Q: We have a problem. My son purchased a manufactured home last year at the age of 21 and obtained an FHA mortgage on the home. It appears that he should have never received the FHA loan due to the home.
Due to their failed marriage, my son and his ex-wife hired an agent to sell the home. The agent discovered that the home was a 1997 manufactured home moved from its original located. As a “moved” home, the home is not eligible for FHA financing. (We have also discovered that even conventional loans will not be made on a home that does not pass HUD requirements.) Now, we have found out that the home is nearly impossible to sell.
We have information that indicates the listing agent that sold the home to us knew the home should not have qualified for FHA financing, yet the agent never said anything to us. We believe the lender was negligent in performing proper due diligence in approving the loan and we think the lender should get the deed to the home without harming the credit of the borrowers.
This situation has left several professional bankers (including from the lending bank) agreeing off the record that this loan never should have happened and the borrowers should not be held liable for this loan. However, the lender denies any wrongdoing on their part and insists that the borrowers are responsible for the loan.
The lender claims they didn’t have any information that the home had been moved at the time the loan was made. But we’ve found tax records, appraisal records and other information to show that the home had been moved. We believe the lender failed to provide proper due diligence and was negligent in their actions.
The lenders should have been under a duty to the borrowers to disclose that the home was ineligible for an FHA insured loan. There was a disparity of education pertaining to banking regulations and business experience regarding this situation as the homeowners were purchasing their first home at the age of 21.
At the very least, negligence should be strongly considered. The bank failed to disclose an existing fact, the omission was significant, the lenders failed to meet duty of care resulting in the borrowers suffering damages. The borrowers are now stuck for the next 29 years because they can never refinance, relocate or sell the home. Who should be held responsible for this loan?
A: We’re going to address your question in two parts. The first part addresses the issue of the responsibility when you buy a home and the second on the loan itself.
We take exception to your statement that there was a “disparity of education” in the transaction. We don’t even know what this means. If you’re talking about your son and his wife failing to educate themselves in advance of the single largest purchase they’d ever make, that’s their problem.
In any purchase/sale transaction, you can always claim one person took advantage over the other. Your son and his wife wanted a home and then bought it. They should have hired a professional home inspector to go over the home before he purchased it. He could have hired an attorney to help him out in the transaction.
Your son should take responsibility for his actions – or rather, his lack of actions. If his issue with the home was that the soil was causing harm to the home, that the home was termite infested, that the home had major structural deficiencies or any other physical issue, you shouldn’t blame the lender. Instead, you should blame your son for not taking his home buying seriously and taking care to make sure he was protecting himself and his wire.
You should know that a lender never has a “duty of care” or a duty to disclose matters to the borrower. The lender’s duty is to itself: to make sure that the loan it underwrites meets its own guidelines for the loan. If the lender makes a mistake, the lender will suffer its own consequences for that mistake.
Keep in mind that the lender probably has more at risk with this loan than your son does. Your son may have paid fees at closing and may have put down a small down payment towards the purchase of the home. The lender put down the rest of the money.
If the loan defaults, the lender will be at risk of losing quite a bit of money. Your son may have his credit history and credit score damaged, but his monetary loss in the immediate future will be significantly less.
On the other hand, if the seller had a duty under the seller disclosure laws of your state to disclose those issues relating to the status of the manufactured home, your son may have a legal case against his seller.
Your son should talk to an attorney and discuss this issue. If it turns out the seller failed to disclose this and it is deemed a “material issue,” your son may be able to force the seller to buy back the home. That’s a lot of “ifs” and your son and his attorney must determine if this is a viable legal option.
We aren’t aware of any law that would require the lender to take the property over, even if the lender made a mistake in granting the loan. Your son would have to talk to an attorney whose general practice area might be in the residential mortgage lending area with knowledge of federal lending practices, rules and laws. That attorney could then determine if the lender has any responsibility in your situation.
Your son was probably quite happy to have received the loan and may have continued to be happy up until the day that he found out there was a problem with the loan. We wonder what would have happened if you didn’t have this issue and FHA and other lenders had decided after the purchase of the home that they would no longer furnish loans on properties like the one your son purchased. Your son would be in the same situation as he is in now with the lenders having changed their position on these types of loans after his date of purchase.
One last note: While you are operating under the assumption that the home couldn’t be moved after its initial installation, we took a quick look at the U.S. Department of Housing and Urban Development guidelines for manufactured homes. That document indicates that you are permitted to relocate the home from one location to another.
If the movement of the home was proper the fact that FHA has assigned a number to your loan would be good news. A subsequent buyer may use that same FHA number as a reference point.
If the home was moved, as you believe, there should be a process in place to have the home re-inspected to establish it within the guidelines of FHA. It appears that your information is from the valuation analysis for appraisers of manufactured homes. It would seem reasonable, that FHA does not want to insure a home that was moved from one location to another for fear that when it was at its first location, the lender never was paid there and the home was simply moved to a new location.
As with many other elements, your situation may also hinge on many elements relating to the construction of the home, its location, whether its foundation is now permanent, and other elements that are important to FHA. You may need further information before you can actually
Do you know for sure that a future buyer wouldn’t be able to get financing? Or, is this just conjecture? You may have missed something when researching the question. In your quest to prove the lender wrong in this transaction, there may be other information or guidelines you’ve missed that actually make the home fit within FHA lending guidelines and would allow a subsequent buyer to purchase the home.
Find out more at this HUD website.