203k Mortgage Problems

M

mcdillio29

New Member
Jurisdiction
Virginia
My wife and I got a 203k on an old house, which is in a flood zone. We went through the whole process of getting contractor bids, a HUD consultant approved the bid, and the loan closed. When the contractor went to get permits, the city said since the rehab cost is greater than 50% of the home's value, we must bring it up to current requirements, which in this case means lifting the house 3 feet above the flood line. This would cost over $50k to do, which we cannot afford. This requirement is driven by FEMA, so the city will not budge.

My question is, with all the parties involved in making the 203k happen… bank, HUD consultant, contractor… shouldn't someone have known about this 50% rule and raised a red flag? I thought the reason they have so many check boxes involved in that loan process was to protect the buyer from something like this happening. If we can't get something figured out, we're gonna be stuck with a house that's unlivable that we can't afford to renovate.

I'm wondering if there's any legal action or process we can take to hold someone accountable for this, to provide the extra funds either to lift the house or to just build a new house (our contractor has told us for the amount of money already in our budget, plus the cost to lift the house, we could build a new house). We would also be interested in just getting out of the mortgage completely if possible, if we could at the very least get our down payment back.

Thanks in advance.
 
Caveat emptor, buyer beware, due diligence not performed enhances the risk you could potentially wear.

Self reliance is directly related to self preservation.

A most regrettable outcome to be sure, nevertheless it's no one's fault but yours, mate.
 
mcdillio29 said:
shouldn't someone have known about this 50% rule
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Yeah, you.

Would have been just as easy to find out before buying.

Self preservation is nobody's business but your own.

What you can do now is re-evaluate what you want to do with the house and do it for considerably less than 50% of the value of the house even if you have to eliminate some things and skimp on others. Might even have to fire your contractor and get another who is willing to charge less for labor.

I hope you budgeted for flood insurance.
 
Okay, maybe I should provide a little more information.

We paid the HUD consultant over $750 to do a "feasibility study" on the house (required by FHA). This study was supposed to cover all the bases and list everything required to get the house up to minimum codes and HUD requirements. He also had to review the contractor bid and approve it. The HUD consultant's purpose is to act as a middle man between the contractor and bank, to protect both the homeowner and the bank's interests.

I have spoken with FHA directly and they were dumbfounded that the loan was even allowed to close. They have opened an investigation involving our lender and the HUD consultant to figure out why the loan was allowed to close and discuss what their plan of action is to remedy the situation. They recommended that in the meantime I talk to a construction litigation attorney to explore our options financially. He didn't elaborate on that at all, so all I'm trying to figure out is what exactly he was alluding to.

Thanks again.
 
mcdillio29 said:
They recommended that in the meantime I talk to a construction litigation attorney to explore our options financially. He didn't elaborate on that at all, so all I'm trying to figure out is what exactly he was alluding to.
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Have you spoken to a couple of attorneys?

If not, make an appointment or two with attorneys in your county.

There's very little internet forums can do for you, except to second the opinion of the HUD bureaucrat, consult a real estate attorney.

In the future, never buy property unless you retain a real estate attorney to protect your interests.

Purchasing property is more than obtaining financing to do so.
 
mcdillio29 said:
We paid the HUD consultant over $750 to do a "feasibility study" on the house (required by FHA). This study was supposed to cover all the bases and list everything required to get the house up to minimum codes and HUD requirements. He also had to review the contractor bid and approve it. The HUD consultant's purpose is to act as a middle man between the contractor and bank, to protect both the homeowner and the bank's interests.
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What are the liability disclaimers in your contract with the HUD consultant?
 

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