FHA Rescinds its 90 Day Flipping Rule, Allowing B-C Transactions

Here is a direct link to the PDF file from HUD:

http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf

2010 sure is off to an interesting start!

The FHA recently rescinded its 90 anti-flipping rule for a year. This will allow FHA buyers to purchase properties that have recently been purchased by investors, helping with title seasoning requirements.

As with anything, there are restrictions to this which should be understood – the document is the authoritative source. Here is a paraphrased list of some of the important limitations:

Effective 2/1/2010

  1. Transactions must be arms length – no inappropriate collusion and no identity of interest between the buyer and seller or other parties. This can be determined using the following:
    1. Seller holds title to the property
    2. LLC’s, Corporations, or Trusts which are sellers are operating within the law
    3. No pattern of previous flipping exists for the same property within a 12-month time frame
    4. Property was marketed openly and fairly via MLS, auction, FSBO (for sale by owner) or developer marketing
  2. In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender:
    1. Justifies the increase in value by retaining loan file supporting documentation and / or a second appraisal that verifies the seller has completed sufficient renovation / repair / rehabilitation work
    2. Orders a property inspection and provides inspection to the purchaser prior to closing. FHA approved inspectors are not required. Inspection must include, at a minimum:
      1. Structural inspection, including roof, foundation, floors, ceiling, walls, and roof
      2. Exterior, including siding, doors, windows, decks, balconies, walkways, an driveways
      3. Plumbing, electrical, heating, and air conditioning systems
      4. Insulation and ventilation systems, including fireplaces and fuel burning appliances
  3. Waiver is limited to forward mortgages, and does not apply to Home Equity Conversion Mortgage (HECM) for Purchase program

The PDF continues on to discuss the findings and the logic for writing the exceptions.

Overall, the requirements are not very onerous, and help avoid title seasoning so you can close your transactions. What do you think of this? How will this integrate with the HAMP program effective in April?

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