What Is a Transfer of Physical Assets (TPA)?
A transfer of physical assets (TPA) is a type of property sale that requires the assumption of a loan sponsored by the United States Department of Housing and Urban Development (HUD), which oversees subsidized and public housing in the U.S. TPAs pertain only to HUD loans and are not applicable to commercial loans. Many properties financed through HUD-sponsored loans are multiunit properties, rented at a low cost under government regulations. A HUD-sponsored loan is insured by the Federal Housing Administration (FHA).
- A TPA is a property sale that requires the assumption of a HUD-sponsored loan.
- Many of the properties financed in this way are multiunit ones.
- A TPA happens in two phases, application and preliminary approval, and can take two forms, full or modified.
Understanding a Transfer of Physical Assets (TPA)
A TPA may take one of two forms: full or modified. A full TPA describes a transaction in which the property completely changes hands. One owner sells the home to another. With a full TPA, the purchaser assumes the note and mortgage associated with the property. The purchaser then may either assume the existing regulatory agreement, the central contract with HUD, or enter into a new regulatory agreement with HUD. In a modified TPA the structure of ownership changes, but ownership does not completely change hands.
The Application Phase
A TPA review involves two phases: application and preliminary approval. TPAs must be applied for through a process dictated by HUD that involves a number of forms. Some properties eligible for a TPA are also subject to an Assignment or Assumption of Housing Assistance Payments (HAP) Contract. These contracts relate to properties which may be rented through Housing Choice Voucher Program Section 8.
The Preliminary Approval Phase
In the preliminary approval phase, HUD reviews the application as well as 22 separate documents, which are outlined in it and include the purchaser’s credit report and financial statements, a purchaser’s letter that describes the transaction, the borrower’s proposed organizational documents, and any previous participation certificates. The two 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.
Some HUD properties are covered by agreements that can limit the amount of rent that an owner can charge.
Some HUD properties come with use agreements by which the purchaser must still abide. These agreements can limit the rent that the owner may charge on the property’s units. For this reason HUD encourages all potential buyers to read any preexisting use agreements carefully. Each one is unique and will likely affect whether the purchaser believes the purchase price to be appropriate.