SONYMA Borrower FAQ's

Federal Recapture Tax

Q: What is the Federal recapture tax?
A:  SONYMA's first time homeowner mortgages are often funded through the issuance of tax free mortgage revenue bonds. By using our programs, borrowers are receiving the benefit of a lower interest rate than the private market offers. This benefit is "recaptured" in certain instances through higher Federal income taxes in the year you sell or otherwise dispose of your home.For more information, visit the IRS website.


Q: When does the Federal recapture tax apply?
A:  You are required to pay Federal recapture tax if all of the following three conditions apply:

  • You sell or otherwise dispose of your home within the first nine years;
  • You make a net profit on the sale; and
  • In the year you sell your home, your household income increased more than the IRS pre-established amount.

When you purchase your home, your lender and SONYMA will provide you with sample worksheets, which will include how much your household income would have to exceed for you to incur any recapture tax liability. If you sell or otherwise dispose of your home within 9 years, you must complete IRS Form 8828 ("Recapture of Federal Mortgage Subsidy") to determine if you owe the Federal recapture tax. The Instructions to Form 8828 are also available.


Q: Will I be subject to the Federal recapture tax if I refinance my SONYMA mortgage?
A:  No. However, if you later sell your home less than nine years from the original purchase date and meet the conditions described above, the Federal recapture tax may be due.


Q: Does SONYMA's "Federal Recapture Tax Reimbursement" program mean I do not have to pay the Federal recapture tax?
A:  No. You are still responsible for accurately paying any and all taxes to the IRS. SONYMA will reimburse you for the actual amount of the Federal recapture tax you owe and paid that is not covered by mortgage insurance.


Q: If I owe Federal Recapture Tax, to whom do I pay it and when?
A:  Any recapture tax is paid to the IRS when you complete your Federal income tax return for the tax year in which you sold your home. For example, if you sold your home in 2007, you would pay the tax when you file your 2007 Federal income tax return.


Q: How do I apply for reimbursement? 
A:  It's simple:

Forms to apply for reimbursement for applying for reimbursement are linked above.


Q: What are the guidelines to be eligible for reimbursement?
A:  To be eligible for SONYMA reimbursement for any Federal recapture tax you paid, the following must apply:

  • Your loan was financed with SONYMA's qualified mortgage revenue bonds and closed on or after July 17, 2007, or if you received a Mortgage Credit Certificate and
  • You submit to SONYMA the "Request for Recapture Tax Reimbursement" form, together with the supporting documentation.

You must submit the request for reimbursement no later than December 31st of the year the Federal Recapture Tax is owed and paid. For example, if you home is sold in 2007, the tax return is filed in 2008. The request for reimbursement must be submitted no later than December 31, 2008.


Q: Will SONYMA reimburse me for any Federal recapture tax that I pay?
A: Yes - if you close on your SONYMA mortgage on or after July 17, 2007. SONYMA will reimburse you for any portion of the recapture tax that is not covered by insurance.


Q: Will my mortgage insurance cover any Federal recapture tax liability?
A:  It may. Many SONYMA borrowers are required to purchase mortgage insurance.

For example, ENACT Mortgage Insurance Corporation will reimburse you for up to $6,000 if:

  • Your loan closed between May 15, 2007 through January 31, 2013 and you continue to pay mortgage insurance premiums to ENACT;
  • Your original loan amount does not exceed $300,000;

Note: ENACT no longer offers this option to new SONYMA borrowers (file for mortgage insurance consideration received after September 30, 2012 and/or loan closes after January 31, 2013.


Q: Is the recapture tax due if a home is destroyed by fire or other casualty?
A:  No. The Federal recapture tax is not due in these circumstances as long as a replacement home is purchased.

If you have any other questions, please submit a Program Information Request or call our 800 number: 1-800-382-HOME (4663)


Q: Is the recapture tax due if you transfer your home to a spouse or former spouse as a result of a divorce, or if your home is transferred as a result of a death?
A:  No.

