FHA 90 Day Flip Rule Suspension Set to Expire February 2011

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FHA 90 Day Flip Rule Suspension is set to expire February 1, 2011

The FHA 90 day flip rule was temporarily suspended for one year for all sellers effective February 1, 2010.

We all hope the waiver will be extended however, investors should prepare for the worst and assume the waiver will expire in February 1, 2011.   If you are presently a party to a flip sale transaction check with the buyer's lender for their flip rule policy. 

In anticipation of the waiver expiring, most lenders ceased accepting applications on homes subject to the FHA Flip rule.

The FHA 90 day flip rule was suspended on February 1, 2010 and the suspension expires February 1, 2011

The text of HUDs press release is reproduced below:

Pursuant to §7(q) of the Department of Housing and Urban Development Act (42 USC 3535 (q)) and 24 CFR 5.110, I hereby waive §203.37a(b)(2) of the regulations. The regulations at 24 CFR §203.37a(b)(2) provide that a mortgage for a property will not be eligible for FHA insurance if the contract of sale for the purchase of the property is executed within 90 days of the prior acquisition by the seller, and the seller does not come under any of the specific exemptions that apply to the 90-day rule.

This waiver is limited to home sales meeting the following conditions:

All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. Some ways that the lender can ensure that there is no inappropriate collusion or agreements between parties is to assess and determine the following:

  • The seller holds title to the property;
  • LLCs, corporations, or trusts that are serving as sellers were established and are operated in accordance with applicable state and Federal law;
  • No pattern of previous flipping activity exists for the subject property, as evidenced by multiple title transfers within a 12-month time frame (chain of title information for the subject property can be found in the appraisal report);
  • The property was marketed openly and fairly, via MLS, auction, For Sale by Owner offering, or developer marketing (any sales contracts that refer to an "assignment of contract of sale," which represents a special arrangement between seller and buyer may be a red flag).

In cases in which the sales price of the property is 20 percent or more over and above the seller's acquisition cost, the waiver will only apply if the lender:

Justifies the increase in value by retaining in the loan file supporting documentation and/or a second appraisal which verities that the seller has completed sufficient legitimate renovation, repair, and rehabilitation work on the subject property to substantiate the increase in value or, in cases where no such work is performed, the appraiser provides appropriate explanation of the increase in property value since the prior title transfer: and

Orders a property inspection and provides the inspection report to the purchaser before closing. The lender may charge borrower for this inspection. The use of FHA-approved inspectors or 203(k) consultants is not required. The inspector must have no interest in the property or relationship or with the seller, and must not receive compensation for the inspection from any other party than the lender. Also, the inspector may not compensate anyone for the referral of the inspection. Additionally, the inspector may not receive any compensation for referring or recommending contractors to perform any repairs recommended by the inspection, and may not be involved with performing any repairs recommended by the inspection.

At a minimum, the inspection must include:

  • The property structure, including the foundation, floor, ceiling, walls and roof;
  • The exterior, including siding, doors, windows, appurtenant structures such as decks and balconies, walkways and driveways;
  • The roofing, plumbing systems, electrical systems, heating and air conditioning systems;
  • All interiors; and All insulation and ventilation systems, as well as fireplaces and solid-fuel-burning appliances.

The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HELM) for Purchase program.

Flip Rule History before February 2 Waiver

Several years ago FHA instituted an 90 day flip rule to halt what they felt were investor foreclosure abuses.  Initially the 90 day flip rule required anyone selling a home with FHA financing to wait 90 days before they could accept a purchase contract.  The 90 day Flip Rule only applies to FHA loans.

In 2008 FHA made a temporary exception for Bank owned foreclosures allowing banks to sell their REOs with FHA financing before the 90 day limit.  The exception was to help sell the large number of recent foreclosures.  The initial 90 day flip rule expired in 2009

This rule only applies to Banks selling Foreclosed property, all other home sellers must continue to wait 90 days before they can accept a contract on a home they plan to flip when their buyers wish to use FHA financing.

In May of 2009 the Flip Rule was extended only for banks.  Below is a copy of the notice extending the 90 Day flip rule to May 10, 2010

This revised notice on the FHA property flipping waiver extension corrects the date in the last line of the notice that was published on 5/15/09:

"Federal Housing Commissioner Brian D. Montgomery has extended the temporary property flipping waiver to May 10, 2010.  Under the waiver, homes that were foreclosed on and are being sold by the mortgagee or on its behalf may be purchased by FHA borrowers without regard to the 90-day seasoning period. The waiver does not apply to 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 waiver expires for all loans for which the sales agreements were signed by the seller and buyer on or before May 10, 2010. "

Current lending updates can be found at: http://www.yourfhaguru.com


Re-Blogged 5 times:

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90 day flip rule waived

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Michael-Edward Cruz
McMonigle Group - Newport Coast, CA
Michael-Edward Cruz - Beach Cities Realtor

I think that this rule should be removed completely. REO's or Banks don't care who they sell too. Where as many people who rehab properties already have buyers who are going to live in the property. 


