Anti Flip Law on the 180 day rule.

20 Replies

I am currently selling a house, suppose to close tomorrow but wont be happening just yet, in the final hour the bank called me out on the anti flip law. The price I paid was $43,700. I put it under contract for $90,000 but it had a $3000 seller assist. Was an FHA loan. Bank told us they wanted a second appraisal.

The last time I had this happen, it ended up costing me $13000 because the second appraisal came in massively light.

What are folk's experiences with the second appraisal.  I think it is important to know, because if the consensus is you get screwed, it may be better to just pass on offers where you would be subjected to that second appraisal

thanks.

.

First, it's 90 days to resell to an FHA buyer, not 180 days.

Second, a second appraisal pass no longer FHA mandated. Find a lender that doesn't require it.

Finally, no, the second appraisal isn't any more likely to come in low than a first appraisal. 

Have you read my articles on how to get the best appraisal possible? 

Yeah, agree with @J Scott there's no longer a "second appraisal within 90 days" rule. You simply can not execute a contract within 90 days from your purchase, with an FHA buyer. After that, there is no 2nd appraisal option/requirement I'm aware of. Also, if this was a valid issue, it sure as hell shouldn't be popping up the day before closing, but upon a first review or application.

@Wayne Brooks   we have been running into low apprasials  VS our comps in Dallas lately.

Not sure why.  but it seems to come up within a week or so of closing.. probably lender waiting to order or appraiser are backed up.. I know some here in Oregon are 20 days or more out.

A trick to get in front of this on future deals, that I have used:

  • You, the seller, see an FHA offer that is likely to break the flip rule. You did not get a phone call from the lender when the offer was being put in explaining the following bullet points, because I'm not the lender.
  • FHA measures days from the close of your purchase to the ratification of the contract now that you are selling. (In CA, you make offers by sending over a contract that the buyers have signed, and the sellers accept the offer by signing it as well)
  • You verbally accept the offer, but don't put anything in writing just yet. Count your days. Give yourself a 2 day cushion just because, and THEN sign/date the contract. (If you aren't willing to wait this long, obviously do not accept an FHA offer)
  • If everyone is doing their job right, the contract will not be considered ratified until you (the seller) sign it. I've had to cite FHA guidelines to the underwriting manager, because the FHA guidelines say one thing but the stock FHA forms say another. Guidelines trump forms!
  • Boom, now we have a ratified contract that does NOT violate the flip rule.

Always use a direct lender on FHA loans less likely to get the second appraisal requirement. This normally happen when you have a sale price that has doubled the price you paid.. Meet the second appraiser give him your repair list with before and after pictures.. Bring him coffee..thank him for his time..copy of purchase agreement..Don't give him a reason to cut value!!

Thanks all.

On the deal where I lost 13k due to the appraisal coming in light, I had only payed 10k for the house and had sold it for something like 123k. I felt the loan officer and bank had it in for me. Took around 5 months to close on that house. Big nightmare. In that case the second appraiser used inferior comps. The chosen comparable houses fell outside size range, location range and they had sold more than 6 months ago. Not all 3 house used had these qualities but each house had some issue. This is on the heals of an appraisal that came in just fine with acceptable comps.

@Wayne Brooks

It was 91 day not including the day I signed the purchase agreement, so the 90 day was not an issue.  BTW I did not plan that, just got lucky.

@J Scott

Jay, it is my understand that both the 90 day and 180 rules are currently in play.  Less than 91 days and you cant use fha financing and less than 181 day you may need a second appraisal if the purchase price is less than half the sale price.  I think the 90 day had been temporarily lifted back in 2012 or something.  In any event the buyers bank in quicken loans and they are not moving forward based on the duration I owned the property and my purchase and subsequent sale price.  That is until I get a second appraisal.  

@David Short

Yeah Dave.  Keep your friend close and, well you know the rest.

@Jay Hinrichs

I owe you an email.  

@Chris M.

Yes I understand I can pass on any FHA deal. I guess it get back to original question of, do these second appraisals typically come in light. If the answer is no, then why run from it. Obviously if it is less than 90 days you simply have no choice but to wait for pass all together.

> I guess it get back to original question of, do these second appraisals typically come in light.

No such pattern there. In fact I generally try to have the buyer's agent waiting at the door with a copy of the previous appraisal, to make his or her job even easier. 

