Anybody else out there gotten caught up in HUD's Flipping rule officially known as (HUD Prohibition of Property Flipping on HUD's Single Family Mortgage Insurance Programs; Final Rule; 24CFR Part 203, Doc. No. Fr-4615-F-02)? Apparently several years ago investors and appraisers thought it would a great idea to get together and artifically inflate the price of houses that investors bought and take advantage of the unknowing public. Where I'm from that's generally referred to as gouging and dealt with by going after the gougers, but leave it to the government (remember I'm the government and I'm here to help) to make it as complicated as possible. So HUD came up with this wonderful flipping rule. Great in theory I guess, if only lenders knew how to apply it, or at least did so universally.
I went through a deal about 2 years ago now where I was representing the buyer on a property and we were at least 2 months late closing because the underwriter got the bright idea to apply the flipping rule to a home where the seller had bought the home as a foreclosure, lived in it for more than 18 months, rehabbed the property while there and was now selling for a profit. I don't recall now whether PMI was involved or not which would have made it a potential candidate, but HELLO, it was well beyond the time frame in the rule but the underwriter still drug us through the mud and the loan officer wasn't educated enough to challenge the underwriter on what was going on.
Now I have a deal going on where an investor has bought a property and is turning it right around and selling at a higher price to a new buyer. The new buyer was aware they were buying as is, the new buyer was afforded the opportunity to conduct any and all inspections that they wanted to. There was absolutely no difference in this transaction or waiting 6 months to buy it a the County Courthouse steps and then reselling it. The investor just saved the seller from the foreclosure and saved the bank the cost of the foreclosure. Everyone was aware of what was going on then 2 days before closing the lender decides to apply the flipping rule and says the property has to be seasoned for 90 days. We're trying to work out a 90 lease arrangement but the investor wants assurances that the lender is going to fund the loan in 90 days. What are the chances that the lender is going to guarantee a loan for 90 days? What are the chances that the lender will lock the interest rate for 90 days? Chances are good that this deal is going down the toilet and there's not a lot I can do about it.
Who's the loser here? The investor? Hardly, he'll get as much or more money out of the next buyer. The real loser is the buyer. This was a young couple about to get married in a couple of weeks that now have no home to move into and have to start all over again with the selection process then the loan process.
Does this rule really provide a great protection to the consumer or is it just another wonderfully crafted governmental mine field that provides little, if any real benefit. Oh by the way, with this same investor, not 6 months ago, we sold a house that was purchased from HUD then put right back on the market with no work done to it, same scenario. Sold as is with all inspections allowed that the buyer wanted to do. Only this home was financed with a Rural Development Loan which is backed by the USDA. No problems with a flipping rule here and everyone walked away happy and the lady is living in the house today.
Go figure.
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