What does “Subject to HUD Guidelines 24 CFR 206.125” mean?
Every once in awhile, in a listing description of a foreclosure, you will see the verbiage, “Subject to HUD Guidelines 24 CFR 206.125.” This means the property was financed with a Reverse Mortgage and there will be restrictions based on that fact.
Lets step back a moment.
What is a reverse mortgage you ask….good question! A reverse mortgage is a type of financing offered to people who are 62 years old or older, own there own home and have equity built up in that home. The mortgage is set up so the homeowner can access the equity in the home on an ongoing basis. Essentially, the lender will pay out an amount equal to the equity in the home (or whatever amount they agree to loan). That is the simplified version. For a more in depth explanation take a look at our blog post on Reverse Mortgages.
Ok, back to the language, “Subject to HUD Guidelines 24 CFR 206.125” and how it might affect a Buyer. because it is was subject to a reverse mortgage the seller will have certain restriction in how the property is acquired, marketed and sold.
Some of the restrictions are as follows:
The property must sold at the appraised value or the value of the balance of the loan. So the price you see on the listing sheet may very well be the price they need to get. There are other stipulations as well.
The property will be sold “AS IS”. No repairs will be completed and if the house has not been cleaned out it very may well stay that way. The Buyer will have to accept the condition at the time of closing. The Buyer also can not do any repairs prior to closing including termite treatments. This is important because we sometimes see the lender ask for repairs prior to closing if the Buyer is using an FHA loan to purchase the property.
The utilities can not be turned on at the sellers expense per HUD guidelines. Utilities can be turned on during an inspection period (10 days) at the Buyers cost and they also must be shut off on completion of the inspection period.
Generally the Seller will require 30 days for a cash closing and 60 for a financed one although the property may close sooner…or later if extensions are agreed upon. You never know with banks.
The Buyer is not allowed to occupy the house prior to closing.
This is just a summary of the rules and restrictions.
For a full description of the process and restrictions go HERE.