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:
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