January 10, 2014
A reader asks, “I was ‘renting to own’ a house from a close family friend. For 3 years, I paid her mortgage payment and all household repairs/maintenance. She then decided after her parents death to move back to our home state and ultimately take her home back. I started working with a lender who said I qualified for an FHA loan…My ‘landlord’ or family friend only wanted to give me 4 weeks to move out after announcing that she changed her mind and wanted her house back, and there was no way I could do that. I ended up needing 6 weeks, but was just made aware that she filed a rule of evict w/ the local magistrate court…”
“…Now my lender called me and says he can’t help me because of this. I submitted every cancelled check to him showing each months rent paid until I moved out. I finally found a home this week that met all of the FHA requirements, after trying for 3 others over the last 2 1/2 months and was hoping to close in about 3-4 weeks. He said the combination of the foreclosure AND this new ‘rule of evict’ has disqualified me. I don’t understand this and is this correct?”
This is a complex situation that doesn’t have easy answers for one reason–FHA loan standards are not the only ones in play when it comes to loan approval or denial. The lender’s standards also apply. If there is a rule stating an eviction can result in denial of a loan application, the borrower could be denied based on this lender standard rather than an FHA loan rule.
FHA loan rules do address rent payments as part of a borrower’s overall credit picture. HUD 4155.1 Chapter Four Section C states:
“The borrower’s housing obligation payment history holds significant importance when evaluating credit. The lender must determine the borrower’s housing obligation payment history through the
- credit report
- verification of rent received directly from the landlord (for landlords with no identity-of-interest with the borrower)
- verification of mortgage received directly from the mortgage servicer, or
- review of canceled checks that cover the most recent 12-month period.Note: The lender must verify and document the previous 12 months’ housing history even if the borrower states he/she was living rent-free.”
But FHA loan rules listed here don’t specifically address eviction as it applies in this reader question.
This reader question raises a legitimate, important issue–was the lender’s action legal? Unfortunately we cannot address that issue here, the reader would be served far better by consulting a lawyer or subject matter expert in the area of real estate law/lending laws to get advice on the matter.
It’s also a very good idea to call the FHA directly at 1-800-CALL FHA for assistance. We can only address issues related to FHA loan policies, FHA loan rules, and related matters.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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