Subsidy recapture

[Jeff Horton]

Just received a request from a G'ment agency that wants an appraisal for Subsidy recapture puposes?

From what I gather from the request the owner is wanting to borrow additional money on a existing loan to do improvements. Anyone run into this one before?

They have been sending me work fairly regular and I hate to have to call again and ask another dumb question. But these Guvment terms keep stumping me as to exactly what they want. Why can't they just speak plain English?

 

[Richard Carlsen]

Interest recapture is generally done on Farmers Home Administration (FmHA) loans or as they are called now Rural Development (RD) loans. The loans are made at low interest rates to low income people but there is a recapture provision in the note that most people don't know or have forgotten about. The FmHA loans the money at say 2% based on family income but at the time of sale or cash-out, the difference between the interest rate payment (say 2%) and the calculated or note rate rate (say 7%) is recaptured in favor of the government. I've seen some of these where the folks end up with very little equity in a property. They think the 2% loan is all they have to pay back.

When I do a recapture appraisal (and I've done a fair number) I do it based on the house as it was at the time it was acquired. If the owner has made significant improvements such as adding a garage, finishing a basement or putting on an addition, I do not consider these improvements in the report, as they were not part of the original security for the loan. In our area, the government will only recapture on the appreciation of the original structure and not on owner improvements. Normal maintenance and decorating does not apply to imrovements.

You may want to check and see if that is how they do it in your FmHA (or whatever the agency is) office. That way you will help the borrower get a fair shake despite having a bad memory.

 

[airphoto]

Yeah, yeah ..

I did one of these .. folks had figured out that, after six or seven years, they'd owe more on it than what they'd financed in the beginning (negative amortization.) Were re-financing to get rid of the scam ..

 

[Jeff Horton]

Thanks Richard. Guess this is not what I thought it was. Going to have call with yet another question. Better to ask than to mess up I guess. Hope they look at it that way.

BTW is it USDA or Farmers Home people.

 

[rtubbs]

Jeff, I've done a couple of these and, as I recall, USDA was requiring the homeowner to refinance to a conventional loan because of increases in wages. You can get some info on this if you want to weed thru the usda website. Let me know if you can't find it, I may have it downloaded to my hard drive.