[Code of Federal Regulations]

[Title 24, Volume 2]

[Revised as of April 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 24CFR203.41]



[Page 165-167]

 

                 TITLE 24--HOUSING AND URBAN DEVELOPMENT

 

 CHAPTER II--OFFICE OF ASSISTANT SECRETARY FOR HOUSING--FEDERAL HOUSING 

        COMMISSIONER, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

 

PART 203_SINGLE FAMILY MORTGAGE INSURANCE--Table of Contents

 

     Subpart A_Eligibility Requirements and Underwriting Procedures

 

Sec.  203.41  Free assumability; exceptions.



    (a) Definitions. As used in this section:

    (1) Low- or moderate-income housing means housing which is designed 

to be affordable, taking into account available financing, to 

individuals or families whose household income does not exceed 115 

percent of the median income for the area, as determined by the 

Secretary with adjustments for smaller and larger families. The 

Secretary may approve a higher percentage up to 140 percent.

    (2) Eligible governmental or nonprofit program means a program 

operated pursuant to a program established by Federal law, operated by a 

State or local government, or operated by an eligible nonprofit 

organization, if the program is designed to assist the purchase of



[[Page 166]]



low-or moderate-income housing including rental housing.

    (3) Legal restrictions on conveyance means any provision in any 

legal instrument, law or regulation applicable to the mortgagor or the 

mortgaged property, including but not limited to a lease, deed, sales 

contract, declaration of covenants, declaration of condominium, option, 

right of first refusal, will, or trust agreement, that attempts to cause 

a conveyance (including a lease) made by the mortgagor to:

    (i) Be void or voidable by a third party;

    (ii) Be the basis of contractual liability of the mortgagor for 

breach of an agreement not to convey, including rights of first refusal, 

pre-emptive rights or options related to mortgagor efforts to convey;

    (iii) Terminate or subject to termination all or a part of the 

interest held by the mortgagor in the mortgaged property if a conveyance 

is attempted;

    (iv) Be subject to the consent of a third party;

    (v) Be subject to limits on the amount of sales proceeds retainable 

by the seller; or

    (vi) Be grounds for acceleration of the insured mortgage or increase 

in the interest rate.

    (4) Tax-exempt bond financing means financing which is funded in 

whole or in part by the proceeds of qualified mortgage bonds described 

in section 143 of the Internal Revenue code of 1986, or any successor 

section, on which the interest is exempt from Federal income tax. The 

term does not include financing by qualified veterans' mortgage bonds as 

defined in section 143(b) of the Code.

    (5) Eligible nonprofit organization means an organization of the 

type described in section 501(c)(3) of the Internal Revenue Code of 1986 

as an organization exempt under section 501(a) of the Code, which has:

    (i) Two years experience as a provider of low- or moderate-income 

housing;

    (ii) A voluntary board; and

    (iii) No part of its net earnings inuring to the benefit of any 

member, founder, contributor or individual.

    (b) Policy of free assumability with no restrictions. A mortgage 

shall not be eligible for insurance if the mortgaged property is subject 

to legal restrictions on conveyance, except as permitted by this part.

    (c) Exception for eligible governmental or nonprofit programs. Legal 

restrictions on conveyance are acceptable if:

    (1) The restrictions are part of an eligible governmental or 

nonprofit program and are permitted by paragraph (d) of this section; 

and

    (2) The restrictions will automatically terminate if title to the 

mortgaged property is transferred by foreclosure or deed-in-lieu of 

foreclosure, or if the mortgage is assigned to the Secretary.

    (d) Exception for eligible governmental or nonprofit programs--

specific policies. For purposes of paragraph (c) of this section, 

restrictions of the following types are permitted for eligible 

governmental or nonprofit programs, provided that a violation of legal 

restrictions on conveyance may not be grounds for acceleration of the 

insured mortgaged or for an increase in the interest rate, or for 

voiding a conveyance of the mortgagor's interest in the property, 

terminating the mortgagor's interest in the property, or subjecting the 

mortgagor to contractual liability other than requiring repayment (at a 

reasonable rate of interest) of assistance provided to make the property 

affordable as low- or moderate-income housing:

