moves and no longer uses the home as their primary residence.
- The borrower sells the home.
- The borrower dies.
- The owner stops paying property taxes or homeowners insurance.
- Proper maintenance on the home isn’t performed, and the property falls into disrepair.
- The property must be sold at or above the appraised value.
- The home is sold with the utilities turned off. If the buyer wishes to turn them on for an inspection, they will be responsible for paying the costs (typically around $100).
- The property must be sold as-is, with no repairs being made by the seller.
- Under no circumstances will the seller contribute to the buyer's closing costs.
- Real estate agent transaction fees are not allowed for these types of sales.
- Any transfer fees, transfer taxes, and HOA fees will be paid solely by the buyer and shall be due at closing.
- A 10% deposit must be made on cash offers.
- Electronic signatures are not accepted.
Additionally, most 24 CFR 206.125 closings take at least 60 days, so be prepared for the process to take longer than usual even if you meet all the requirements.
While the HUD rules associated with purchasing 24cfr 206.125 homes mean a more complicated closing process and might seem like a significant drawback, there are numerous other things to consider before purchasing such a home. Here are the pros and cons you’ll want to consider:
HUD 24 CFR 206 125 Pros:
- These properties can often be great deals.
- The homes are often well cared for as they’ve had a single owner for quite a while.
- Being a hud 24 CFR 206.125 property means a complicated sales process and less potential competition from other buyers.
HUD 24 CFR 206 125 Cons:
- The buying process for such homes is much trickier due to the many rules.
- There won’t be as many financing options for 24 CFR 206.125 homes.
- You might have difficulty finding a realtor who is familiar with the process or interested in helping due to the lack of fees.
At the end of the day, deciding if purchasing a home subject to HUD Guidelines 24 CFR 206.125 really depends on your specific situation. Is the home too good of a deal to pass up, does your timeline allow for a more complicated closing, and can you secure financing for the purchase, are all questions you’ll need to answer before deciding what’s right for you.