Subsidy Recapture

JMazzic · #1 02-09-2005, 12:01 AM

What is the name of your state? California

My mother passed away in 5/04. I am her only heir, I had to go through a probate process to have control of her estate. I am currently refinancing her home loan from USDA-RHS, and will be using it to pay legal fees for the probate, as well as consolidating some of my debts. USDA is saying that the payoff will now include what was being subsidized while she was alive. It is about $28,000, which I never knew about having to recapture sudsidy. The subsidy will need to be paid or we will not be able to refinance.

I was wondering if there is anyway around having to pay back the subsidy recapture, since I am just paying off my mother's loan, being that I was not the one getting the subsidized loan. Or if subsidy recapture is not enforced, due to a death transfer. I think that it is kind of ridiculous that I have to pay the collected subsidy if it was not me that was getting it subsidized. Or at least only have to pay since the time my mother passed. Thanks for any help

Jonathan

baker10 · #2 02-09-2005, 05:33 PM

It is possible to subordinate the amount of the subsidy as a lien on the property to be paid only if the house is sold. However there are a lot of strict guidelines and I don't know if you would qualify. Two of the guidelines are no cash out directly to borrower and no other debts paid off. In some cases the subsidy will be granted if the money is used to improve the property only and even then it's difficult. You may want to request a subordination packet and give it a shot. I would also speak to someone directly in the payoff department and explain your situation. Even if you don't qualify for the subordination, they will take 25% off of the subsidy recapture if you pay it all off. So that might allow you some cash out even if you can't subordinate. Make sure your lender is very familiar with the USDA guidelines as well. I am not an expert, just a borrower who has dealt with this situation. Good Luck!