Date Published: February 2013
As provided in 24 CFR Part 92.254(a)(5)(i)(A), "affordability restrictions may terminate upon occurrence of any of the following termination events: foreclosure, transfer in lieu of foreclosure or assignment of an FHA insured mortgage to HUD. The participating jurisdiction may use purchase options, rights of first refusal or other preemptive rights to purchase the housing before foreclosure to preserve affordability. The affordability restrictions shall be revived according to the original terms if, during the original affordability period, the owner of record before the termination event, obtains an ownership interest in the housing."
For rental units, in the event of a foreclosure it is permissible for affordability restrictions to terminate. However, unless the new owner agrees to maintain the affordability requirements for the balance of the affordability period, the grantee must return to HUD the full amount of the original NSP investment minus any program income already repaid by the owner to the grantee. Therefore, it is in grantee's best interest to require foreclosure-proof land covenants or deed restrictions.
For homeownership units, grantees can choose resale or recapture, depending on the way that they financed the original unit. If the grantee chose recapture, the grantee is only required to repay to its program account the amount of net proceeds that are paid to it at the foreclosure sale. If there are no net proceeds, no amount of repayment is required and the affordability restrictions are terminated at that point.
If the grantee chose resale, the grantee is required to either ensure that the next buyer meets the program requirements (either at 120 percent or 50 percent of AMI depending on how the unit was originally designated), or the grantee must repay the full amount of the original NSP investment minus any program income already repaid.
For more information about resale and recapture, please refer to the following guidance from the HOME Program: