Will quitclaim deed from personal names to LLC trigger FHA flip rules?

Question

Hello,

My husband and I operate an LLC from which we buy and sell (flip) properties. We've also purchased a few properties that were burned, torn them down and built new. This describes our latest project, a house that has been built new from the ground up. The "lot" was purchased in our LLC, but we considered keeping the house for ourselves, so transferred to our personal names to make a refi easier once construction was completed.

Now, we have decided to sell, and need to transfer title back to LLC for the resale, but we're concerned about triggering FHA's flip rules - is that likely? Property was purchased in May 2013, so we've owned it about 9 months. We purchased from a company that bought at trustee sale, so there have technically been 3 transfers in the last year, 4 if we transfer back to LLC, but the last transfer would not be to a new entity, just back to our company that purchased initially. Beyond the general flip rules, we're concerned about them perceiving a "pattern of flipping activity". The transfers seem reasonable to me, but do we get an opportunity to explain the transfers, or do they just shut us down? Does the fact that this is new construction, with permits and documentation of the work done, make any difference?

Thanks in advance for any help.

Mel

Melanie Serrato · Answer

Hi Wayne,

Thanks for your reply. Yes, the "flip" rule I'm referring to is the seasoning issue with an FHA end buyer. We've had some frustrations with the 2nd appraisal requirement, and prefer to avoid if possible, and probably not such a big issue on a new home vs. rehabbed, but some of the things required to be repaired after required home inspection have been ridiculous, just depending on how inspector words things and who is on the reviewing end of the report.

Also, as I mentioned above, we're concerned about whether the transfers might be seen as a pattern of flipping, which requires several months from the last transfer. Still hoping to hear from someone who might have some direct experience with this.

You are correct in the reason for transferring back to LLC, it is for tax purposes, along with a few other financial and documentation reasons. Just frustrated that how we transfer our property among our own entities can potentially cause such concerns, and not wanting to make a costly mistake.

Mel

Wayne Brooks · Answer

Not sure which "flip" rules you're referring to. I assume it's not a deed restriction from the purchase as those are 90 days, if they exist. As for the "seasoning" issue with an FHA end buyer, the last transfer being within 90 days of the end sale would likely just trigger the 2nd appraisal requirement. Not sure why you'd want to transfer it back to the LLC though, unless it's treated for taxes as a Sub S.

Will quitclaim deed from personal names to LLC trigger FHA flip rules?

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