Dec 06, 2009 11:48 AM #1
Sean Goodwin

Well I do believe the banks care about who they sell too. If it's an investor there is a more likely chance that the deal may not be an arms length transaction. Like the group that was just in the news for giving kickbacks to short sellers and asset managers who allow properties to sell for less than market value.

But I do agree with you, investors should be able to purchase properties, fix them up and sell them as fast as they can. That will help get some of the distressed properties off the market. Perhaps an exception should be made for properties that need more work than the FHA 203k programs generally allow. 

There should be a distinction between distressed homes and distressed loans. If they don't they are just encouraging things like what I am already seeing more off, that is people, many unlicensed, getting paid outside of escrow. They are even advertising it as a way to get around the new RESPA rules, claiming it still a great deal to pay them $20k if they are saving the end buyer $100k. Trust's will also start to become more implemented and I predict AITD's will as well, even if they are not permitted. But I believe they should be so long as the original mortgagor remains liable. That should help cut down on that type of fraud.


Sean Goodwin


Jan 16, 2010 02:21 PM #2
Barry Gazzard

Although the FHA 90 Day Rule has been waived, many lenders are still unwilling to finance an FHA Insured Loan on a 'flipped home', due to the potential legal risk to them should such loans ever be questioned. Laying out a whole list of sometimes vague criteria that the lender must meet before making such loans, is the route cause of this problem. A far simpler solution would be just to assign a dollar amount to the required repairs, or a percentage relevant to the purchase price of the property. For example, if an investor buys a property, spends 20% or more of the purchase price on rehabilitating the property and then flips it, the percentage profit he realizes should be irrelevant. The fact is he has added significant value to the property.

Just because an investor makes a profit of 20% or more on a 'flipped' property does not automatically mean that a 'fraud' has been committed. Buying a distressed, badly beat-up property for CASH with no or questionable marketable tilte at auction, is itself a far cry from selling the same property with marketable titile and in a condition that qualifies it for FHA Insured financing. There's 20% added value right there!

I do not know of any investors that can consistently turn a profit on 'flipped' homes unless their Gross Profit is at last 40% or more. To make the investment worth the time, effort and risk, and investor needs to net a profit of at least 15% to 20%. Add to this an addtional 25% to 30% for rehabilitaion costs, and the 20% Gross Profit Rule is just plain crazy.

At a time when the FHA and other government affiliated agencies should be doing all they can to encourage investors to relieve the banks of these distressed properties, instead we see investors being characterized and tarnished as 'fraudsters'. Once again, congratulations to the government and their regulation makers for creating more problems than they solve!



May 12, 2010 09:16 AM #3
Rodney Mason
On Q Financial - Atlanta, GA
FHA 203(k) & HomeStyle Renovation-AL,FL,GA,TN

There has been a lot of mis-information lately that HUD has imposed several dates earlier than January 31, 2011.  I have heard that FHA Flip loans have to close by December 19th.  I've heard you had to have the FHA Case # issued by yesterday.  Both are false of course.  If they exist, those are just rules of specific lenders, and not HUD.  Other lenders are still following the original HUD directive.

Dec 11, 2010 01:58 AM #4
Bill Ladewig
LoanOfficerSchool.com - Escondido, CA
Experience Is Your Advantage

Rodney, you are correct about the misinformation.  People get confused with lender rules and Hud rules and nowadays lender rules rule.  The early cutoff are lender options, usually to allow time to close before the waiver expires.

Dec 11, 2010 02:46 AM #5
Bob Souza (925) 513-3400 & Leilani Souza (916) 408-5500 Souza Realty - Real Estate Broker in Placer County, California
Souza Realty - Roseville, Rocklin, Granite Bay, Loomis, Penryn, Newcastle, Lincoln, Auburn, Meadow Vista (Placer Coun... - Roseville, CA
Homes & Land, Real Estate Investments and Rentals

Bill, thanks for posting about the FHA 90-day flip rule and its pending expiration...I am going to re-blog this! :)


Dec 14, 2010 05:14 PM #6
Tim Lorenz
TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA
949 874-2247

In order to recover we need the investor in this housing market to fix up the undesirable homes and sell them again fixing up the neighborhoods.

Dec 14, 2010 05:19 PM #7
Keisha Hosea- KASIHomes.com
KASI Homes - Chino Hills, CA
Real Estate Solutions For Real People

Just one more monkey wrench that we don't need thrown at an already ailing market. JMHO.

Dec 18, 2010 03:15 PM #8
Brent Alan McDonald
First Choice Loan Services - Scottsdale, AZ
Home of the Smooth mortgage experience

Does anyone know of an investor that has not created an "Overlay" that limits the mark up to 20% or less?

Jan 06, 2011 08:14 AM #9
Kathy Sheehan
Bay Equity, LLC 770-634-4021 - Atlanta, GA
Senior Loan Officer

I agree, there is too much misinformation and misunderstanding the rules. 

Thanks for a great post!

Jan 12, 2011 02:11 PM #10
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Bill Ladewig

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