FHA Suspends 90-Day Flip Rule

Posted on: January 21, 2010

Categories: How To Sell, Profit, Things To Consider

Author: buyfixandprofit

FHA Admits They are Hindering the Real Estate Recovery

The FHA has finally come to the realization that many investors buying and fixing foreclosures are taking much less than 90-days to rehab their homes.  Good rehabbers can actually have an ugly house ready for occupancy less than 30 days after its purchase.  So beginning February 1, 2010, the FHA is suspending the 90-day resale restriction imposed on sellers selling to buyers using FHA insured financing.

In order to re-sell a home to a FHA buyer in under 90 days, the following conditions must be met.

 FHA Suspends 90 Day Flip Rule

This chart was created using the information listed in the Waiver of Requirements of 24CFR 203.37a(b)(2) which is located on the HUD website at http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf.

Here are two more points not listed in the chart.

1. The 90-days flip restriction waiver will expire one year from February 1, 2010.  If the program is successful with minimal fraud, it can be extended by the FHA.

2. If the FHA discovers a significant increase in mortgage defaults and insurance claims attributable to insured mortgages obtained through this waiver, then this waiver may be canceled immediately.

Now let’s analyze the following four key points

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1. Title must be held be the seller

I know many investors including myself were thinking that simultaneous closings would now be possible.  A to B and B to C all in the same day, where C is the FHA insured buyer.  Unfortunately that’s not the case since the seller must hold title.  In many area across the country it takes about 30 days for title to be recorded assuming your county is not backed up in red tape bureaucracy.  I guess it’s still less painful to pay for 30 days of transactional funding  instead of 90 days, so there’s an improvement.

2. No pattern of previous flipping activity

There has been a lot of fraud and properties changing hands multiple times in the past several years.  So we can’t just assume that the property we are going to sell has not been flipped in the past 12 months.  I see zero tolerance on this policy.

3. If the sales price is greater than 20% above the sellers purchase price

A second appraisal will be needed to justify the increase in value through the repairs performed.  Anytime you have to deal with appraisers now a days it can be hit or miss.  Make sure to cross your T’s and dot your I’s and keep everything in a nice folder to prove your rehab work later.  But now, what if your purchase price was $300,000 and you are trying to sell for $350,000?  No second appraisal required per the guidelines since that’s less than a 20% increase in value.

4.  Repairs not needed to justify a sale price increase

Good news for wholesalers.  Repairs are not required to justify selling at a greater than 20% increase in value above the original purchase price even a day after your purchase.  All that’s required is that the appraiser justifies the sale price and hands the home buyer a home inspection report performed by a third party.

The true investor impact of the 90-day flip waiver

This isn’t the holy grail that will jump start economy and turn small investors into millionaires, but it’s a step forward. This change will help investors save some money on holdings costs and minimize their risk of vandalism since FHA buyers can now buy immediately once a project is complete and not at the end of a 3-month waiting period.

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