Have You Encountered Financial Difficulties and You Have An Oregon Bond Loan?

By
Real Estate Mortgage Broker with Karen Pierce | Housing Counselor |Oregon NMLS 223305

I have heard from several Oregon Bond borrowers now who are struggling due to financial hardships, and running in to difficulties due to the owner occupancy requirement and the potential recapture tax provision a homeowner may face on an Oregon Bond loan when they sell their home and their income has increased enough to trigger this provision. Some of these homeowners were trying to get the Home Affordable Refinance or Home Affordable Modification programs to help reduce their monthly payments, but the Oregon Bond Loans are not eligible for these programs that were approved through the federal stimulus packages.

I asked the State of Oregon if they have any suggestions for folks who are experiencing financial hardship and have Oregon Bond loans. Here is the response: 

"Karen,

Due to the economic downturn, it is possible for a Oregon Bond borrower to rent out their home for a short period of time, if they have continuously occupied the home for at least the first year of ownership.  In recent months we have instructed our loan servicers not to monitor the properties for owner occupancy after the first year. Many of our borrowers are in the same situation of having to relocate to obtain employment. If this is going to be a permanent relocation, then they should refinance or sell the home financed by the Bond program. The Recapture Provision is only triggered upon sale of the home, and sale within the first 9 years of ownership. In most cases the borrowers will not owe a tax because their income has not increased significantly from the time of purchase.

For borrowers that are remaining in the home and struggling, we do not have any program to defer or reduce payments. We have had some borrowers with an improving employment outlook, but who have fallen one or more months behind on their payments, and the servicer has been able to modify the loan by capitalizing delinquent interest and bringing the loan current. This may be an option on a case by case basis for delinquent borrowers, but the borrower still has to be able to handle a full monthly payment going forward."

If you have been told by your existing lender/servicer something other than the information above, relay this info to them and ask your lender to verify it is okay for you to temporarily rent your home out as you find it necessary to temporarily relocate for your job.

Should your home sell AND your income exceeds those maximum income limits (follow this link for current income limits, but you should have received an initial disclosure that referenced limits at the time you took out your loan, plus annual increases) - that means BOTH the sale and exceeding income limits take place - you could potentially face a recapture tax. This hasn't happened to very many people.

So, it sounds to me like maybe getting a short term tenant in who gets below market rent rates because you are selling the home due to the economic downturn that necessitated a move in order to find a job might be a viable alternative for some folks who have an Oregon Bond loan get through these difficult times. Certainly a better alternative than loosing a home to foreclosure.

See you out there!

Karen Cooper - OR/CA Mortgage Consultant - www.Quality4Loans.com

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Karen Cooper Southern Oregon|California Mortgage ConsultantKaren Pierce - Housing Counselor/Certified Foreclosure Intervention & Default Counselor

               NMLS #223305

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Anonymous #1
Anonymous
ASanders

Karen, I appreciate this greatly, but I don't think we could find anyone to rent our small home for what we pay monthly ($1600). In addition, our move would probably be permanent, so this would mean a short sale, since we are underwater.

Do you have any advice for people looking at a short sale or foreclosure on an Oregon bond loan? What are the tax ramifications? Do bond loans have Deed in Trusts? Thank you sooo much for all of your help!

 

July 01, 2009 12:59 AM
Rainmaker
299,223
Karen Pierce
Karen Pierce | Housing Counselor |Oregon

Hi ASanders - Many people forced to rent their homes when relocating are getting less than their monthly PITI payment, but figure the rent helps offset enough to make finding ways to scrape up the difference to rescue them from long term credit consequences worthwhile. Those that cannot or are not willing to make up the difference each month find the short refinance/short sale, deed-in-lieu of foreclosure, or foreclosure avenues unavoidable. You'll need to talk to your tax advisor to verify potential tax consequences you may have based on your individual circumstances...BEFORE you move and your home is no longer considered your principal residence.

July 01, 2009 02:02 PM
Rainmaker
299,223

Karen Pierce

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Bringing 29 years of experience providing Southern Oregon and California Home Buyers and Homeowners | Serving all of Jackson County Oregon including Ashland- Talent- Phoenix- Medford-Jacksonville- Ruch- Central Point- White City- Eagle Point- Shady Cove- Gold Hill, as well as Josephine County including Grants Pass- Merlin- Wilderville | Helping Southern Oregonians on the road to fulfilling the American Dream of Homeownership - and staying there!