As of 5:00 P.M. on April 8, 2011, the U.S. federal Government faces a shutdown. This would be the second shutdown of the federal government since November 1995. A government shutdown affects many vital federal departments. The Federal Housing Administration (FHA) is part of the Department of Housing and Urban Development (HUD). FHA insures mortgages on single-family and multifamily homes, including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934. More than fifty percent of mortgages originated today are FHA mortgages. This is largely because is permits residential borrowers to purchase homes with as little as a 3.5 percent deposit.
In the event the government experiences a shutdown on April 9, 2011, the processing of FHA mortgages will inevitably be delayed. Although some lenders have publically disclosed that they will continue to close FHA mortgages, others are taking the position that they will not close any FHA loans and refuse to process new applications.
First, prospective Buyers beware. In the event you are on the house-hunt this weekend, I would strongly advise you to consult an attorney before tendering any Offer to Purchase to a seller. Offers to purchase will typically state a closing date and time. Should the government shutdown exist for more than several days, it may delay your closing date weeks. Typical boilerplate Offers to Purchase do not accommodate for government shutdowns or delays in financing caused by inability to obtain FHA financing. Therefore, if your current mortgage commitment letter is based on an FHA loan then it may not be worth the paper it’s printed on.
Second, in the event that you already have entered into an Offer to Purchase real estate, but have not executed the Purchase and Sale Agreement then you may want to consider proposing an extension of the Offer to Purchase until clarification is made by your lender (in writing, of course) that your loan will not be affected or delayed. In the alternative, you may propose an amendment to the Purchase and Sale Agreement which would accommodate for any delays in financing caused from the government shutdown. Again, I strongly advise that you contact a real estate lawyer as this language must be carefully crafted to protect your interests and your deposit money at risk.
Jonathan J. Moriarty, Esq.
Law Office of Jonathan J. Moriarty
53 South Main Street, Ste. 3
Randolph, MA 02368
Telephone: (781) 961-2200
Facsimile: (781) 961-0017
Email: jjmoriarty@verizon.net
Website: http://www.attorneymoriarty.com/
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