My guess is most of the terms you are asking about are in the warranty deeds at closing. If the county you are in posts land records online, you should be able find those conditions there.

And just one more reason I found it shady

Great questions

Usually it's setup so the house goes back to Habitat. The owner is restricted on sales for an extensive period of time unless selling back to Habitat. That was my experience from building with them years ago.

Does this help?
https://www.habitat.org/about/faq

Quote:

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If a Habitat for Humanity house is foreclosed, the organization typically tries to repurchase the home at the foreclosure sale to keep it within their mission of providing affordable housing, and then may work to find a new qualified family to buy it; however, if they can't buy it back, the house would be sold on the open market like any other foreclosed property.


Key points to remember:

• Right of first refusal:
  Habitat for Humanity usually has a "right of first refusal" on their homes, meaning they have the first opportunity to buy back the house if it goes into foreclosure.
  
  
• Re-selling the home:
  If Habitat buys the foreclosed house back, they would work to find a new qualified family to purchase it, following their normal application process.
  
  
• Open market sale:
  If Habitat chooses not to repurchase the home, it would be sold on the open market at the foreclosure auction, potentially to any buyer.
  
  

Why might a Habitat house go into foreclosure?

• Financial hardship:
  The homeowner might face unexpected financial difficulties that prevent them from making mortgage payments.
  
  
• Failure to comply with terms:
  Not meeting the terms of the mortgage agreement, such as missed payments or not maintaining the property.
  
  

What happens to the homeowner after foreclosure?

• Credit impact:
  A foreclosure significantly damages a homeowner's credit score, making it difficult to qualify for future loans.
• Potential for housing assistance:
  Depending on local regulations, the homeowner may be able to access housing assistance programs to find new housing.

---

Source: Google search - AI Overview

So I get what the language says. Here is what I can't get my answers on.

• A bank, not sure if it is one "owned" by habitat but I guess it is unimportant. A habitat recipient takes a loan out and buys a home and property for 100,000. Due to the building supplies and labor being heavily discounted or donated, the actual value of the home is $150,000. Meaning that for the same property with the house built would cost 150,000. So the market value is 150,000. More or less, the asset owner is going to get $50,000 above cost. What happens to that extra 50,000?
• How often does that happen?
• And finally, who is getting that extra money?

If I am the home owner and I default. Using the example above, if I owe 80,000 off of that 100,000 I borrowed and it is foreclosed on or outright sold for 150,000, who gets that extra 50,000?

I don't know and can't find that information. The whole system seems designed to allow for less that savory behaviour. Not saying that it occurs. You have a shady system wrapped up into a humanitarian aid organization, who is going to question it?

Hoosegow said:

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My tin foil hat is showing here, but if I manage a large a hedge fund that has banks and properties, what is to keep them from lending to people with questionable finances, knowing there is a high likelihood of defaulting? Regaining that property at a discounted rate, flipping it for market value or then renting it out and having a continual source of income without having almost any risk?

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Isn't this partly what contributed to the housing crisis in 2018ish?

I think flipping it and selling it at market value and/or renting out a Habitat house thinking you'll have well-qualified buyers/renters is highly unrealistic. The reality is those are traditionally in low-income areas where people with money wouldn't want to live and you're left with folks that have poor income, poor rental history, and poor credit. I suppose that's a a slight upgrade over someone destitute, but why would you want to subject yourself to eviction court all the time?

If I held the note, I'd want to offload that property to some sub-prime lender and walk away.

Always seemed like a good program, but I've often wondered what they look like 5 years later.

This is what I've gathered from several google search AI responses to a variety of questions worded in a variety of ways. So take this for what it's worth...

Habitat is the mortgage lender and would take the home back during a foreclosure. Habitat can then sell it to another Habitat homeowner as is, refurbish it & sell it to another Habitat homeowner, or sell it on the open market (either with or without refurbishment)

To sell a Habitat home, the homeowner must send a formal written request to Habitat's Mortgage Portfolio Manager to initiate the sales process, regardless of whether the home has been fully paid off or not. Even if the mortgage has been paid off for 20 years, the sale must first be approved by Habitat through this process.

Habitat gets first dibs on the purchase of the home at fair market value, regardless if the mortgage has been fully paid off or not.

The homeowner can sell it on the open market if Habitat declines the offer to purchase it.

If Habitat chooses to purchase the home, they can refurbish the home & sell it to another Habitat homeowner, or sell it as is to another Habitat homeowner.

Homeowners are contractually obligated to live in the house for a certain amount of time before being eligible to sell it. The obligation varies by affiliate and from contract to contract.

Homeowners must maintain homeowners insurance until the mortgage is paid in full.

