MORTGAGE LOAN PAYOFFS FOR USDA RURAL DEVELOPMENT DIRECT HOUSING LOANS IN KENTUCKY

MORTGAGE LOAN PAYOFFS
FOR USDA RURAL DEVELOPMENT DIRECT HOUSING LOANS
What is this? After a loan is closed, the subsidized portion of a borrower’s monthly payment will accrue as a separate account. The Government pays this subsidy each month to help very low and low income households
afford to own a home. This account is subject to being repaid or “recaptured” at the time a borrower
sells or transfers the property to another owner, no longer occupy the property, or pays the loan in full.
The maximum amount of recapture due will be the lesser of the amount of subsidy received or up to
50 percent of the Adjusted Value Appreciation in the property.
The Value Appreciation is based on  appraised value and/or sales price at time of sale, refinance, or when the principal and interest balances are paid in full. This value excludes any of the borrower’s original equity or any value that resulted from eligible Capital Improvements that were made by the borrower. Borrowers who
refinance their Rural Development loan and want to pay off the principal and interest balance, have the
option to defer the final amount of Recapture due, or pay it off at closing. (See section below“Deferring
Payment of Recapture Due”).
Understanding your need for getting a payoff.
There are different options provided by our Centralized Service Center (CSC) for payoffs. These are:
􀂾 The Principal and Interest Payoff (P & I) is based on the anticipated principal, interest and
fee balance (if any fees have been added) for the requested date. This form of payoff is used
when the borrower’s account is not subject to recapture or if the borrower is only concerned
with the principal and interest balances due on their loan(s). As a note, all RD Section 504
repair loans are not subject to any recapture due.
􀂾 The Maximum Payoff statement indicates the Maximum amount the borrower may be
required to pay as of a requested date. It includes 100% of all Subsidy Recapture funds
including Principal and Interest and any fees that are due. This statement advises borrowers to
submit additional information to CSC so that Subsidy Recapture can be properly calculated for a
Final Payoff statement.
􀂾 The Estimated payoff is an estimated figure only. The Agency offers an automated Voice
Response Unit (VRU) by calling our toll-free number (1-800-414-1226). It provides an accurate
P&I balance and an estimated Subsidy Recapture amount based on a hypothetical sales price or
appraised value. Please follow the directions (below) for an “Estimated Payoff”.
􀂾 The Final Payoff statement is based on the account balance on the requested payoff date, and
the actual Subsidy Recapture Amount due is calculated based on the final documentation
provided by the borrower/settlement agent. This statement indicates the actual amount the
borrower will be required to pay at loan closing.
“USDA is an equal opportunity provider, employer and lender.”
To file
Getting the Estimated Payoff — (Recommended but not required).
Please note: This is an Estimated Figure AND CANNOT BE USED TO PAYOFF AN ACCOUNT. It
is calculated as of the date of your call. The Subsidy Recapture amount does not include any
value deductions for Capital Improvements.
CALL: 1-800-414-1226 (This is an automated Voice Response Unit (VRU).
You will need the customer’s loan number and the last 4 digits of their Social Security Number
Choose: 1 Touchtone – Then: 1 English Speaking – Then: 2 Payoff Information
Then: You will be asked to input the customer’s loan number and the last four digits
of their Social Security Number. Stay on the line and listen to the entire
explanation of the different types of payoff figures.
Then: Go to Calculated Payoff, “Estimated Loan Balance” – Choice Number 2. You will be
asked to input the Estimated Market Value and the Estimated Closing Costs in
whole dollars.
Getting a Final Payoff—applies to all transactions (ex. sale, refinance, pay in full)
1. A copy of the Residential Appraisal Report and/or a copy of the Signed Contract.
2. A copy of the Estimated Settlement Statement. A Good Faith Estimate from the lending
institution is
3. The Date of the Payoff. Funds are to be received at Rural Development on this date.
4. The reason for paying off the loan: selling, refinancing, pay in full, and paying the recapture, or
refinancing and deferring the Recapture (Subordination).
5. Capital Improvements that the borrower has made to the property can help to reduce the
amount of subsidy that is subject to recapture. If a borrower has made any improvements to the
property, he/she should request that the appraiser provide an addendum to the
appraisal to indicate the value of the improvements. Capital Improvements are additions that
add value to the property above and beyond repairs that maintain the property. General
maintenance to keep the property in good condition is not considered a Capital Improvement.
Examples of Capital Improvements that do not qualify: yard maintenance, painting,
wallpapering, floor coverings, roofing, siding, wells, septic systems, appliances, furnaces or
water heaters. The value of a Capital Improvement must be determined by an appraiser, based
on the increase in the property’s value because of the improvement. The cost of making the
Capital Improvement is not considered when making this assessment, only the value that the
Capital Improvements have added to the property. A copy of the original appraisal can be
