By Beau Brincefield
REALTORS® need to be aware of certain problems that have occasionally arisen in connection with resales of homes that were acquired through local homeownership assistance programs. For ease of reference in this article, homes which have been made more affordable by one of these programs are referred to as “Financially Assisted Housing Units” or FAHUs.
Most, if not all, of the counties and cities in Northern Virginia offer one or more types of programs that make homeownership more attainable by lower income homebuyers. Some programs involve commitments from homebuilders to set aside a certain number of units for lower income purchasers. Some programs provide direct financial assistance to enable lower income purchasers to buy homes. Virtually all of these programs involve the imposition of some type(s) of restriction(s) on the resale of the FAHU.
These restrictions can take one or more of several different forms. Some programs place income restrictions on subsequent purchasers of FAHUs. Some programs limit the sales price that the assisted homebuyers may receive when they resell the FAHU. Some programs require some form of repayment of the original amount of financial assistance given. These forms of repayment may include principal, interest, and, in some cases, some or all of the appreciation in the value of the property.
Ignorance of these restrictions on the resale of an FAHU can cause serious problems for purchasers, REALTORS®, settlement service providers, title searchers, lenders, attorneys, title insurance companies and anyone else involved in, or affected by, the transaction. The problem is how to find out, in a timely fashion, that the property was acquired with special financing and that there are certain restrictions on who can buy it, how high the maximum sales price can be, and other rules or restrictions applicable to the resale.
Sometimes the resale restrictions are found only in the original deed from the developer to the first homebuyer. Sometimes the restrictions are found in a deed of trust securing the repayment of the special financing. Sometimes the restrictions are found in separately recorded covenants.
It is not uncommon for REALTORS®, as well as other parties involved, to be ignorant of the fact that a property is an FAHU subject to special restrictions until the parties try to go to settlement. There have even been some transactions reported in which the parties did not find out about the special financing restrictions until after they had gone to settlement on the property.
Whenever dealing with a property that was potentially financed with any type of special housing assistance, the prudent listing agent should always carefully question the seller to ask whether or not any type of special financing may have been used to acquire the property. The prudent selling agent or buyer agent should always ask the listing agent whether or not such an inquiry has been made and what the seller said. Unfortunately, sellers frequently do not give accurate answers to such inquires, even when made. Sellers either have forgotten that they acquired the property through some type of homeownership assistance program or they do not wish to reveal that information in the hopes of reaping a windfall from the sale of substantially appreciated property if they can get through settlement on the sale of the property without disclosing and complying with the restrictions imposed by the program.
Where sellers do not disclose, either through ignorance or dishonesty, the resale limitations applicable to the property, it can cause considerable inconvenience, delay and expense for everyone involved. Since the various types of restrictions may be found in many different types of documents, (deeds, deeds of trust, separately recorded covenants, etc.), title searchers frequently overlook the restrictions when they search the title in preparation for settlement, especially in the present environment, where there is such a high volume of transactions, both sales and refinancing. And, even where the restrictions are identified by a careful title searcher, others involved in the transaction do not become aware of them until settlement or very shortly before. If the restrictions are not discovered until after the settlement has been concluded, the problems become even worse and more difficult to resolve.
Representatives of NVAR have begun a dialogue with representatives of all of the Northern Virginia providers of such financing assistance to seek their cooperation in developing an early warning system whereby REALTORS® and others may be able to identify FAHUs early on in the transaction. Suggestions made have included special identifying notations for such properties that might be entered into the tax records in the local jurisdictions, special notations on deeds of trust, special notices in responses to requests for payoff information and other similar types of notifications or identifications. The thrust of all of these suggestions is to attempt to get the word out as early as possible in the process, but no later than settlement, that the property is an FAHU subject to special restrictions on resale.
Further information will be disseminated as it is developed but, for the time being, the best protection a REALTORS® can have is to be aware of the potential problem and to make appropriate inquiries whenever dealing with properties that may be subject to such special restrictions.
Beau Brincefield has been a practicing real estate attorney for more than 30 years. He held a real estate broker’s license before becoming a lawyer and has served as the Chair of the Real Estate Sections of the Alexandria, District of Columbia and Virginia State Bars. Mr. Brincefield was recently inducted as a Member of the NVAR Hall of Fame.