FHA 90-Day Flip Rule Suspended: Lenders Hesitant To Change
If you’re a real estate scavenger, who likes to buy foreclosure properties at a deep discount and “flip” them to retail home buyers, the FHA anti-flipping rule has always been a thorn in your side. Come Monday, February 1, 2010, HUD has agreed to suspend that prohibition for a period of 12 months.
123flip.com reports that there are certain guidelines which lenders are directed to follow:
1. All transactions must be arms-length, meaning that there must not appear to be any impropriety taking place between buyer and seller. This requirement also indicates that any prior flipping activity on the home in the previous 12 months may be a red flag to the lender.
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2. In cases where the sale price exceeds the previous purchase price by more than 20%, the lender will be required to take extra steps to ensure the sale is legitimate. This includes a second appraisal and a full FHA inspection.
I think this is much ado about nothing. Over the past nine months, lenders have implemented the 90-day flip rule for all loan types, including conventional and VA loans. While there were no agency prohibitions other than HUD, lenders have determined that the 90-day seasoning rule, for property "flips", was a good practice to make standard for every loan they make.
We can argue about the merits of that policy adoption until the cows come home to roost but it is what it is. My best guess is that while HUD will insure loans, for properties sold in less than 90 days from when they were purchased, lenders still won’t make the loans.
What does that mean to you?
If you purchase a property that looks like a good flip opportunity, you should be careful to not enter into a residential purchase agreement (RPA), from an enthusiastic buyer, for at least 91-days from the date the deed was recorded. I’m certain there will be instances where certain lenders will follow the HUD policy to the letter of the law but for now, I’d enter every potential flip planning for a minimum 90-day holding period before you market the property.
I hope I’m wrong.
PS: Don’t take short cuts when executing an RPA. I’ve seen underwriters kick deals where the offer was dated within the 90-day period but not accepted until the 97th day. Take the time to rewrite the RPA to reflect the proper holding time.