Property Flipping guidelines extended by FHA , until May 2010!  What does this mean and who does this affect?

What is property flipping?  

No .......it's not flipping your home with another couple as seen in trading spaces on  TLC!

FHA GUIDELINES STATE THE FOLLOWING:  

Property flipping is a practice whereby a recently acquired property is resold, often for a considerable profit.

Most property flipping occurs within days or a few weeks of acquisition and usually with only minor cosmetic improvements, if any.

While there is nothing illegal with selling properties within days of acquisition, some of these transactions are fraudulent because the condition of the property is misrepresented and/or the value of it is artificially inflated.

Effective June 9, 2008, FHA temporarily waived the property flipping rule 90-day waiting period, for homes that were foreclosed on and being sold by lenders or by property disposition firms on the behalf of lenders.  

So if you have a property that was purchased by an individual investor,  or investment group, you must must wait 90 days to DO ANYTHING!  We can not order an appraisal or case #, we can't open escrow, order title or apply for the mortgage. You can't even draw up the contract, or do inspections or the buyer will be in jeopardy of losing their deposit. There basically can be no record of any sale during that 90 day timeframe.  

This has become an issue in recent months because of the lack of knowledge of the guidelines along with the anxiousness of all parties involved.   Day 91 is when it can all begin unless the exceptions apply.

We CAN however, apply for the mortgage with a property  "to be determined "and get the buyer PRE-APPROVED. 

So keep this in mind when you are putting your deal together and expecting your lender to jump through hoops on day 91 and close in two weeks!

The waiver applies to owner occupants only and does not apply to people/entities that purchase foreclosures either singly or in bulk for resale. Subsequent sales of such properties will continue to be subject to the standard regulatory requirements.

The temporary property flipping waiver has been extended and FHA will recognize sales agreements on foreclosed properties signed by the seller and buyer on or before May 10, 2010.

             Do you want more BORING                      but pertinent facts you MUST know if you encounter a flip     ????

The only exceptions to the FHA property flipping rule are:

1. Properties acquired by an employer or relocation agency in connection with the relocation of an employee.
2. Re-sales by HUD under its Real Estate Owned (REO) program.  There are LOTS out there! And most homes can benefit from an FHA 203k streamline loan!

3. Sales by other United States Government agencies of single family properties pursuant to programs operated by these agencies.

4. HUD REO properties that were purchased by nonprofits at a discount with resale restrictions.

5. Sales of properties that are acquired by the seller through inheritance.

6. Sales of properties by state and federally-chartered financial institutions and government sponsored enterprises.

7. Sales of properties by local and state government agencies.

8. Sales of properties within Presidentially Declared Disaster Areas.

9. The restrictions do not apply to a builder selling a newly built home or building a home for a borrower.

10. The sale must be by the owner of record.

11. Appraisers are required to analyze any prior sales of a subject property in the previous three years for one to four family residential properties.

12. A lender must obtain a second appraisal by another appraiser if:
the re-sale date of a property is between 91 and 180 days following the acquisition of the property by the seller, and
the resale price is 100 percent or more over the price paid by the seller when the property was acquired
FHA reserves the right to require additional documentation from a lender to support the resale value of a property if:
the resale date is more than 90 days after the date of acquisition by the seller, but before the end of the twelfth month following the date of acquisition, and the resale price is 5 percent or greater than the lowest sale price of the property during the preceding 12 months.

Any subsequent re-sales of the properties must meet the 90 day threshold in order for the mortgage to be eligible as security for FHA insurance.

So remember to do your research!  We are the professionals and it is our job to know this information for our consumers.  We will save time, money and problems if we know this up front.

Happy Selling, buying and financing peeps!

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