this is a great article from one of my colleges
Frontier Financial of Arizona
HUD has recognized the value of investors and their ability to facilitate faster re-sales and rehabilitation of foreclosed properties. Also, that the practice of “flipping” a property (purchase and re-sale happening within a 90-day time frame) is not always a bad thing. In an effort to get investors (and their money) back in the game FHA has extended the waiver on its 90-day flipping policy to December 31, 2011.
What is interesting is that some conforming lenders have offered flips for years... but most loan officers either thought they were not a necessary tool in the arsenal or lacked the desire to learn about them and educate their partners on how do have a successful flip transaction.
The Top 5 Reasons why Flip Transactions Fail (both FHA and Conforming)
1.The Deed was never recorded - If you refer to the MLS and the county tax records, the "sale date" of a property is the date it recorded. Hence if one never records a deed one has not fully consummated the sale.
2.Contract date preceded the sale date - Remember, the sale date is the date in which the Deed was recorded. Be sure when working with a flip transaction that the seller of record is the one executing the contract. Check your MLS and County tax records!!!
3.Deed Restrictions - We are beginning to see this more and more. Fannie, Freddie and most large institutional sellers are now prohibiting the seller from selling the property for a price greater than a certain amount (for example 20% of the sale price) within a certain time frame (for example 90 days). You may not find this out until the title report is released which may be as many as 2 weeks after the contract was written. Protect your buyers by asking the seller to see their Deed. If you can believe it, some sellers don't even know they have a restriction!!!
4.More than 2 title transfers in a 90 day period - Fair to say there are wholesale investors out there too. But when a property transfers 2 or more times in a 90 day period, it is prohibited from obtaining either FHA or Conventional financing until 90 days AFTER the most recent transfer. To protect your buyers from this problem, ask the seller if you can see their preliminary title report and in particular refer to the 24 month chain of title. If you see more than 2 transfers, your buyer will NOT qualify for financing.
5.Property not marketed open & fairly - On a flip transaction, the property MUST be arms length, period! In order for a property to be deemed arms length it must have been marketed open and fairly which means listed on the MLS typically through a Realtor. I am not saying that a FSBO won't pass muster... it just might be a fight that we ultimately lose due to lack of supporting data.
Lastly, don't forget!!!
•When the sales price exceeds sellers acquisition cost by 20% or more for FHA and 25% or more for Conventional:•Lender will request a property inspection report. Buyer can order and pay for their own report but the seller cannot have anything to do with it. The Inspection must cover:•Structure – foundation, floor, ceiling, walls, roof
•Exterior – siding, doors, windows, walkways, driveways
•Plumbing, electrical, heating and air conditioning systems
•Insulation and ventilation
•Fireplaces and solid fuel-burning appliances
•A second appraisal must be ordered and paid for by someone other than the buyer
pictures coutesy of Jesus shugert