requested by the borrower(s) to assist the appraiser in Capital Improvement Determinations.
6. Borrowers who refinance or wish to pay off their loan(s) and subsidy recapture in full
and remain in the property will receive a 25 percent discount on the recapture amount if it is
included in the final payment. Please be aware that the 25 percent discount only applies if the
borrower refinances the loan, or pays the loan in full and continues to occupy and retain title to
the property.
7. Borrower(s) can defer recapture and pay it off later. A mortgage discharge
Borrower(s) can defer recapture and pay it off later. A mortgage discharge is not provided,
however, the Agency can subordinate it’s lien to another lender for the new loan (see below).
8. For unpaid or deferred subsidy, the borrower will establish a “Subsidy Receivable” account
with the Agency which will not be due and payable until the borrower transfers title or
vacates the property. The borrower cannot obtain the 25 percent discount if they voluntarily
decide to pay off the balance at a later date. The “Subsidy Receivable” account will not accrue
any interest or fees.
Deferring Payment of Recapture due.
When a borrower initially refinances their RD loan(s), they have the option to defer their Recapture
payment, or pay it in full. As mentioned above and under current rules, if it is paid in full they will
receive a 25% discount in the amount of recapture owed. A Loan Subordination of the RD debt to
allow another lender to make a loan can be requested by a borrower who wishes to refinance their
Rural Development loan and payoff the principal, interest, and fees (if any) and defer the Subsidy
Recapture Amount. The borrower can receive no “cash out” or consolidate additional debt (including
other liens against the property). Modest real estate improvements may be considered as long as the
Loan to Value for the new loan and the Recapture Receivable Amount are at or below 100% of the
Current “as improved” Market Value of the property. Requests can include reasonable closing costs.
A Subordination Package for refinancing and/or making improvements to the property must be
completed and returned to the Agency for review.
The following must also be included:
􀂾 If Improvements are being done, a Contractor’s Bid must be provided to the agency for
review prior to approval.
􀂾 A signed, dated authorization from the borrower(s) waiving the 25 Percent Recapture
Discount in lieu of a Subordination must be provided to Rural Development. This form is
included in the Subordination Package.
􀂾 A copy of a recent Uniform Residential Appraisal Report (Pages 1 and 2).
􀂾 A copy of the Estimated Settlement Statement from either a lender or a closing
agency. A Good Faith Estimate is acceptable if it includes the proposed loan
amount.
If this account is a previously established Recapture Receivable Account, we will also need
a Principal and Interest payoff on the first mortgage.
After the Subordination has been approved and prior to the issuance of the Subordination, the
proposed lienholder must complete Form RD 1927-8, Agreement with Prior Lienholder, which
requires the proposed lienholder to provide at least 30 written days notice to Rural Development,
before any foreclosure actions on the proposed lien are initiated. This form is also included in the
Subordination Package.
TO COMPLETE A FINAL PAYOFF FOR
TO COMPLETE A FINAL PAYOFF FOR THE USDA/RURAL DEVELOPMENT
Date: _____________
Company:______________________________
Fax Number___________________
Attention: ____________________
Your payoff request for borrower(s):_____________________________
Account Number(s)______________________ Phone Number:____________
FOR SALES, PLEASE FAX THE FOLLOWING DOCUMENTS: THE ACCOUNT NUMBER MUST BE
WRITTEN ON EACH PAGE:
• Sales Contract that includes the sales price (establishing market value) and signatures of both
buyer and seller AND/OR Pages 1 and 2 of the Uniform Residential Appraisal Report (with 1st page
as property description, 2nd page to include comparison approach, the estimated market value and
the appraiser’s signature. The appraisal must be less than one year old).
• Estimated Settlement Statement detailing our borrower’s (the sellers) closing costs. THIS MUST BE
COMPLETED BY THE SETTLEMENT/ESCROW AGENT. AN ESTIMATE FROM A REAL ESTATE AGENT IS
NOT ACCEPTABLE.
• Authorization to release information signed by the borrower(s). If the request is from a lender or its
agent, Social Security Number(s) and Account Number(s) are acceptable.
• Effective date of payoff requested.
When the above documentation is received together as a package, a Final Payoff will be
calculated. If you are notified by the Centralized Servicing Center (CSC) that additional
information is needed to calculate the payoff, please fax the entire package together again.
Also, please be sure that the account number is written on every piece of paper. This will
expedite your payoff request.
To complete a Final Payoff Statement: PLEASE FAX ALL REQUIRED DOCUMENTATION
TOGETHER AS A PACKAGE TO: 314-457-4433.
For Questions, you may call the Customer Service Department Toll Free at 1-800-414-1226
or TDD (hearing impaired only 1-800-438-1832) 7:00 a.m. to 5:00 p.m. Monday – Friday,
Central Time.
“USDA is an equal opportunity provider, employer and lender.”
To file a complaint of discrimination write USDA, Office of Civil Rights, Programs, 300 7th Street SW, Room 400 (Stop 9430),
Washington, DC 20024 or call (866)632-9992 (Voice), (202) 401-0216 (TDD/TTY Hearing Impaired Only) or (202)720-8046 (FAX

