Brandon Nelson

FHA No-Flip Rule Waived

Last summer, a buyer client of mine chose for his first house a beautiful 2-story home in the Whatcom Falls neighborhood. The price was right on, it had been cleaned up and upgraded, and the buyer was pre-approved, ready to go, 100% let’s get ‘er done!!!

Then we hit a wall. The lender couldn’t get the loan funded because the seller hadn’t owned the property for a full 90 days. It was an investor who had bought the house at the courthouse auction for roughly 75% of what my buyer wanted to buy it for.

Yes, the investor was going to make a profit! As well he should, for having taken the risk, paid cash for the house, made the upgrades, listed it fair and square on the open market, the whole enchilada. My client knew it and was totally fine with it. He is a busy professor who had no interest in becoming an expert investor and was happy to get the house at fair market value.

But for FHA to insure that loan, the title had to “season” with the seller for 90 days before we wrote up the contract, to protect “unsuspecting” buyers. In the end, we just laid low for an extra two months, re-wrote the deal, and got it closed.

But as of February 1st, 2010, the 90-day “No Flip Rule” will be temporarily lifted for a period of 1 year to stop stifling deals just like my client’s. There are some restrictions, including:

All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.

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 meets specific conditions (like upgrades, improvements or additions can be proven).

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

In my opinion, this temporary waiver is cause for celebration. Flipping houses can be an absolutely legitimate business, and there’s no reason to penalize investors and cause them to pay additional holding costs just to meet some random government mandate. After all, who decided 90 days would protect “unsuspecting consumers” from shady investor/flippers anyway? Why not 60 days? Why not 180 days?

From Feb 1, 2010 to Feb 1, 2011, sellers will be able to sell to buyers getting FHA-insured loans without the 90-day flip restriction.

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This entry was posted on Thursday, January 21st, 2010 at 12:41 am and is filed under Market Info. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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