Anti-Flip Clause

84 Replies

So I have read in many places and discussed with many attorneys about the 30 - 90 day anti - flip requirement for short sale acceptance.

However, has anyone ever bothered to question the banks legality for requiring this?

Can a seller or anyone tell you what to do with what you "own?"The bank does not own the property. They only approve that the seller sell the property for less than what is owed. That's all.

Its like me buying a Mercedes Benz and the dealer telling me that I cannot drive it for 90 days or I cannot resell it to a willing buyer!

Who gave the banks the power to dictate what you can do with a property that you own?

The only reason I haven't done it is that I haven't found a title company that will close such deals.

By the way, its not a fraud unless you used deceptive means in getting the lower price.

However, if the bank accepts a price and I find someone a week later who is willing to pay considerably more for whatever reason, then thats fraud? Just cos they lost some money.

I'm so happy for the foreclosure settlement deal. They can defraud everyone (the whole mortgage crisis, predatory lending, stated incomes to qualify people for loans, robo -signing, mortgage back security frauds e.t.c) and it all good as long as they are making money?

I say it is not legal for the bank to tell anyone what they can do with their property or how much they can sell if for.....

It would be nice to have some discussion around this by anyone ......

Yes, a seller can put a deed restriction on a property, and that is perfectly legal in the real estate world, as long as they make you sign and agree to it before.. Current Fannie Mae, and maybe some others, put a 90-day deed restriction on a property when you buy it where you can't sell for more than 120% of what you paid. The restriction gets recorded along with the deed so that the property can't be conveyed. If you don't agree to it in the contract, I don't think they can sneak it in on you at closing.

It's similar to how conservation easements are created. You can also do them for property use, i.e. a church selling land but requiring it not be used for gambling, a liquor store, etc.

There are 2 issues regarding the anti-flip requirement. The first is with the short sale lender. Some lenders will have anti-flip language in their approval letters, arm's length affidavits, or a no flip affidavit. Not all lenders have this language, and a good negotiator can often get it removed.

The second issue is with the 2nd buyer's lender. Although FHA has waived the 90 day seasoning, many lenders have policies that are more stringent. That being said, if you do your homework, you can find many that will allow it. They may only allow a 20% increase in price, or have requirements such as a second appraisal.

I have had no problem finding title companies that will close a second buyer within a few days of the first, as long as you're not asking them to close when there was a clear no-flip requirement from the short sale lender. Get that removed, and you will be fine.

You will also want to pay attention to state laws. In Colorado, a law referred to as, The Colorado Foreclosure Protection Act, essentially creates a 14 day holding/seasoning requirement for property purchased during foreclosure from the owner/grantor, before an agreement to sell the property is permitted.

This post is only my personal opinion. I make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information. None of the content should be considered a binding offer or agreement. Any terms or rates mentioned are subject change without notice. I am not an attorney or other legal or tax professional.

I agree with u that banks have given themselves too much power and have no business telling u what u can and can not do with your property. That said, if the language is in the contract or adendumz and u sign it, u have now agreed to it. The banks only power really comesvfrom their ability to say take it or leave it. So if u cant get the verbiage out then u skyscrapers the option to pass or agree to the deed restriction.

Unfortunately these banks are seeing these transactions as fraud now. The banks are in full control and if they don't want to sell the house then they don't need to. The reason these anti flip affidavits and arms length came about was because so many investors were buying a short sale property with an immediate sale lined up for a profit. This is what the investors were doing back in the day. The short sale banks have caught wind and have now determined it to be illegal. know it sucks!

Also in Colorado this has become illegal even if the bank doesn't give any stipulation. If the Colorado Foreclosure Protection Act applies then you can't resell the property for 14 days unless you do full disclosure.

I don't recommend these transactions to anybody. What you should do is buy a short sale to resell for a fix and flip or to buy and hold. This is the best exit strategy and you don't have to worry about doing something fraudulent.

I've seen them in contracts but I have never seen them enforced before. Short of the deed restriction recorded with Fannie Mae, the rest record like a normal deed.

I believe it is just a deterrent, but I wouldn't want to test it ;)

I call them the greed restriction, since the whole idea is that if the bank is taking less they want to make sure they get all they can as if they are not smart enough to know what a property is worth....that if there is a dollar out there, they want it.

They just thought they were getting the short hair on quick flips.
Restrictions are to the transfer of title. Last one I did I was asked if I intended to sell the property, my response was probably some day since everything I own is for sale! Besides, they know good and well I don't collect houses anymore....

You might think about closing in escrow and transfer title in 91 days. Non-owner occupied can be leased from day one and I doubt anyone can say anything about the contract date as it goes away after settlement

Originally posted by Andy Chu:
I've seen them in contracts but I have never seen them enforced before. Short of the deed restriction recorded with Fannie Mae, the rest record like a normal deed.

I believe it is just a deterrent, but I wouldn't want to test it ;)

Andy -

They are absolutely enforced and a title company as well as attorney could lose their license and bond if they write a clear title policy for a new buyer when there is a deed restriction. We buy about 20 a month with these restrictions and our company, our closing attorney and even the title company have no desire to re-sell any of them under the 90 day deed restriction as much as that delays business. As you stated in your last need to test it!

National attornies familiar with the issue will say the bank has no legal standing to impose what amounts to a deed restriction; and, as Andy pointed out, in short sales an actual deed restriction (Bills "Greed Restriction") is typically not recorded. However, the bank does have veto power over approving the short sale and requires all parties to sign to such a restriction at closing. Although there has been much press that flipping short sales is fraudulent or illegal most attornies say otherwise, as long as it is disclosed, and national title companies would not be closing them if they viewed them as illegal.

