257.120—Appreciation sharing or up-front payment
(a) Calculation of appreciation.
For purposes of section 257(k)(2) of the Act, the amount of the appreciation in value of a property securing an H4H program mortgage that occurs between the date the mortgage was insured under section 257 of the Act and the date of any subsequent sale or disposition of the property shall be equal to the following, as such amounts of appreciation may be established to the satisfaction of FHA:
(i)
A sale of the property to one or more persons, none of whom is a related party of the mortgagor, the gross proceeds from the sale of the property; or
(ii)
A disposition of the property or the sale of the property to a related party of the mortgagor, the current appraised value of the property at the time of the disposition or sale; less
(2)
The amount of closing costs, as adopted by HUD, incurred by the mortgagor(s) in connection with such sale or disposition, if any; less
(3)
The appraised value of the property that was used at the time of origination of the H4H program mortgage to underwrite that mortgage and determine compliance with the maximum LTV ratio at origination established by section 257(e)(2)(B) of the Act.
(b) HUD's interest in appreciation.
Upon sale or disposition of a property securing an H4H program mortgage, FHA may be entitled to receive the lesser of:
(1)
An amount up to 50 percent of the appreciation in value of the property calculated in accordance with paragraph (a) of this section; or
(2)
An amount equal to the appraised value of the property that was used at the time the existing senior mortgage was originated.
(c) Eligibility of subordinate mortgage holders to receive portion of appreciation in value.
The persons or entities that hold, on the date of origination of an H4H program mortgage, an existing subordinate mortgage on the property may be eligible to receive a portion of FHA's interest in the appreciation in value of the property, as determined in accordance with the provisions of this section and such additional standards and policies that HUD may establish, if:
(1)
The amount of the unpaid principal and interest on such existing subordinate mortgage, as of the first day of the month in which the mortgagor made application for the H4H program mortgage, is at least $2,500; and
(2)
Each person holding such existing subordinate mortgage agrees, in connection with the origination of the H4H program mortgage, to fully release:
(d) Shared appreciation interest of subordinate mortgage holders—
(1) In general.
The eligible holder(s) of an existing subordinate mortgage on a property securing an H4H program mortgage may be eligible to receive, subject to paragraph (c)(3) of this section, an interest in FHA's interest in the appreciation in the value of such property, up to the amount set forth in administrative instructions issued by HUD.
(2) Form.
The interest of an eligible holder of an existing subordinate mortgage under paragraph (d) of this section is evidenced in a shared appreciation certificate or other documentation to be issued by, or on behalf of, HUD.
(3) Multiple subordinate liens.
If there is more than one eligible existing subordinate mortgage on a property securing an H4H program mortgage, the interests of such eligible existing subordinate mortgages under paragraph (d)(1) of this section shall have priority among each other in the same order of priority that existed among the existing subordinate mortgages on the date of origination of the H4H program mortgage.
(4) Distribution of appreciation interest to subordinate mortgage holders.
Upon the sale or disposition of a property securing an H4H program mortgage other than sale or disposition related to a default, any proceeds due to H4H as a result of the appreciation in value of the property (as calculated in accordance with paragraph (a) of this section) shall be distributed:
(i)
First to the holders of any shared appreciation certificate or other documentation issued by HUD with respect to the property, if any, in accordance with paragraphs (d)(1), (d)(2), and (d)(3) of this section; and
(e) FHA election to offer up-front payment in lieu of a share of appreciation.
In lieu of any shared appreciation payment under paragraph (c) of this section, FHA may elect to offer the eligible holder(s) of an existing subordinate mortgage on a property securing an H4H program mortgage, a payment in an aggregate amount as provided by HUD through Mortgagee Letter. Eligible subordinate lien holders would receive the up-front payment contemporaneously with the origination of the H4H program mortgage.