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203K

Hi all, 
My husband and I are looking into obtaining a 203K for a property in Maine and would like to hire my uncle, a licenced, bonded, insured contractor to do the work. Has anyone had any success getting around the contractor cannot be a relative clause?  We trust him much more than we would a stranger and really feel like he would keep all of the subcontractors honest as well. From other threads it seems like there may be ways to get around this clause but our loan officer did not seem flexible about it at all. 

Has anyone had any luck?

 
  • March 30 - Portland
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Answers (6)

I don't know that I would ever recomend someone to run to a lender willing to commit loan fraud.  The fact that the lender may allow the fraud doesn't excuse the borrower from comitting the fraud.  The lender isn't signing the identity of interest form the borrower is.
  • April 05
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lclark022,

It's generally not a good idea to post in a public forum you wish to commit loan fraud...

If you wanted to do the conventional version of this loan, as a rehab loan, you'll still likely have to sign a document from your lender no other interested parties are allowed to be your contractor. 

"Collusion" contributed to a great many fraudulent transactions in the last ten years, which is why any lender with their head screwed on correctly, will not allow family members (and often employer/employees of your job) to be apart of the same loan.  While I doubt "collusion" was your intent, a very in depth review of past loans by investors (Fannie/Freddie/FHA/VA/etc) have resulted in many situations where family members working with other family members on the same transaction created undesirable situations for the lender/investor. 

You may have the best of intentions having a family member do the job but history has told us that family members will not charge you labor or such a low cost that should something happen to them, you couldn't get another contractor to do the job for the same price and would be out of pocket the increased labor costs and if you didn't have the cash to pay them in this rare circumstance and the work never was completed, the lender would be forced to eventually foreclose.

Any lender allowing this would be opening themselves up to investor buy-backs though if you can find someone who'll do this, by all means, take advantage of them, don't walk, RUN to them, before their legal department puts the kabosh on allowing family members to be an interested party.

Best of luck.
  • April 04
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Profile picture for Shawn Losier
I would definitely speak with a knowledgeable loan officer to seek other alternatives in financing that wouldn't put you in any disposition.
  • April 03
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The reason why you are not able to get around the clause is because it could then be considered loan fraud. This can be a serious offense so I recommend that you do not try to "get around" the clause. There are also other options for renovation loans that you may want to look into that can possibly allow this to be done. So the best thing for you to do is to speak with a knowledgeable lender to see if you can get started on financing a new home. If you need additional assistance, feel free to reach out. Good luck!
  • March 31
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An alternative is conventional renovation with 5% down.
  • March 31
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If you "get around it" you are ignoring the identity of interest clause of the FHA mortgage and committing fraud by not disclosing the relationship.
  • March 31
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