Once agreed to as part of the banks requirements it is not worth trying to short circuit it, as Chris pointed out. Your solution in that case is to use extended transactional funding if you have a buyer under contract, or hard money/private lenders. It adds to total cost, which does serve the banks desire to reduce flipping, but is recommended once any parties agree to the holding period restriction.

@Ted Akers makes a great point here in that the 'anti-flipping' deed restrictions do nothing to actually prevent an investor from flipping a house. It only increases the cost of the transaction. Another example of the absolute short-sighted solutions that banking executives, and gov. institutions for that matter, come up with when they do not consult those that are actually doing the business.

in my short agreement with the seller I spell out that I'm reselling for HUGE profit and may enter into an agreement to resell during the purchase escrow.

The key as has been pointed out is that I don't agree to the lenders possible requirements. I believe the bigger issue is that I over disclose so the lender assuming they read my agreement is aware of all facts.

Will the LM kick the short in some cases yes. However I've found that the worse the property the easier the negotiation is.

However this is just a numbers game and the numbers tell me 80% of the agreements won't work.. and shorts are easy to get under contract so we need a bucket load of them..

Good point Michael, if the property is in poor condition banks are not in the construction business. Make them aware, show pictures, have comps and justify your deal.

Also, that 20% profit limitation is kind of fuzzy. Don't forget that is after your costs of repairs and costs of sale, not just 120% over your purchase price.

If you buy a property for 100K put 30K in it you may have made significant changes that put the property in another market. You sell for 165K, it will be hard to hold you to 156K if it appraises out. And for such a project you may be working on it for 90+ days anyway, markets change.

@Chris Clothier makes a great point in what would seem all too logical for most business people. It is understandable why banks prefer to not have investors in the middle making a profit. BUT, with substantial inventory; and I say much more to come their direction, you would think they would welcome any and all reasonable buyers.

Most retail buyers looking for an owner occupied home are not willing to wait through the totally undefined period of time a short sale will take. Investors willing to wait through what can be a painful process and to clear out other liens are a reasonable alternative to a banks problem deals. Penalizing investors by adding costs (with required holding periods) does not make business sense and reduces that pool of potential buyers.

If you guys are signing a bank affidavit or an addendum to the contract or arms length affidavit that the bank provides and then resell the property this could be looked at as fraud by the bank. You are violating the terms of the short sale and the contract. If you guys are doing this you should consult an attorney. Banks will do random checks after closing to make sure the house wasn't resold. If they see it was, they can send the wire back the the title company an unwind the transaction. I've had several bank threaten to do this for other scenarios that were minute like a signature missing on a document.


I think everyone here is acknowledging that you do not want to flip without disclosing that you are an investor intending to resell for a profit, and that flipping during a required bank holding period is foolish if it is part of the short sale approval or affidavit. Clients I fund for are disclosing, and the bank can decide whether to accept the contract or not. The banks idea that it is illegal or fraudulent if it is disclosed is an interesting concept.

@Michael Quarles Hey Mike, I wasn't trying to be rude man. I just want everybody to please be careful. I've hear about a lot of investors going to jail for fraud. I used to do the double closings myself and I stopped because they are just to risky for me plus the whole short sale industry just changed dramatically. I prefer to play it safe.

I'm so sorry if I came across that way. Was not my intention.

@Monica Breckenridge Point well taken. In my area, several investors I know call short sale flipping "flopping". They are trustee sale buyers who buy, rehab and resell several houses a month. They could easily transition their agents and office crews into short sale "acquisitions" but don't because they don't want to have anything to do with bank restrictions or re-sale waivers or disclosures of any kind. These are good-old-boy teams in my farm and they are hardly goody-two-shoes. They are staying away for a reason.

@Account Closed yeah, short sale flopping is another issue as well, which is different from short sale flipping. It's very dangerous. Short sale flopping is when an investor works with a realtor who has a short sale house listed. The home is listed with the home on record and the realtor presents all short sale offers to the investor. The realtor submits the investor offer to the bank and the investor then buys the house and then re-sells to the end buyer that the realtor presented them with. This is fraud because the realtors fiduciary responsibility is with their client not the investor.

Chris hit on something other than the lender approval. I'm in the process of You Tube Interviews with an "Investor Friendly" Title Co. in Houston. His( RE Attorney) underwriters have all but stopped issuing and will at some point stop issuing title policy's for flips. Even with exclusions in Schedule C of the policy, the general consensus is the possibility of fraud in the transaction. They don't want too deal with that issue.

It is very unfortunate that we all let these banks get away with a lot of things. It's worse when investors also ignorantly agree with the atrocities being committed by these banks.

Since when has buying something at a lower price and immediately selling it at a higher price become "fraud"

The truth of the matter is that, where there are humans, there will always be a potential for some bad apples to spoil the whole lot. However, that does not mean that the idea or concept of flipping is wrong.

Sure, if there are any deed restrictions, I believe they should be adhered to. That is why this country is going down gradually. We are killing capitalism. The govt wants to dictate everything and we allow it. Now, the banks want to make flipping illegal cos they are losing money.

But, we have not held them accountable for the credit boom that resulted in the whole real estate crash. Banks giving loans to people that cannot afford them because they banked on the house values increasing....

so when things didn't turn out as they thought, they are framing it that "flipping" caused or played a big role in the housing bubble.

We are all not dumb, their greed to exploit the consumer did.