USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶13.4 — Restrictions On Resale Price

USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶13.4 — Restrictions On Resale Price

13.4 RESTRICTIONS ON RESALE PRICE Restrictions on the resale price of the property or recapture of equity are permitted. A maximum sales price may be imposed or the sales proceeds due to the borrower may be limited, with any excess funds payable to a governmental body or nonprofit organization for reuse in a community land trust or to preserve long term affordability. When such restrictions apply, the requirements listed below must be met. x The borrower must be permitted to recover at least the original purchase price, sales commission, and cost of capital improvements when the borrower sells the property. x If the program permits the borrower to sell the property at market value but recaptures part of the equity, the Agency considers a reasonable share of appreciation to be at least 50 percent. The Agency does not object to situations whereby the borrower’s share of appreciation is on a sliding scale beginning at zero, provided that within two years the homeowner would be permitted to retain 50 percent of the appreciation. HB-1-3555 (03-09-16) SPECIAL PN 13-4 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. x The borrower must be permitted to recover a reasonable amount of appreciation, as determined by the lender. Appreciation is measured by the difference between the original purchase price and the actual price at which the property is resold. x If the program sets a maximum sales price restriction, the borrower must be permitted to retain 100 percent of the appreciation. A. Right of First Refusal One method to ensure that housing remains part of an affordable housing program is to hold a “right of first refusal” or an “option right” that can be exercised when the borrower proposes to sell the home to a purchaser not eligible for the program benefits. Such a provision is permitted if all the requirements listed below are met. x The rights must be held only by a governmental body or eligible nonprofit organization and exercised by them, or someone they have identified as an eligible purchaser. x Any right must be exercised within 45 days after the holder of these rights may exercise them (for example, the rights are often triggered by a notice of sale from the borrower). x Any option price must allow the borrowers to recover their investment plus reasonable shares of appreciation. 13.5 LOANS ON LEASEHOLD ESTATES [7 CFR 3555.203(B)] Loans to finance the purchase of dwellings located on a leasehold estate may be guaranteed if the conditions described in this paragraph are met, and the applicants and the property otherwise meet the requirements outlined in this Handbook. A. Definition A leasehold estate is the right to use and occupy real estate for a stated term and under certain conditions that have been conveyed by a lease. In most cases, improvements to real estate are purchased in fee simple, subject to ground rent. Rent is paid for the right to use and occupy the land. The lender’s mortgage file must have documentation indicating the appropriate legal documents that have been reviewed for compliance with Agency regulations. HB-1-3555 (03-09-16) SPECIAL PN 13-5 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. B. Lease Requirements Mortgages subject to leasehold estates must meet the following conditions: x The mortgage must cover both property improvements and the leasehold interest in the land. x The leasehold estate must constitute real property, be subject to the mortgage lien, and be insured by a title policy. x The estate’s term runs fifteen or more years beyond the maturity date of the loan closing, except in the case of properties located on Native American restricted land. See Section 13.6 for guidance regarding loans on Native American restricted land. x The leasehold estate must be assignable or transferable. x The lease cannot be terminated except for nonpayment of lease rents. The lease must: x Provide for lender notification of any default by the borrower and the option to cure the default. x Provide that the borrower will pay taxes, insurance, and association dues (as applicable) on the land and retain voting rights in the association. x Provide that the leasehold can be transferred, mortgaged, and sublet without restriction. x State rental increases in exact dollar amounts. x Be recorded and constitute an interest in real estate. x Permit mortgaging of the leasehold. x Provide for written notice of default. x Provide renewal options for the leasehold mortgagee. HB-1-3555 (03-09-16) SPECIAL PN 13-6 Revised (10-12-23) PN 594 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts.

Source: USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶13.4 — Restrictions On Resale Price · source URL · snapshot 0466acd1ea2d17a4