Q: Do I have to notify the IRS that I sold my home even if no tax is due?
A:  Yes. Regardless of whether you owe any tax, you must file IRS Form 8828 with your Federal income tax return when you sell your home.

Hazard Insurance

Q: Who do I notify if I have a hazard insurance claim?
A:  Immediately notify your mortgage servicer of the loss to your home. You will need to provide them with details regarding the loss, the insurance settlement, and your plans to restore the home to its original condition. You will also need to provide them with the claim proceeds check since either the mortgage servicer or SONYMA will be named as a co-payee. The mortgage servicer will work with you to determine the best option on how to proceed.

Loan Payments

Q: Will SONYMA allow me to drop the private mortgage insurance (PMI) portion of my mortgage payment if the value of my property has increased?
A:  No. SONYMA requires that all mortgage loans with a downpayment of less than 20% be covered by PMI insurance. SONYMA does not permit PMI to be eliminated based on a subsequent increase in the property's appraised value. However, SONYMA does require that the company servicing your mortgage cancel PMI coverage once the current unpaid principal balance is reduced to 80% of the original value of the property. In addition, the PMI must be cancelled when your mortgage reaches the midpoint of its original term (for example, the 181st month of a 360-month term mortgage), regardless of whether the balance has been reduced to 80% of the original value of the property. Under no circumstance, however, will PMI be eliminated if you are currently behind in making your mortgage payments. If you have additional questions regarding PMI, please contact your mortgage servicer for more information.


Q: Will SONYMA allow me drop my escrow payment and allow me to pay my own taxes and insurance?
A:  No. SONYMA requires that an escrow account be maintained for all mortgage loans until the loan is paid in full.


Q: Will I have to pay a pre-payment penalty if I pay my loan off early?
A:  No. SONYMA mortgage documents do not contain prepayment penalty clauses. You will not be charged a penalty fee if you make additional principal payments to your mortgage during the term of the loan or if you pay the loan off early.


Q: What happens if I am having problems making my mortgage payment?
A: Communication with your mortgage servicer is crucial. Don't be embarrassed to talk to your mortgage servicer as soon as you start having trouble. They will try to help you work something out. Perhaps they can establish a temporary "workout" plan that will help you keep your home. If your problem is more long-term or permanent, you may qualify for assistance from a local government agency or a nonprofit. As a last resort, selling your home may be the only option. If you have equity in the property (the current value of your home minus any outstanding mortgages), you may be able to recover it.

If you are unable to work out any of the above options and you do not make mortgage payments over a period of several months (usually 4 or more), the mortgage servicer may start foreclosure proceedings against you. This means the mortgage servicer will go through a legal process to take the title to your property and then sell the home to recover the amount you owe them in your mortgage. The foreclosure becomes part of your credit record and may adversely affect your ability to secure credit in the future.

Always remember that the mortgage servicer would much rather help you remain in your home and will work with you to help you avoid foreclosure.


Q: I received downpayment and/or closing cost assistance from SONYMA through either a Closing Cost Assistance Loan (CCAL) or Down Payment Assistance Loan (DPAL) when I closed my loan. Do I have to repay all or a portion of these funds back to SONYMA if I sell my home or refinance my loan prior to the end of the recapture period stated on my mortgage documents?
A: Possibly. Your mortgage servicer will determine if any of these funds must be repaid or "recaptured" when you pay off your SONYMA mortgage. The mortgage servicer will request certain documentation from you (i.e. current executed contract of sale or new appraisal if refinancing, estimated seller closing costs associated with the sale of the home, a description of any capital improvements made to the residence along with the appropriate documentation to support the cost and payments of such improvements) in order to assist the mortgage servicer in completion of the recapture calculation. The actual amount owed, if any, will be based upon the lower of your "remaining CCAL/DPAL balance" after taking into account the amount (1/120th) forgiven each month or your "net profit" as determined by the worksheet. After the recapture period has expired, there is no recapture amount due


Q: Why do I receive notices from a lender who is different from the one that I closed my SONYMA mortgage with?
A: Not all SONYMA lenders service (that is, the collection of mortgage payments from the borrower, the payment of property taxes and insurance, etc.) our loans. In these cases, the lender will transfer the servicing of your loan to another mortgage servicer. This is a common practice in the mortgage industry and will not affect the terms and conditions of your mortgage loan. At the time of the transfer, which normally occurs simultaneously with the closing of the mortgage loan, the original lender is required to send each borrower a notice regarding this transfer.

