A TPA is a mechanism that can be used by homeowners with a HUD-approved mortgage who want to sell their home. In this article, we will explain what a transfer of physical assets (TPA) is and how it differs from selling a property that was purchased with a traditional mortgage.
Key highlights:
A transfer of physical assets (TPA) happens when a homeowner with a HUD-approved mortgage sells their home and transfers the mortgage to the buyer.
This is different from the conventional mortgage scenario, in which the proceeds of the sale pay off the mortgage.
A TPA can be either full or modified.
A TPA requires approval from the HUD.
In a conventional mortgage scenario, when a homeowner with a mortgage sells the house, the proceeds of the sale are used to pay off the outstanding balance. The buyer of the property can purchase the property with cash or take out a new mortgage to finance the purchase.
On the other hand, if the homeowner’s mortgage is approved by HUD (Department of Housing and Urban Development), the process of selling the home is different. The seller can transfer their mortgage to the buyer through a TPA (transfer of physical assets).
Types of TPA: Full and modified
A transfer of physical assets can be either full or modified. In a full transfer, the property and the existing mortgage are completely passed from the seller to the buyer.
In a modified transfer, ownership of the property isn't entirely transferred, but rather the ownership structure is adjusted. This happens when only a fraction of the ownership changes hands. The process involved depends on the proportion of ownership being transferred and the nature of the entity involved, such as a partnership or trust.
HUD (Department of Housing and Urban Development)
The HUD provides solutions for people who want to be homeowners but might not be able to qualify for a mortgage from a traditional lender, either due to a low credit score or not being able to meet the down payment requirements. The HUD also oversees the FHA (Federal Housing Administration), and both institutions provide insurance in the event that the borrower defaults.
With a traditional mortgage, the buyer's payment covers the seller's mortgage, any other home-related debts, closing costs, and the remaining amount goes to the seller. However, with HUD loans, both the ownership of the property and the loan can be transferred to the buyer through the TPA process.
In order for a TPA to happen, the owner of the property must first file an application. The HUD will review the application, as well as multiple other documents, to determine eligibility.
Special considerations for HUD properties
It’s important to understand that HUD and home buyers often enter into agreements that give buyers tax incentives and lower purchase prices as long as specific requirements are met. These terms can vary significantly on a property-by-property basis.
For example, properties can be designated as affordable housing, requiring a certain number of units to be rented to low-income tenants at below-market rates through the Housing Choice Voucher Program Section 8. Additionally, some HUD properties are governed by Use Agreements that set rent limits, while Preservation Use Agreements may impose other conditions.
If a property has an existing agreement with HUD, the buyer must take on the terms of that agreement. This requirement can influence a potential buyer's interest in the property and the price they are willing to offer.
The bottom line
A transfer of physical assets (TPA) is a mechanism for homeowners with HUD-approved mortgages to sell their home by transferring both the property and the mortgage to the buyer, unlike traditional sales where the mortgage is paid off with the sale proceeds.
TPAs can be either full, where the entire property and mortgage are transferred, or modified, involving partial ownership changes. HUD oversees this process, ensuring compliance with any existing agreements, such as affordable housing or rent limits, which the buyer must adhere to.
If you'd like to learn more about mortgages, take a look at our article explaining vendor take-back (VTB) mortgages. We also provide a comparison between credit union vs. bank mortgages if you're looking to explore the mortgage options available to you.