Section 3374 of title 42, U.S.C., as amended by section 1001 of the ARRA, Public Law 111-5, authorizes the Secretary of Defense, under specified conditions, to acquire title to, hold, manage, and dispose of, or, in lieu thereof, to reimburse for certain losses upon private sale of, or foreclosure against, any property improved with a one- or two-family dwelling owned by designated individuals.

(a) General benefits.

(1) If an applicant is unable to sell the primary residence after demonstrating reasonable efforts to sell (see Definitions, §239.4(i) of this part), the Government may purchase the primary residence for the greater of:

(i) The applicable percentage (identified by applicant type in §239.5(a)(4) of this part) of the Prior Fair Market Value (PFMV) of the primary residence, or

(ii) The total amount of the eligible mortgage(s) that remains outstanding; however, the benefit payable (excluding allowable closing costs) shall not exceed $729,750.

(2) If an applicant sells, has sold, or otherwise has transferred title of the primary residence, the benefit calculation shall be the amount of closing costs plus an amount not to exceed the difference between the applicable percentage of the PFMV and the sales price.

(3) If an applicant is foreclosed upon, the benefit will pay all legally enforceable liabilities directly associated with the foreclosed mortgage (e.g., a deficiency judgment).

(4) Applicable percentages.

(i) If an applicant is eligible under §239.6(a)(1) or (2) of this part, and sells the primary residence, the applicable percentage shall be 95 percent of the PFMV. In addition, closing costs incurred on the sale may be reimbursed.

(ii) If an applicant is eligible under §239.6(a)(1) or (2) of this part, and is unable to sell the primary residence after demonstrating reasonable efforts to sell, the applicable percentage shall be 90 percent of the PFMV. Closing costs incurred on the sale may be reimbursed.

(iii) If an applicant is eligible under §239.6(a)(3) or (4) of this part and sells the primary residence, the applicable percentage shall be 90 percent of the PFMV. In addition, closing costs incurred on the sale may be reimbursed.

(iv) If an applicant is eligible under §239.6(a)(3) or (4) of this part and is unable to sell the primary residence after demonstrating reasonable efforts to sell, the applicable percentage shall be 75 percent of the PFMV. As noted under paragraph (a)(1) of this section, however, the applicant may instead be eligible for payment of the eligible mortgage outstanding.

(b) Rules applicable to all benefit calculations.

(1) Prior to making any payment, the Government must determine that title to the property has been transferred or will be transferred as the result of making such payment. If the Government determines that making a benefit payment will not result in the transfer of title to the property, no payment will be made.

(2) A short sale will be treated as a private sale. If an applicant remains personally liable for a deficiency between the outstanding mortgage and the sale price, the amount of this deficiency may be included in the benefit, provided that the total amount of the benefit does not exceed the difference between 90 percent of the PFMV and the sales price.

(c) Payment of benefits.

(1) Private sale: Where a benefit payment exceeds funds required to clear the mortgage and pay closing costs, the amount exceeding the mortgage and closing costs will be paid directly to the applicant. In the case of a short sale, if an applicant remains personally liable for a deficiency between the outstanding mortgage and the sale price, that deficiency shall be paid directly to the lender on behalf of the applicant. If the applicant was fully released from liability after a short sale, no benefit shall be paid to either the applicant or lender.

(2) Government purchase: Benefit is paid directly to the lender in exchange for government possession of the property. Since the benefit reimburses the applicant a percentage of the applicant's purchase price, if the benefit exceeds the mortgage payoff amount, the applicant will receive a benefit payment for the difference between the mortgage payoff and the total benefit payment. If the applicant has a buyer for the home, the payment of real estate commissions when an applicant's mortgage exceeds the property's current fair market value (i.e., upside down) will be accomplished as follows:

(i) Commission will be at the normal and customary rate for the area (normally six percent) on the price agreed upon by the applicant and the buyer and to whom the Government will then sell the home. While the commission payment is the responsibility of the applicant, the Government will make the commission payment for the applicant when the home is sold by the Government to the applicant's buyer contingent upon both the Government acquisition and Government sale contract transactions being completed and recorded. Commissions will be paid to the broker listing the property. The allocation of dollars to real estate agents will be the responsibility of the listing broker.

(ii) After Government acquisition, the Government will then sell the property to the buyer found by the applicant.

(iii) No other payment of fees or commissions will be made without the prior approval of HQUSACE.

(3) Foreclosure: In the case of a foreclosure, benefit is paid to lien holder for legally enforceable liabilities.

(d) Tax Implications. 26 U.S.C. 132(n) exempts Expanded HAP benefits from Federal taxes and is not subject to withholding.


Tried the LawStack mobile app?

Join thousands and try LawStack mobile for FREE today.

  • Carry the law offline, wherever you go.
  • Download CFR, USC, rules, and state law to your mobile device.