Occupancy Question

[alex gilbert]

We're looking at a property that is occupied by the owner's daughter and her family. There is no lease and the daughter pays no rent. There's a difference of opinion as to whether this should be reported as owner or tenant occupied. I was under the impression that properties occupied by immediate family members were considered owner occupied, but I can't find any info relating to this.

Would anyone have a link or reference to the Fannie Mae or short sale regs concerning owner occupancy?

 

[CANative]

It's under dad's control and is not encumbered. I would call it owner occupied (but in an appraisal report I would describe the situation.)

Just my opinion. I've got to use up another 39 minutes here at work so I'll do some research for you. :laugh:

 

[SpartanAG]

I don't do secondary market stuff, so I'm not sure about their guidelines or requirements.

That being said, I've always considered this type of situation as owner occupied because the parents maintain a fee simple interest in the property. If they had some sort of rental contract, then there would be a leased fee / leasehold relationship and I would say the daughter was a tenant.

 

[CANative]

I might be wrong. lol

2013 Selling Guide
Part B, Origination Through Closing
Subpart B2, Eligibility
Chapter B2-3, Occupancy and Property Eligibility
B2-3-01, Occupancy Type Requirements (08/30/2011)

Overview

Fannie Mae purchases or securitizes mortgages secured by properties that are principal residences, second homes, or investment properties. For the maximum allowable LTV/CLTV/HCLTV ratios and representative credit score requirements for each occupancy type, see the Eligibility Matrix.

Principal Residence Properties

A principal residence is a property that the borrower occupies as his or her primary residence.

The following table describes conditions under which Fannie Mae considers a residence to be a principal residence even though the borrower will not be occupying the property.
Borrower Types Requirements for Owner-Occupancy

Multiple borrowers Only one borrower needs to occupy and take title to the property, except as otherwise required for mortgages that have guarantors or co-signers. (See B2-1.2-04, Continuity of Obligation (06/28/2011).)

Parents wanting to provide housing for their physically handicapped or developmentally disabled adult child If the child is unable to work or does not have sufficient income to qualify for a mortgage on his or her own, the parent is considered the owner/occupant.

Children wanting to provide housing for elderly parents If the parent is unable to work or does not have sufficient income to qualify for a mortgage on his or her own, the child is considered the owner/occupant.

Note: If a property is used as a group home, and a natural-person individual occupies the property as a principal residence or as a second home, Fannie Mae’s terms and conditions for such occupancy status as provided will be applicable.

 

[Motown Matt]

Based on the above, I'd say it's not owner-occupied. It's a second residence, which lenders need to understand as the lending guidelines may be different. The fact that they have a relative live there rent-free doesn't change that fact. The owner of record is not occupying the home, and the situation doesn't fall under the exceptions CAN linked.

 

[alex gilbert]

Good find, Can. I poked around the selling guide, but did not see that.

Interestingly, in this case it's a question regarding the seller's occupancy. This is not an issue for the new loan, but apparently the current lender requires the property to be owner occupied to qualify for a short sale. Someone's gonna be out of luck here.

 

[Motown Matt]

Good find, Can. I poked around the selling guide, but did not see that.

Interestingly, in this case it's a question regarding the seller's occupancy. This is not an issue for the new loan, but apparently the current lender requires the property to be owner occupied to qualify for a short sale. Someone's gonna be out of luck here.

Do not, no matter how much you are pressured, state that this is owner-occupied for this, and I would go further and specifically state the situation of who is occupying the home, not just check the correct box. If a short sale went through based on mis-information and fraud (since the owners have to sign additional paperwork stating they are occupants), there would most likely be a big target on your back down the road.

 

[Doug DeMars]

Based on the above, I'd say it's not owner-occupied. It's a second residence, which lenders need to understand as the lending guidelines may be different. The fact that they have a relative live there rent-free doesn't change that fact. The owner of record is not occupying the home, and the situation doesn't fall under the exceptions CAN linked.

Really? It may not be the primary residence...but it is still "owner occupied" if a family member is living there...without a lease and no rent is being collected.

From what Can found...

Parents wanting to provide housing for their physically handicapped or developmentally disabled adult child If the child is unable to work or does not have sufficient income to qualify for a mortgage on his or her own, the parent is considered the owner/occupant.

Children wanting to provide housing for elderly parents If the parent is unable to work or does not have sufficient income to qualify for a mortgage on his or her own, the child is considered the owner/occupant.

Like Can said...I'd make commentary in the report as to the specifics...and who told what to who. Be it a 2nd home, vacation home, or place their kid can stay, etc...it is still "occupied" by the parents. It may not be full time occupancy...but is occupied nonetheless.

Are you still "occupying" your home when your off on vacation for 2 weeks?

Would your opininon change if the parents were storing some of their personal belongings at this secondary residence?

 

[Motown Matt]

Doug, read the verbiage carefully. It states, in essence:

"A handicapped child of the parents IF unable to work OR has insufficient income." This is NOT the same as "if the child is handicapped, or if the child can't work, or if the child has insufficient income"

The scenario for children occupying, as stated by FNMA is ONLY for 1) handicapped children if they cannot work OR 2) handicapped children if they have sufficient income. Not for any child if they don't have sufficient income. The child must be handicapped, not just any child that cannot work or doesn't earn enough.

Same with the elderly parents scenarios, there are 2 scenarios, both of them they must be "elderly" AND not have enough money. If the elderly parents (or handicapped child) have means to get their own home, it's a secondary residence. And if their kid or parent is "able to work", it's a secondary residence. That's what FNMA is saying if you read it. It's pretty clear to me.

You can't just bold the phrase out of context and make it look like the child can be a physically able child, they must be handicapped according to the entire sentence.

So, I guess if you wanted to do your full disclosure, you should inquire to find out if the child who is living there is handicapped, and if so, are they either unable to work or are they making insufficient money to get their own mortgage.

Owner occupied = primary residence. You can't have 2 of them (unless you meet the handicapped child or elderly parents scenario above). This isn't a grey area.

 

[Doug DeMars]

We'll agree to disagree then. It's not black and white as far as I'm concerned. I've seen many typos in FNMA guidelines and all they need to do is add a comma after the word "work" and maybe you'd be satisfied?

The commentary quoted by CAN is poorly worded with syntax leaving much to be desired. However, reading "between the lines", the meaning points to scenarios with family members "helping" other family members that are either unable or have insufficient income to have their own mortgage.

Same with the elderly parents scenarios, there are 2 scenarios, both of them they must be "elderly" AND not have enough money. If the elderly parents (or handicapped child) have means to get their own home, it's a secondary residence. And if their kid or parent is "able to work", it's a secondary residence. That's what FNMA is saying if you read it. It's pretty clear to me.

It's pretty clear to me that you adding "AND" to the scenarios where it doesn't belong. There's a huge difference between "OR" and "AND".