Homeowners must maintain the property in good condition in order to remain in the home until the mortgage is paid in full.

Upon sale of the home, either to Habitat or on the open market, most subsidies will need to be paid back whether the mortgage has been paid in full or not (So it sounds like the $50k in Hoosegow's scenario would have to be returned to Habitat, or at least most of it)

The homeowner will receive a portion of the equity of the home (side not: I can't find how much of a portion. Perhaps it varies from contract to contract or by affiliate? Perhaps there are other factors?)

The homeowner will receive the full appreciation on the home upon the sale back to Habitat or on the open market, but Habitat may be refunded the original value of the subsidies or a portion of the value. (Side note: I got a lot of varying answers to this question, so I think the details of how much of the subsidies is paid back, if any, varies from contract to contract or by affiliate)

Hoosegow said:

---

So I get what the language says. Here is what I can't get my answers on.

• A bank, not sure if it is one "owned" by habitat but I guess it is unimportant. A habitat recipient takes a loan out and buys a home and property for 100,000. Due to the building supplies and labor being heavily discounted or donated, the actual value of the home is $150,000. Meaning that for the same property with the house built would cost 150,000. So the market value is 150,000. More or less, the asset owner is going to get $50,000 above cost. What happens to that extra 50,000?
• How often does that happen?
• And finally, who is getting that extra money?

If I am the home owner and I default. Using the example above, if I owe 80,000 off of that 100,000 I borrowed and it is foreclosed on or outright sold for 150,000, who gets that extra 50,000?

I don't know and can't find that information. The whole system seems designed to allow for less that savory behaviour. Not saying that it occurs. You have a shady system wrapped up into a humanitarian aid organization, who is going to question it?

---

That 50k you are worried about is sweat equity the homeowner provides. It is considered a down payment, and the lender assumes it and any other equity.

Sweat equity the homeowner provides? Lol! I guess youve never been to a habitat build. They sit around and watch everyone else work.

Yes, I have, and they not only work on their own house, but other Habitat homes. Sure, there are always some slackers and drifters in any large-scale operations.

Hoosegow said:

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Sweat equity the homeowner provides? Lol! I guess youve never been to a habitat build. They sit around and watch everyone else work.

---

My experience could not be further from that. My Rotary club has funded 2 homes fully and partnered with another group to fund another. Twice I have been my club's build chair so I've been on site from wall raising to the key ceremony. The home owners I have met all worked every day. They don't have to get on a roof laying shingles to work. And their home isn't the only thing they work on. They have a mandatory number of hours to put in and they can serve in ReStore or working on other houses.

"A bank, not sure if it is one "owned" by habitat but I guess it is unimportant. A habitat recipient takes a loan out and buys a home and property for 100,000. Due to the building supplies and labor being heavily discounted or donated, the actual value of the home is $150,000. Meaning that for the same property with the house built would cost 150,000. So the market value is 150,000. More or less, the asset owner is going to get $50,000 above cost. What happens to that extra 50,000?"

-

The local Habitat affiliate is the "bank" or mortgage company. They service the loan. It's often a 20- or 30-year note with zero percent interest. The homeowner is only paying the principal.

(They are also making escrow payments for insurance and property taxes).

You are missing some information. The home is actually sold at fair market value. The local affiliate is required to obtain an independent third party appraisal. That value serves as the purchase price. In your example, you say $150,000. At the same time, the local affiliate does an affordability analysis; meaning, how much home can the buyer afford? For sake of argument, let's say that's $100,000.

Yes, that's the spread of $50,000 you mention.

What actually happens is that the new Habitat homeowner signs two liens/two notes. It's what is called a first lien and a silent second lien. They make payments to extinguish the $100,000 first lien. The silent second lien (here, for $50,000) is forgiven over time. Usually by 1/20 (or 1/30) of the amount for each year the homeowner timely pays the first lien.

Depending on how the liens/deeds/notes are structured, as others have mentioned, there are "rights of first refusal" in favor of the local Habitat affiliate. If they pass on this right, the Habitat homeowner who sells their house will have to pay whatever remains on both liens.

I don't want to complicate things too much more, but you can also see shared equity agreements. From my experience, however, most affiliates do not do that.

There also seems to be an insinuation that the default rate for Habitat homes is high. It is not. They are treated the same way as traditional mortgages. You have to do an affordability analysis. I'm not a qualified loan originator, but I believe mortgage affordability checks always happen in home purchases. Lenders are required to evaluate if applicants can repay their mortgage without risking their financial stability. This process ensures the buyer can handle the mortgage payments. As such, Habitat default rates are no different than other mortgages.