Joel Lobb NMLS# 57916

Key Financial Mortgage NMLS# 1800

502-905-3708 ph#

502-813-2795 Fax#

107 South Hurstbourne Parkway

Louisville Ky 40222

Subsidy Recapture

Payment subsidies received on loans approved after October 1, 1979 are subject to recapture. This means that when the property is sold, transferred, or no longer occupied by the customer, all or part of the subsidy granted must be repaid to the government. The amount of subsidy recapture will be determined by the increase in property value since the loan originated. Subsidy recapture must be calculated when the loan is paid off.

Not all USDA Rural Development Loans are subject to recapture. Please call our Customer Service Department at 1-800-414-1226 or 1-800-438-1832 (TDD/TTY Hearing Impaired Only) to find out if your loan is subject to recapture or to receive payoff information. We are available from 7:00 A.M. to 5:00 P.M. Central Standard Time (CST), Monday through Friday.

Subsidy Recapture Payment

Subsidy recapture must be paid when the property is sold, transferred, or no longer occupied by the customer.

If the loan is being paid off but the customer continues to live in the property there are two payment options:

  • Pay the subsidy recapture when the loan is paid off
    The subsidy recapture will be discounted by 25% if this option is chosen.

  • Defer payment of the subsidy recapture until the property is sold, transferred, or no longer occupied by the customer
    The subsidy recapture will not be discounted when the loan is paid off, nor will the discount apply in the future if this option is chosen.

Statement of Loan Balance(s) for Loans Subject to Recapture

With a touch-tone telephone, call 1-800-414-1226, and select option #2 from the Main Menu, and select option #1 from the Payoff Information Menu. Through our Interactive Voice Response system you can request a Statement of Loan Balance be mailed to the homeowner of record. The Statement of Loan Balance(s) provides the current outstanding balances of the loan, which includes principal, interest, fees, late charges, and escrow (if applicable). The statement also includes the total amount of payment assistance (subsidy) granted. The amount of subsidy can be quite large, but in many cases this amount is reduced when subsidy recapture is calculated.

Verbal Estimated Payoff Quotes

With a touch-tone telephone, call 1-800-414-1226, and select option #2 from the Main Menu, and select option #2 from the Payoff Information Menu. Our Interactive Voice Response (IVR) system can provide a verbal estimated payoff amount based on the information you enter. The IVR is easy to use and will provide instructions when you call. To calculate the estimated payoff amount you will need to enter the estimated value of the property and estimated closing costs that may be incurred as a result of selling or refinancing the loan. This information is necessary to estimate the subsidy recapture to be paid. The estimated payoff should not be used to pay off your loan.

How to Receive a Final Payoff Statement

In order to calculate subsidy recapture and provide a payoff statement, certain documents need to be submitted to our Payoff Department. The type of transaction (refinancing, selling, or paying off) will determine the documents needed. The payoff statement will be faxed or mailed to the address of record within 5 business days of receipt.

Refinancing

  • Customer�s name, loan number(s) and written authorization to release payoff(s).

  • A copy of a Uniform Residential Appraisal Report (usually available from the lender). Any capital improvements must be itemized on a separate addendum to the appraisal.

  • A copy of the Good Faith Estimate or estimated settlement statement from the lender.

  • Payoff good thru date.

    Selling

  • Customer�s name, loan number(s) and written authorization to release payoff(s).

  • A copy of the signed sales contract and/or a copy of a Uniform Residential Appraisal Report. Any capital improvements must be itemized on a separate addendum to the appraisal.

  • A copy of the estimated settlement statement from the closing agent.

  • Payoff good thru date.

    Paying off the loan and not refinancing or selling

  • Customer�s name, loan number(s) and written authorization to release payoff(s). Include a statement that the customer is staying in the property and not transferring title.

  • A copy of a Uniform Residential Appraisal Report. Refer to the local yellow pages or the internet for appraisers in your area. Any capital improvements must be itemized on a separate addendum to the appraisal.

  • Payoff good thru date.

    Not Subject to Recapture

  • Customer�s name, loan number and written authorization to release payoff(s).

  • Payoff good thru date.

    Not all USDA Rural Development loans are subject to recapture. Please call our Customer Service Department at 1-800-414-1226 to find out if your loan is subject to recapture and to confirm the documents needed for you to receive final payoff(s). We are available from 7:00 A.M. to 5:00 P.M. Central Standard Time (CST), Monday through Friday.

Capital Improvements

If certain improvements, referred to as capital improvements, are made to the property, the value of the improvements added may be used to reduce subsidy recapture owed. To receive credit for capital improvements, the appraiser should submit an addendum to the appraisal. Instruct the appraiser that an itemized list of the improvements or additions and the value the improvements or additions added to the property should be submitted along with the appraisal. The cost of the improvements or additions should not be submitted and will not be used. Replacement items such as kitchen cabinets, floor coverings, roofing, siding, furnaces, appliances, and water heaters are not considered capital improvements. Maintenance items or repairs that maintain the property in good condition, such as yard maintenance, painting, and wallpapering, are also not considered capital improvements in our calculation of subsidy recapture. Examples of capital improvements include, but are not limited to, room additions, adding a fence, deck or enclosed porch.

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8 thoughts on “MORTGAGE LOAN PAYOFFS FOR USDA RURAL DEVELOPMENT DIRECT HOUSING LOANS IN KENTUCKY

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