New Anti-Flipping Rule Protects Homebuyers
Federal rule protects against artificially inflated sales prices
By Robert Longley, About.com
The Department of Housing and Urban Development (HUD) has announced a new federal regulation designed to protect consumers from the predatory real estate lending practice called "flipping" on mortgages insured by the Federal Housing Administration (FHA).
Property "flipping" occurs when a property is resold for a considerable profit at an artificially inflated price shortly after being acquired by the seller.
"The Bush Administration is committed to maintaining a strong housing market in which consumers can feel confident that they are protected from unscrupulous practices," said HUD Secretary Mel Martinez. "This final rule represents a major step in our efforts to eliminate predatory lending practices."
How the New Rule Will Work
The final rule, "FR-4615 Prohibition of Property Flipping in HUD's Single Family Mortgage Insurance Programs," (view as TEXT or view as PDF file) makes recently flipped properties ineligible for FHA mortgage insurance. It also allows FHA to better manage its insurance risk by requiring additional support for a property's value when a significant increase between sales occurs. Features include:
Sale by Owner of Record: Only the owner of record may sell a home to an individual who will obtain FHA mortgage insurance for the loan; it may not involve any sale or assignment of the sales contract, a procedure often observed when the homebuyer is determined to have been a victim of predatory practices.
Time Restrictions on Re-sales:
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