> If the answer is no, then why run from it.

Extra cost for buyer. Delay. Time is money, and I want to give my clients their keys ASAP. If waiting 5 days to formally ratify a contract means you get your keys a week and a half sooner (and you the flipper have unloaded the property a week and a half sooner)...

FYI, right from the 

portal.hud.gov/hu...

effective 9/14/2015

(iii)Resales Occurring Between 91 Days and 180 Days After Acquisition
A Mortgagee must obtain a second appraisal by another Appraiser if:
 the resale date of a Property is between 91 and 180 Days following the acquisition of the Property by the seller; and
 the resale price is 100 percent or more over the price paid by the seller to acquire the Property.
If the second appraisal supports a value of the Property that is more than 5 percent lower than the value of the first appraisal, the lower value must be used as the Property Value in determining the Adjusted Value.
The cost of the second appraisal may not be charged to the Borrower.

@Chris M.

I cover a large area when investing and what I can tell you is the communication between agents and appraisals vary greatly.  My real estate agent in NY near the Albany area interacts with the appraiser in a similar manner, as you are suggesting.  My agent down in the Scranton area says it is extremely frowned upon and will not.  I have done multiple deals with both agents and their attitudes have been consistent for years.  Ny seems to be much more lenient with agent appraiser interaction.

Your selling agent should be meeting the appraiser at the property to point out the upgrades to the property. He shouldn't be.pressuring for a higher appraisal, but objectively pointing out aspects of the property the appraiser may have missed.

Originally posted by @Account Closed :

Jay, it is my understand that both the 90 day and 180 rules are currently in play.  Less than 91 days and you cant use fha financing and less than 181 day you may need a second appraisal if the purchase price is less than half the sale price.  

Yes, for resales where the sale price is more than 100% above the purchase price, there is required additional documentation of value (generally a second appraisal) between 91-180 days.

Here are the HUD regulations:

http://www.ecfr.gov/cgi-bin/text-idx?rgn=div8&node...

See section 203.37(a)(b)(3)(ii)

Sorry, I rarely do properties where the price is doubled these days, so I completely forgot about that additional requirement.  Thanks for the reminder!

Just to follow up and not creat any unwarranted fears on the second appraisal, the buyers bank came back and said the appraisal is already done. I can only assume they did a desktop appraisal. I could not imagine it is going to come in light

One final note on the one deal where the second appraisal came in 13k light. In that deal the buyer actually worked for the lending bank. I often wonder if there was some colluding going on there.
I ultimately ended up talking to that second appraiser and when I told him I didn't understand the value the bank told me the second appraisal was at, he told me that wasn't his number but he wouldn't share the actual value. It was as if the bank decided what they were willing to lend and it didn't matter what anybody said

J The following is tongue-in-cheek but let me take you back to a time when you didn't have as much money and you had to get the most out of every deal. I can't use that 65% rule. I have to find select deals by covering large geographical areas to maximize my return:)

Originally posted by @Account Closed :

J The following is tongue-in-cheek but let me take you back to a time when you didn't have as much money and you had to get the most out of every deal. I can't use that 65% rule. I have to find select deals by covering large geographical areas to maximize my return:)

The fact that I'm doing fewer deals where the resale is less than half the purchase is actually more a function of doing higher-priced deals.  When you buy a property for $30K, it's tough to make a profit selling it for under $60K; but, buying a property for $250K and selling for under $500K isn't unreasonable.

Just to follow up, that is why I buy 30k homes.  My personal experience is that independent of the amount I purchase a home for, I always make about the same.  Not that I would not mind bigger deals more often, simply because it adds to my availability of deals to be had.  I just need $500k. Anyone?:)

Originally posted by @Account Closed :

Just to follow up, that is why I buy 30k homes.  My personal experience is that independent of the amount I purchase a home for, I always make about the same.  Not that I would not mind bigger deals more often, simply because it adds to my availability of deals to be had.  I just need $500k. Anyone?:)

 I love the lower-priced deals...I wish we still had them in my areas!

Originally posted by @Russell Brazil :

Your selling agent should be meeting the appraiser at the property to point out the upgrades to the property. He shouldn't be.pressuring for a higher appraisal, but objectively pointing out aspects of the property the appraiser may have missed.

 We will provide comps for appraisers as well