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CHFA Eliminates Federal Recapture Tax On All CHFA Mortgages

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

CHFA Eliminates Federal Recapture Tax On All CHFA Mortgages.  One of the negative features of a Connecticut Housing Finance Authority (CHFA)  Mortgage has always been the Federal Recapture Tax Provision on CHFA Loans.  This Provision has been pointed to by many Brokers and Lenders who are NOT approved to do CHFA Mortgages, as a reason for Borrowers to NOT do a CHFA Mortgage, even though I cannot ever remember this Provision ever being enforced on a CHFA Mortgage.

The reason why I have never seen the Federal Recapture Tax be enforced on a CHFA Mortgage is because the three requirement for it to be imposed on a loan never happen at the same time, and all three, NOT just one or two have to happen in order for the Recapture Tax to be imposed.  Those three requirements are:

  • The house is sold or disposed of within nine (9) years of being purchased, for reasons other than death.
  • There is a capital gain on the sale of the home.
  • The household income exceeds Federal Recapture Tax limits at the time of the sale.

If ALL three of these requirements do not happen at the time of the sale of the property, the Federal Recapture Tax does not apply.

Well CHFA has finally come to this realization that the rest of us have known for a long time, and has decided to do away with the Federal Recapture Tax for All CHFA Mortgages, by reimbursing ALL CHFA Borrowers who are subject to Federal Recapture Tax payments on loans that Closed on or after March 18, 2013.

The following CHFA forms pertaining to the Federal Recapture Tax have been revised and are available on the CHFA Website:

  • Form #051-0597 - Connecticut Housing Finance Authority Notice of Potential
  • Recapture Tax Form #052-1195 – Notice to Mortgagor of Maximum Recapture Tax and Method to Compute
    Recapture Tax on Sale of Home

CHFA agreeing to reimburse ALL CHFA Borrowers who are subject to Federal Recapture Tax payments on loans that Closed on or after March 18, 2013, is really not that much of a risk for them.  As I stated above, I do not know of a Borrower that ever had to pay a Federal Recapture Tax on a CHFA Mortgage.  But it eliminates the scare tactic used by Brokers and Lenders who are NOT approved to do CHFA Mortgages, as a reason for Borrowers to NOT do a CHFA Mortgage.  I guess now now Brokers and Lenders who are NOT approved to do CHFA Mortgages, will have to come up with a new scare tactic for Borrowers to not do CHFA Loans.

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

Posted by

George Souto
NMLS# 65149

C (860) 573-1308
CALL 7 Days/Wk
Fax (860) 760-6891

Email Me
About Me
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I am a Mortgage Loan Officer who can assist you with all your mortgage & refinancing needs in
CT, and RI

I can assist you with your Conventional,
FHA, CHFA, VA, USDA, & 203K loan programs.

I reside in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Haddam. E. Haddam, Higganum, Chester, Essex, Deep River.

 

Comments(16)

Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

What is more confounding to me are the lenders who are NOT qualified for state/county programs to help buyer do NOT disclose that when contacted by home buyers.

They would rather see a buyer never buy a home than admit that they are limited in their mortgage program options.

This is why I advertise loan options for home buyers.  Sadly, many are already in the clutches of agents and lenders who have nothing that will help them buy a home. 

Jun 25, 2013 08:55 PM
Maria Gilda Racelis
Home Buyers Realty, LLC-Manchester, Bolton. Vernon,Ellington - Manchester, CT
Home Ownership is w/in Reach. We Make it Happen!

:) George good morning. I commend you for advocating CHFA to home buyers if they qualify. Your last paragraph made me chuckle.

Jun 25, 2013 09:31 PM
Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in Southern RI and beyond

Interesting George...why scare them?  We want buyers to buy right and with the least amount of hindrances...good to know.

Jun 25, 2013 09:35 PM
Dan Hopper
Dan Hopper - Gold Way RE - Westminster, CO
Colorado Broker / Referral Services

George, this is good news for your buyers using CHFA in Conn.   9 yrs does seem to be a long time to be stuck with a loan.  In colo, we have our own CHFA buyer assistance programs.... and they do have a 3 yr recapture process.

Jun 25, 2013 09:48 PM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Lenn, we have been the largest Lender, and Servicer of Connecticut Housing Finance Authority (CHFA) for a while now, and the  can be difficult to work with some times.  But it isn't about us, it is about what is the best fit for the Borrower, so we have learned how to do these loans well, and with the least amount of stess for the Borrower.  There are Lenders that don't want to deal with CHFA, and that is OK as long as they send them to me :)

Maria, glad that put a smile on your face :)

Ginny that is the goal, that is why we try to stay on top of things, and put Borrowers into the best Loan Product for them.

