Identity of Intrest

[Anonymous]

I was suppose to close on a house yesterday but the underwriter said hold up on everything, we have a problem. Said that I fall under the FHA "Identity of interest" regulation because i'm leasing the house i'm trying to buy. But let me explain my situation, I originally leased the house from Coldwell Banker leasing management not the owner and the owner of the house decided to sale the house one week after I moved in. I called the listing agent which is also with Coldwell Banker and asked her to ask the owner of the house if he would do a Lease to Purchase agreement, the owner said no. So I went through a lender to buy the house. So as far as the Identity of interest regulation is concerned I have no relationship to the seller, never have talked to the seller and never even meet the seller, all I know about the seller is he is an investor.  I don't lease the house from the seller, I lease it from Coldwell Banker Leasing Management which the seller hired to lease his house, so again I have no ties to the seller. Seems like to me the underwriter and lender are going by their interpretation of the regulation and not by the word for word of the regulation. Please help!

[Anonymous]

Anyone???

[StartingOver10]

FHA apparently defines the "identity of interest" as 'a sale between parties with an existing business relationship or between family members'.  From your description in your post, you have an existing business relationship with the seller.

It isn't correct to think that because you signed a lease and/or make payments to Coldwell Banker that you have nothing to do with the owner of the property.  Coldwell Banker represents the landlord. You are the tenant. By definition, there is a business relationship between landlord and tenant.  As a result, FHA requires a higher down payment from the buyer when there is a business relationship between the buyer and seller. Looks like the maximum LTV for your example would be 85%.  

This does not have anything to do with you personally knowing the seller at all.  The fact that you have a lease is evidence of a business relationship.

Normally, when a tenant signs a lease the lease takes priority and the new owner (if the property sells) would have to allow you to finish your lease term or buy you out of the lease.

Is there any discussion with the current landlord about the fact that you have a leasehold interest until the lease termination date? Sounds like the landlord was not aware that if he leased the property the new owner would have to honor your lease. 

Have you considered a conventional mortgage? I don't know if there is a corresponding rule with conventional mortgages - just throwing that out there for you to check out.