    (1) Except as otherwise provided in the HOME Investment Partnerships 

(HOME) and the Homeownership and Opportunity for People Everywhere 

(HOPE) programs, the mortgagor may be prohibited from selling the 

property at a price greater than the price permitted under the program, 

or the mortgagor may be required to pay a portion of the sales proceeds 

to a governmental body or an eligible nonprofit organization, as long as 

the mortgagor is not prohibited from recovering:

    (i) The sum of the mortgagor's original purchase price, the 

mortgagor's reasonable costs of sale, the reasonable costs of 

improvements made by the mortgagor, and any negative amortization on a 

graduated payment mortgage insured under Sec.  203.45 of this part; and

    (ii) A reasonable share, as determined by the Secretary, of the 

appreciation in



[[Page 167]]



value which shall be the sales price reduced by the sum determined under 

paragraph (d)(1)(i) of this section.

    (2) Legal restrictions on conveyance may extend beyond the term of 

the mortgage, subject to paragraph (c)(2) of this section and any 

limitations applicable in the jurisdiction.

    (3) Except as otherwise required by the HOME and HOPE programs, 

rights under an option to purchase, pre-emptive rights to purchase or 

rights of first refusal shall only be held by a governmental body or 

eligible nonprofit organization, or another individual or organization 

approved by the Secretary, and shall be exercised by them (or an 

assignee who will purchase and occupy the property) only within a 

reasonable time after the event permitting exercise of the rights 

occurs, not to exceed a period of time determined by the Secretary. The 

Secretary may approve another individual or organization under the 

preceding sentence even if the restriction is not part of an eligible 

governmental or nonprofit program.

    (4) In addition to the restrictions stated in paragraph (d)(3) of 

this section, the purchase price under an option may not be less than 

the sum of the mortgagor's original purchase price, the mortgagor's 

reasonable costs of sale, the reasonable costs of improvements made by 

seller, and a reasonable share, as determined by the Secretary, of the 

appreciation in value.

    (5) The mortgagor may be required to continue to be an owner-

occupant.

    (6) The mortgagor may be limited in his or her ability to choose a 

purchaser for the property, but only to the extent necessary to ensure 

that the property is preserved as low- or moderate-income housing.

    (7) The mortgagor for a rehabilitation loan insured under Sec.  

203.50 of this part may hold title subject to a condition subsequent, 

provided that the holder of the right of entry for condition broken also 

executes the mortgage, and that the right is exercisable only for 

failure by the mortgagor to complete the rehabilitation or occupy the 

property as agreed by the mortgagor.

    (8) Property may be subject to a legal restriction on conveyance to 

the extent approved in writing by an authorized representative of the 

Secretary prior to September 10, 1993.

    (e) Exception for tax-exempt bond financing. A mortgage may be 

funded through tax-exempt bond financing and may include a due-on-sale 

provision in a form approved by the Secretary which permits the 

mortgagee to accelerate a mortgage that no longer meets Federal 

requirements for tax-exempt bond financing or for other reasons 

acceptable to the Secretary. Except as provided in this paragraph (e), a 

mortgage funded through tax-exempt bond financing shall comply with all 

form requirements prescribed under Sec.  203.17(a) of this part and 

shall contain no other provisions designed to enforce compliance with 

Federal or State requirements for tax-exempt bond financing. Other legal 

restrictions on conveyance are permitted as provided in other paragraphs 

of this section.

    (f) Exception for protective covenants excluding non-elderly. 

Mortgaged property may be subject to protective covenants which prohibit 

or restrict occupancy by, or transfer to, persons who are not elderly 

if:

    (1) The restrictions do not have an undue effect on marketability; 

and

    (2) The restrictions do not constitute illegal discrimination and 

are consistent with the Fair Housing Act and all other applicable 

nondiscrimination laws.

    (g) Exceptions for specific jurisdictions. Notwithstanding the 

provisions of paragraph (b) of this section, mortgages insured on 

certain Indian land or Hawaiian home lands under sections 247 and 248 of 

the National Housing Act and Sec. Sec.  203.43h and 203.43i of this 

part, or on property in the Northern Mariana Islands or American Samoa, 

shall not be ineligible for insurance under this section solely because 

applicable law does not permit free alienability of title to all 

persons.



[58 FR 42648, Aug. 11, 1993; 59 FR 15112, Mar. 31, 1994]