Ramesh Rao Blog September 27, 2023


When a homeowner with a conventional mortgage sells a house, the outstanding loan balance gets paid off with proceeds from the sale. The buyer might take out a new mortgage to purchase the property or pay with cash.

If the owner has a mortgage approved by the Department of Housing and Urban Development (HUD), things work differently. If the seller has an outstanding loan balance, the mortgage can be transferred to the buyer through a process known as a transfer of physical assets (TPA).

How Does a Transfer of Physical Assets Work?

In a TPA, both ownership of a home and the existing loan associated with the property can be transferred to the buyer. The parties have to submit a series of forms and supporting documents to HUD and get preliminary approval before a sale can move forward.

A transfer of physical assets can be full or modified. In a full transfer of physical assets, ownership of the property and the outstanding mortgage are completely transferred from the seller to the buyer.

In a modified transfer of physical assets, ownership of a property doesn’t completely change, but the structure of ownership does. This can occur when only a percentage of ownership changes hands. The procedure involved depends on the percentage of ownership that will change and the type of entity involved, such as a partnership, corporate mortgagor, or trust.

How Can an Agreement That the Current Owner Made with HUD Affect a Sale?

HUD often makes agreements that place certain requirements on buyers in exchange for tax incentives and lower purchase prices. The terms of those agreements can differ from one property to another. If the owner of a property with a HUD-approved mortgage entered into one or more agreements with the Department, that can affect a sale.

Residential properties with HUD-approved mortgages are sometimes subject to an Assignment or Assumption of Housing Assistance Payments Contract. A property can be designated as affordable housing, and a certain number of units can be rented out to low-income tenants for less than market rates through the Housing Choice Voucher Program Section 8. Some HUD properties have Use Agreements that place limits on rents. Preservation Use Agreements may contain other terms.

If an agreement with HUD is already in place, the buyer will be required to assume the agreement. That might affect whether a potential buyer is interested in buying a property and the amount the buyer is willing to pay.