No Money Down: Why it Leaves Buyers Vulnerable
06/04/2009 11:56 AM
02/03/2015 11:36 AM
Foreclosures happen at the crossroads of two problems: A mortgage that can't be paid and a home that can't be sold. Here's how it often happened in Southern Chase ...
The rule: The FHA requires the borrower to make a 3 percent down payment. This shows the borrower has savings. It also gives them a stake in the house.
Sidestepping the rule: Many borrowers in Southern Chase had minimal savings. So Beazer gave the funds to specialized nonprofits, which gave the money to the buyer. The FHA allowed the practice, though it undermined the purpose of the rule.
How buyers got hurt: Beazer incorporated the cost of the down payment into the price of the home, according to a Beazer sales document obtained by the Observer and a former Beazer employee. That left buyers with no equity.
Postscript: Beazer passed money to more than 50 buyers through the OWN Program and its parent company, Affordable Housing Concepts. In 2003, the FHA barred Affordable Housing from giving money to buyers.
A 2005 federal report found builders routinely raise prices when they provide down payments.
In 2006, the IRS said it was reviewing the nonprofit status of companies that pass money to buyers.
The FHA continues to allow the practice. Beazer continues to provide down payments for buyers in the Charlotte area.
Beazer said: "Down payment assistance has been used by many builders marketing to first-time buyers. These programs were all approved by the Federal Housing (Administration) and subject to FHA guidelines. The program was not unique to Beazer and provided future homeowners an opportunity to save money."
A BUYER'S STORY: Aaron Mahatha (above) and his wife, Karen, bought a home for $125,000 in December 2001. It was their first home. The couple could not afford the required down payment of $3,750.
Documents show Beazer gave the $3,750 to The OWN Program, a Florida nonprofit. It paid OWN $300 to pass the money to the Mahathas. The Mahathas signed a statement saying it didn't come from Beazer.
The tax value of the Mahathas' home on Trestle Court has since dropped from $125,000 to $110,000. "We're just paying rent," Aaron Mahatha said.
They would like to sell, in part because they can't afford the payments. But they owe more than they could get, and they still have only minimal savings.
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