Transfer of Physical Assets (TPA): What It is, How it Works

What Is a Transfer of Physical Assets (TPA)?

The term transfer of physical assets (TPA) refers to the sale of property that involves a change in ownership of a mortgage loan sponsored by the U.S. Department of Housing and Urban Development (HUD). The sale of qualifying properties held with HUD that are insured by the Federal Housing Administration (FHA) must go through HUD if the title is transferred to a new owner when the loan isn't paid off. Put simply, the transfer process must meet HUD guidelines rather than the lenders, which is what happens with traditional mortgages. TPAs can also involve the complete transfer of a beneficial interest through a passive trust. The process happens in two steps and can be either full or modified.

Understanding a Transfer of Physical Assets (TPA)

The U.S. federal government has many programs in place to help consumers realize their dreams of homeownership and to make it as affordable as possible. HUD, which oversees the FHA, is particularly valuable for people who don't have adequate credit histories or enough money for a down payment to satisfy the requirements of traditional lenders. Both HUD and the FHA insure loans advanced by private lenders so if the borrower defaults, they step in and pay the lender. The agency

A transfer of physical assets occurs when a borrower wants to sell the property to another party when the loan is still outstanding. When ownership changes, what happens to the loan? With a traditional mortgage, the money paid by the buyer pays the seller's mortgage and any other home-related debt, closing costs, and to the seller directly. But with HUD loans, ownership of the property can be transferred along with the loan in what's called a transfer of physical assets.

Property owners must first submit an application to the agency for a TPA. This is followed by the preliminary approval process. All TPA applications must be submitted through a process dictated by HUD that involves a number of forms. Some properties that are eligible for a TPA are also subject to an Assignment or Assumption of Housing Assistance Payments Contract. These contracts relate to properties that may be rented through Housing Choice Voucher Program Section 8.

In the preliminary approval phase, HUD reviews the application as well as 22 separate documents, which include the:

• Purchaser’s financial statements
• Purchaser’s letter describing the transaction
• Borrower’s proposed organizational documents
• Previous participation certificates

Both parties are legally bound to undertake the necessary steps to reconvey the property to the seller if the terms of preliminary approval are not met within 45 days.

Special Considerations

Some HUD properties come with specific use agreements for certain properties. HUD encourages all potential buyers to read any preexisting use agreements for properties carefully prior to making a purchase. Each one is unique and will likely affect whether the purchaser believes the purchase price to be appropriate.

For instance, property owners may have to set aside a certain number of units as affordable housing and must rent them to individuals and families who don't have enough income to pay rents at the market price. If the property changes hands and a TPA is approved, the new owner must abide by the rules set out by the agency, which means any affordable housing units must remain as such.

Types of TPAs

As noted above, a TPA requires HUD approval before it can go through. A TPA may be either full or modified.

A full TPA involves a transaction in which the property completely changes hands. This means that one owner sells the home to another. With a full TPA, the purchaser assumes the note and mortgage associated with the property. The purchaser may either assume the existing regulatory agreement, the central contract with HUD, or enter into a new regulatory agreement with HUD.

In some cases, only a percentage of ownership of "principles in an entity" may apply when it comes to a TPA. This is referred to as a modified TPA. This means that only the structure of ownership changes, but the actual owner does not completely change hands.