Have a client that had a TH as primary residence with FHA loan, bought a bigger house after 2 years living there , moved out with the intentions of selling it quickly and payoff all liens. Market dropped, had on 1market for 8 months with another realtor and no bites. Now its in default . Does an FHA SS have to be an Owner Occupied to receive a Approval to Participate ?



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They are supposed to be occupied, but you can get a variance from HUD for some reasons, like divorce...Not sure if they will give a variance for this reason, but can't hurt to ask....Good luck.
PFS Eligibility ML 2008-43:

Are owner-occupants of a one-to-four unit single-family dwelling with a FHA-insured mortgage under Title II of the National Housing Act. Mortgagees are authorized to grant reasonable exceptions to non-occupant borrowers when it can be demonstrated that the need to vacate was related to the cause of default (e.g., job loss, transfer, divorce, death), and the subject property was not purchased as a rental or used as a rental for more than 18 months prior to the mortgagor’s acceptance into the PFS Program

Note: "Mortgagees are authorized", meaning the Servicer does not need to request a variance from HUD.

My experience is the Servicers are reasonable on this. I have had two ATP approvals there were not occupied, at time of approval to participate. But, there were previously principal residences that had not been rented out.
They might ask for a separate letter of explanation, but they allow vacating due to hardship.



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