FHA has formally announced the waiver of the 90 Day Flip Rule. In the past, it a property was purchased by a private individual or LLC, FHA would not accept a transaction unless the new owner had been the owner of record for 90 days. This meant that contracts (as well as date of the application and date FHA case number was pulled) has to be dated at least the 91st day after the current owner went to recordation. Only REO transactions (bank owned foreclosures and certain types of relos) were exempt from the 90 day rule.
FHA has issued a waiver SUBJECT TO SEVERAL RESTRICTIONS - the main being for property sales prices that are 20% or more above the Seller's acquisition cost, a second appraisal is required. The appraisal must contain specific comments from the appraiser regarding the increase. ALSO, a property inspection is required and must be ordered by Intercoastal (the lender).
Things to be aware of:
1. All transactions must be an arm's length transaction with no identity of interest between Buyer and Seller or other parties participating in the sales transaction. To make this determination the following applicable steps will be performed:
- The Seller holds title to the property
- LLCs, corporations or trusts as Sellers must have been established and operated in accordance with applicable State and Federal laws. Lenders must document the validity of the Seller. Business licenses, State Department of Corporations status, and Attorney Opinions are examples of acceptable documentation.
- No pattern of previous flipping exists such as multiple transfers of title within a 12 month timeframe as indicated on the Chain of Title.
- Document that property was marketed openly and fairly (MLS listing, advertised auction, etc.). Note: Sales contracts which have been assigned to the current Buyer are not allowed.
2. For property sales prices that are 20% or more above the Seller's acquisition cost note the following:
- Appraiser must indicate that the Seller completed legitimate renovation, repair and rehabilitation work on the subject property to substantiate the increase in value - it is recommend the seller provide detailed information and receipts on all work performed. If such work was not performed, Appraiser must provide appropriate explanation of the increase in value;
** AND **
- A full property inspection report must be ordered by the lender a copy provided to the purchaser prior to closing. The cost of this inspection will be charged to the Borrower as a POC item paid upfront (similar to collecting the appraisal fee upfront). The inspector must not have any interest in the property or relationship with the Seller and may only be compensated by the lender. Note that we cannot simply accept an inspection report completed by the purchaser after the fact. The best way to do this is for the Lender to order the Home Inspection, having the buyer pay upfront at time of application for the cost. The Home Inspector would still inspect the property as normal with the Realtor and/or buyer present. The only difference is the original of the report would be provided to the Lender with a copy provided to the Purchaser/Realtor. This way the buyer could avoid having to pay for 2 home inspections and the lender stays in compliance with FHA.
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