Transfer of Physical Assets (TPA)CASAPLORERTrusted & Transparent
A transfer of physical assets is a type of property sale that involves transferring a HUD-sponsored loan from the owner of the house to the purchaser.
What You Should Know
- A transfer of physical assets is a type of property sale where the owner transfers their HUD-insured mortgage to the purchaser
- With a full transfer of physical assets, the property completely changes hands, and the mortgage is fully transferred to the future borrower
- With a modified transfer of physical assets, the structure of ownership changes, but the property itself does not completely change hands
What is a Transfer of Physical Assets (TPA)?
To explain what a transfer of physical assets is, we will have to revise the concept of FHA loans. FHA loans are a type of government-backed loans available to borrowers who want to become homeowners but don’t meet the criteria to qualify for a conventional loan. FHA loans are backed by the Department of Housing and Urban Development (HUD). This means that if the borrower of the FHA loan defaults on their payments, HUD will repay the lender. This is also why if you are approved of an FHA loan, you will have to pay mortgage insurance premiums. These premiums will help cover the losses of the lender in the case that you default.
What if after some time of paying your HUD-insured mortgage you realize that you cannot afford it and want to sell the property? You can do a transfer of physical assets. A TPA is a type of property sale where you can transfer your HUD-insured mortgage to another borrower. A transfer of physical assets resembles a mortgage transfer, however, in this case, you wouldn’t have to meet the transfer requirements of the lender. Instead, you and the buyer have to meet the requirements set by HUD. This process typically takes at least as long as what it took you to be approved of the HUD-insured mortgage in the first place.
Types of TPA
There are two ways in which you can do a transfer of physical assets.
Full TPA - A full transfer of physical assets is needed when the borrower wants to transfer all of their HUD-insured mortgage to another borrower, who would assume this loan. In this scenario, the owner sells their home to the future borrower and the property completely changes hands.
Modified TPA - A modified transfer of physical assets is used when the borrower wants to transfer only a portion of their HUD-insured loan to the buyer. In this scenario, the property does not completely change hands, however, a change is made to the structure of the property’s ownership.
Transfer of Physical Assets: The ProcessApplication Phase
You would first need to apply for a transfer of physical assets through a process set out by HUD. The application involves filling out numerous forms, which require information on the owner, the purchaser, and the mortgage involved. Some properties that can be sold through a TPA may also be subject to a contract of Assignment and Assumption of Housing Assistance Payment (HAP). HAP is a type of social housing support that is available to individuals in need of long-term housing.Preliminary Approval Phase
Next comes the preliminary approval phase. If the terms of the preliminary phase are not met within 45 days, then both parties will have to follow the procedures set by HUD to reconvey the property to the mortgage-seller. In this phase, you will have to fill out 22 documents, which then HUD will review. A list of these documents is shown below:
- TPA Application
- Purchaser’s Letter
- Purchaser’s Certificate of Previous Participation (HUD form 2530)
- Purchaser’s Resume
- Sources and Uses of Fund
- Executed but Unrecorded Sale Contract, Option Contract or Land Contract
- Executed Seller/ Purchaser Affidavit
- Executed but Unrecorded Regulatory Agreement
- Executed but Unrecorded Modification Agreement or Release and Assumption Agreement
- Unexecuted Secondary Financing Documents
- Unaudited Interim Financial Statement
- Pro Forma Balance Sheet
- Mortgagee’s Statement of Escrow and Reserve Account
- Mortgagee’s Improvement and Operating (MIO) Plan
- Proposed but Unrecorded Deed
- Proposed Bill of Sale and Assignment
- Proposed Management Certification and Form HUD-2530
- Title Report
- Mortgagor’s Oath
- Proposed Rental Schedule (form HUD-92458)
- Executed Organizational Documents of Purchaser
- Attorney’s Certification
Final Approval Process
HUD may require changes to be made to the documents submitted for the Preliminary Approval review, and the attorney of the applicant must certify that the changes have been made. Just like with the Preliminary Approval stage, the applicant has 45 days from the date of the preliminary approval to submit the documents required in the Final Approval Process. These documents include:
- All Executed Recorded Documents
- All Unrecorded Executed Documents
- Original Regulatory Agreement
- Audited Interim Financial Statement
- Purchaser’s Balance Sheet - Actual Condition
- Mortgagee’s Statement
- Title Policy
- Attorney’s Opinion
- Rental Schedule and or Budget Worksheet
If the documents are accepted, then the Field Office sends the letter of approval for the transfer.
If you are considering purchasing a property through a transfer of physical assets, make sure to check if the property includes any use agreements. Use agreements put limitations on some of the control that the purchaser would normally have when owning a property. For example, a use agreement can put a cap on the rental price that the owner can charge when he or she decides to lease the property. Each use agreement is different, therefore it is essential to go through them thoroughly so you don’t face any unpleasant surprises after the lengthy and tiresome TPA process. Some use agreements may convince you to back off the deal altogether.