The 90 Day "Flipping"
February 22, 2010
For some time now, FHA has had a rule that prohibits the sale of a "flipped" property until a 90 day time frame has passed. First off, a "flipped" property is one where an investor or investors have purchased a property on the court house steps at the bank auction or from some other source and has usually done some clean up and/or renovation. The property is then put on the market at a price that will be profitable to the investor. The FHA rule stated that these "flipped" properties could not be sold to an FHA buyer in the first 90 days of marketing. (I am not totally clear as to whether the 90 days began when the property was offered for sale or whether the day count began at the time of the investors' purchase.) This rule created some consternation because many of these properties were otherwise eligible for FHA financing.
FHA announced that it is was waiving this rule effective February 1, 2010. However, by mid-February this waiver policy has been on hold and is not yet effective. If it does become effective, there are some constraints.
The transaction must be an arms-length transaction with no identity of interest between the buyer, seller or other parties to the transaction.
If the sales price of the property is 30% or more over the seller's acquisition cost, there will have to be two appraisals..
The seller and the appraiser must justify the increase in value.
A property inspection must be included with the loan package. The inspector must have no interest in the property or relationship with the seller..
The property is marketed openly and fairly.
There are some other restrictions, but your lender will be able to guide you through the process.
Hopefully, buyers will soon have an opportunity to purchase some of these investor owned, renovated properties by using FHA financing.
For some time now, FHA has had a rule that prohibits the sale of a "flipped" property until a 90 day time frame has passed. First off, a "flipped" property is one where an investor or investors have purchased a property on the court house steps at the bank auction or from some other source and has usually done some clean up and/or renovation. The property is then put on the market at a price that will be profitable to the investor. The FHA rule stated that these "flipped" properties could not be sold to an FHA buyer in the first 90 days of marketing. (I am not totally clear as to whether the 90 days began when the property was offered for sale or whether the day count began at the time of the investors' purchase.) This rule created some consternation because many of these properties were otherwise eligible for FHA financing.
FHA announced that it is was waiving this rule effective February 1, 2010. However, by mid-February this waiver policy has been on hold and is not yet effective. If it does become effective, there are some constraints.
The transaction must be an arms-length transaction with no identity of interest between the buyer, seller or other parties to the transaction.
If the sales price of the property is 30% or more over the seller's acquisition cost, there will have to be two appraisals..
The seller and the appraiser must justify the increase in value.
A property inspection must be included with the loan package. The inspector must have no interest in the property or relationship with the seller..
The property is marketed openly and fairly.
There are some other restrictions, but your lender will be able to guide you through the process.
Hopefully, buyers will soon have an opportunity to purchase some of these investor owned, renovated properties by using FHA financing.
posted by shirley harry at 8:16 AM
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