Property Use Compliance

Q: Must I continue to occupy the property after the loan closes?
A:  Yes! SONYMA borrowers must occupy the property for the entire term of the mortgage loan. If the mortgage servicer learns that you are not occupying the home as your principal place of residence, you will be requested to immediately reoccupy the property. If you do not reoccupy the property, SONYMA requires that the entire unpaid principal balance of the mortgage loan, together with accrued interest thereon, become immediately due and payable.

SONYMA will permit some exceptions to this requirement such as in the event of divorce (and at least one borrower remains in the home) or if you can prove that selling the home or refinancing your mortgage would cause you severe financial hardship. In any event, Federal law requires that if you do not occupy the SONYMA financed property for a continuous one year period, you will not be entitled to take the home mortgage interest deduction on your Federal tax returns (unless you get an exception from the IRS).


Q: May I use my property for a trade or business?
A:  Yes, but you can not use, nor can any other person use, more than 15% of the property for business or income producing purposes (as determined on Line 3 of IRS Form 8829 "Expenses for Business Use of Your Home," or a successor form, of your Federal tax returns). Rental income received from the additional units of a two-, three-, or four- family home is not considered in this calculation.

If the mortgage servicer learns that you are not complying with this requirement, SONYMA requires that the entire unpaid principal balance of the mortgage loan, together with accrued interest thereon, become immediately due and payable.

Selling or Refinancing my home

Q: I am selling my home. Will SONYMA allow the purchaser to assume my existing mortgage?
A:  No. SONYMA does not permit assumptions. However, the purchaser of the property may qualify for a new SONYMA mortgage loan if he, she or they is eligible.


Q: Will SONYMA refinance my loan?
A:  No, under Federal law, SONYMA is not permitted to refinance an existing mortgage. If you wish to refinance, you will have to obtain financing from a conventional lender or another source.Q: Will SONYMA refinance my loan?



Q: I am refinancing my SONYMA loan with another lender. Will SONYMA provide my lender with an assignment of mortgage so I can avoid the payment of mortgage tax?
A:  No. SONYMA does not provide an Assignment of Mortgage for the purpose of avoiding mortgage taxes during the refinance transaction.


Q: Can I sell a portion of my property?
A:  No. SONYMA will not permit the subdivision or other partial release of property secured by a SONYMA loan (unless required by a government entity under a condemnation proceeding).

Status Change – Divorce/ Military Service

Q: Who do I notify if I got a divorce and I wish to release my ex-spouse from liability?
A:  Contact your mortgage servicer. They will request certain documentation from you and, if approved, will then prepare a Release of Liability. Basically, they will require documentation to determine if the remaining borrower can afford to pay the mortgage on their own. Additionally, both borrowers will be required to sign a notarized affidavit establishing the relinquishment of all rights on the part of the borrower who wishes to be released and the acceptance of full responsibility under the mortgage loan by the remaining borrower. Note: SONYMA will not permit another individual to be added to the mortgage.


Q: What if I am activated to Military Service?
A:  Immediately notify your mortgage servicer of your active duty status. You will need to provide them with a copy of your military order. Once the documentation has been reviewed, your mortgage loan interest rate will be reduced to 6% for the duration of your Federal military service.

Upon your return from active duty, you are obligated to immediately notify your mortgage servicer. Your mortgage loan interest rate will be increased to the original rate, as indicated on your mortgage documents.