TN 29 (06-92)

A. Policy principles

1. General

When an individual sells an excluded home, the proceeds of the sale   are excluded resources if the individual:

• plans to use them to buy another excluded home, and

• does so within 3 full calendar months of receiving them.

2. Installment sales contracts

If the individual receives the proceeds under an installment contract, the contract is an excluded resource for as long as the individual:

• plans to use the entire downpayment and the entire principal portion of a given installment payment to buy another excluded home; and

• does so within 3 full calendar months of receiving such downpayment or installment payment.

B. Operating policy

1. Proceeds defined

a. If paid in a lump sum

The proceeds are the net amount the seller receives at settlement.

b. If paid in installments

The proceeds consist of:

• any downpayment; and

• that portion of any subsequent payment that is not interest.

2. Allowable uses of proceeds

Use of proceeds to buy another excluded home includes payment of any costs that stem from the purchase. These include, but are not necessarily limited to:

• downpayment;

• settlement costs;

• loan processing fees and points;

• moving expenses;

• necessary repairs to or replacements of the new home's structure or fixtures (e.g., roof, furnace, plumbing, built-in appliances) that are identified and documented prior to occupancy; and

• mortgage payments.

Use of proceeds to pay other costs will warrant their exclusion if such costs are identified and documented prior to occupancy and stem directly from the purchase or occupancy of the new home.

3. Timely use of proceeds

a. Timely

“Within 3 full calendar months” means by the end of the last day of the third month after the month in which the proceeds are received.

b. Use

“Using” the proceeds includes obligating them by contract as well as actually paying them out.

c. Proceeds not used timely — lump sum

The exclusion of the unused funds will be revoked retroactively to the date of their receipt.

d. Proceeds not used timely — installment payments

The exclusion of the installment contract itself, and of the unused portion of any installment payments, will be revoked retroactively to the date the unused proceeds were received.

4. Reinstatement of exclusion after revocation

a. General

The exclusion of an installment contract, once revoked, will be reinstated if the individual intends to and does use the entire principal portion of a subsequent installment payment toward the purchase of another excluded home within 3 full calendar months of receiving such installment payment.

b. Effective date

Reinstatement of the exclusion is effective as of the date the individual signs a new statement of intent or CR records it on a DROC (see SI 01130.110C.2.b. below) and affects the first-of-the-month resources determination for the next month.

5. Example — installment payments not used timely

An installment contract has a principal balance of $5,000 as of July 1. On July 10, the buyer makes a payment of $200. As of October 31, the recipient has used only $150 of the July payment in connection with the purchase of a new home.

The exclusion of the unused $50 - and of the installment contract itself - is revoked back to July 10. As a result, the $50 and the value of the contract as of August 1 ($4,800) are included in a revised determination of resources for August.

C. Development and documentation — initial claims

1. Explanation to individual

Explain the home replacement exclusion to any individual who has sold an excluded home (if it is not too late to exclude any of the proceeds) or who plans to do so. Include the date, if known, by which the proceeds must be used in order to qualify for exclusion.

2. Statement of intent

a. General

Obtain a statement signed by the individual as to whether he or she intends to use the proceeds to buy another home by the date specified. If so, the statement also must reflect his or her understanding that the exclusion of any funds not used by the date specified will be revoked retroactively.

b. Installment contracts

When the proceeds are being paid in installments, the individual's statement of intent must reflect his or her understanding that, if the noninterest portion of any payment is not used within 3 months of its receipt, the exclusion of

• the unused portion of such payment and

• the contract itself

will be revoked retroactively to the date of receipt of such payment.

3. Documenting proceeds of sale

Document the file with a copy of the settlement sheet, contract for sale and/ or other evidence that shows the net proceeds of the sale and how paid or payable, i.e.: paid in full at settlement, dates and amounts of downpayment and installment payments, interest, etc.

4. Follow-up diary and developing use of proceeds

a. Lump-sum proceeds

Set a manual diary to recontact the individual on the last workday of the month in which the exclusion period for the proceeds expires.

b. Installment contract

Set the diary for the last workday of the month in which the exclusion period for the downpayment on the prior home expires.

If no downpayment is made, set the diary for the last workday of the month in which the exclusion period for the first monthly payment expires.

c. Required evidence

Document the file with the same types of evidence used to document the proceeds of the sale of the prior home (see 3. above) and, if necessary, with bills, receipts, or other evidence of related allowable expenses.

5. Proceeds used to replace home

a. Lump-sum proceeds

If the amount paid at settlement for the new home equals or exceeds the lump sum received for the old home, and there is no question about where any excess came from, cease development.

b. Installment payments

Unless there is a question of unstated income or previously undetected resources, cease current development if:

• the downpayment on the new home equals or exceeds the down- payment received from the sale of the prior home; and

• monthly payments on the new home equal or exceed the noninterest portion of the installment payments being received on the prior home.

6. Proceeds not used to replace home

a. Lump-sum proceeds or downpayment

Document use of proceeds for related allowable expenses (B.2. above) if:

• the amount paid at settlement for the new home is less than the lump-sum proceeds of the sale of the prior home; or

• the downpayment on the new home is less than the downpayment received from the sale of the prior home.

If not all of the proceeds will be used timely, redetermine resources for the months after the proceeds were received. Do not exclude:

• the unused portion of the lump- sum proceeds or downpayment; or

• the value of an installment contract.

NOTE:  Any proceeds spent at all, whether or not for an allowable use, will not affect the resources determination for the month after they were spent.

b. Installment payments

If the noninterest portion of the payments the individual receives on the old home exceeds the amount of the payments he or she makes on the new home, document use of the excess for related allowable expenses.

If the individual cannot provide evidence of allowable expenses for which a given month's excess can be earmarked for timely use, the installment contract cannot be excluded for that month.

D. Development and documentation — posteligibility

Do not develop for the continuing applicability of the home replacement funds exclusion unless something indicates that less than the entire noninterest portion of the installment payments is being applied to the purchase of the replacement home.

E. Related policies

1. Federal disaster assistance

See SI 01130.620 regarding the exclusion of funds received under the Disaster Relief and Emergency Assistance Act of 1974 or under some other Federal statute because of a catastrophe declared by the President to be a major disaster.

2. Commingled funds

See SI 01130.700 if funds excluded under this provision are commingled with other funds.

3. Interest

Interest earned on funds excluded under this provision is not excluded from income or resources by this provision. See SI 00830.260 for its treatment as income.