Dan, the 9 years is just one of the 3 requirements, so even though many CHFA Borrowers sell the property within 9 years, very few of them make a capital gain, and almost none end up over the income limits.  So without all 3 requirements existing at time of Closing, there is no Recapture Tax.  This move by CHFA is going to have little to no affect on them, it is all a matter of perception, but it is a negative perception that is good to get out of the way.

Jun 25, 2013 10:15 PM
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

George, dropping the Federal Recapture Tax should make more people feel comfortable. Our job is to educate buyers and not use scare tactics to get business.

Jun 25, 2013 10:21 PM
Andrea Swiedler
Berkshire Hathaway HomeServices New England Properties - New Milford, CT
Realtor, Southern Litchfield County CT

George, that is great information, I have someone who is using CHFA right now. Interest rates are fantastic, much better than anything else they could have gotten. I bet I am the first to tell them!

Jun 25, 2013 10:26 PM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

"as they send them to me"

THAT IS MY COMPLAINT.  The lenders that do NOT offer the program loans DO NOT send the buyers to a lender who can.

They simply tell the buyers that they are approved for, you name it, FHA or Conventional.  HOWEVER, they do NOT address the matter of the fact that the buyer HAS NO MONEY TO CLOSE.

To me, that is a clear bait and switch technique.  "Sure you qualify.  Now go out and find $20,000 to close".

 

Jun 25, 2013 11:23 PM
Harry F. D'Elia III
WEDO Real Estate and Beyond, LLC - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

Our job is to educate the buyers in real estate and not scare them. Many times the loans are too small makes it harder to find a home to buy.

Jun 26, 2013 12:33 AM
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

Good news - I didn't even know about this provision. Thank you for the info!

Jun 26, 2013 01:07 AM
Bill Reddington
Re/max By The Sea - Destin, FL
Destin Florida Real Estate

If it is a state run program the part I don't understand is why are not all banks able to offer this program? Common sense in Government? What is up with that?

Jun 26, 2013 02:59 AM
Dwight Puntigan
DRP Realty, LLC - Saint Peters, MO
Dwight Puntigan

The state program in Missouri is MHDC.  The recapture tax has always been over blown.

Recapture Tax applies in some cases when a home financed with Mortgage Revenue Bond funds is sold. For Recapture Tax to apply, the seller must meet all of the following conditions:

 

1)     Sell the home within nine years.

 

2)     Make a net profit on your home, after adjusting the value of the home for any improvements or repairs you have made, and after deducting all costs of sale, including sales commission, and

 

3)     Your household income must have increased at least 5% each year (on average).

 

Fear of paying Recapture Tax should not cause you to forego use of the First Place program.  If you refinance your home at a later date to obtain a better interest rate, or to use the equity you have in your home, Recapture Tax provision  is not triggered.

Jun 26, 2013 03:28 AM
Jimmy Faulkner
Florida. Homes Realty & Mortgage - Wantagh, NY
The Best Of St. Augustine

We allow our government to be backward so that the real powers can control everything. We have BAD government, and the is OUR fault. WE MADE THIS MESS!

Jun 26, 2013 06:47 AM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Michael I agree, but those that can't participate in the program or choose not do, have reverted to those tactics.

Andrea I bet you will be the first, so get out there and spread the news in your corner of CT :)

Lenn unfortunately we will never be able to completely weed out the bad apples, but if we educate or Borrowers/Buyers hopefully we can minimize some of it.

Harry yes that does happen unfortunately.

Joetta you are welcome.

Bill some have not applied, also it has been for the last several years an FHA insured loan.  Many of the Credit Unions will not do FHA Loans and choose to just do Conventional Loans.  So it is more of a choice by the Lender to not participate.

Dwight it works the same way here.

Jimmy that is a topic for another day :)

Jun 26, 2013 09:51 AM
Debbie Reynolds, C21 Platinum Properties
Platinum Properties- (931)771-9070 - Clarksville, TN
The Dedicated Clarksville TN Realtor-(931)320-6730

George, I spoke with an official from the Tennesee Housing Fund that runs a similar program and she said that in all her years she had only seen one case where recapture applied so I hope they will folows suit and do away with it too.

Jun 26, 2013 01:33 PM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Debbie there is no reason for them not to.  This is a win win for them, they remove a huge perceived negative that has a very low risk financial cost.

Jun 27, 2013 12:16 PM