BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
FHA Anti-Flipping Waiver Extended
BACKGROUND: In 2003, the Department of Housing and Urban Development (HUD) issued a rule that prohibited the FHA from insuring a mortgage on homes that were owned by the seller for less than 90 days. The “anti-flipping” rule was designed to avoid “flipping” properties — buying and quickly re-selling them at inflated prices to unsuspecting borrowers.
In February, 2010, HUD waived this rule for one year. Prior to this waiver of the 90-day anti-flipping rule, investors had to wait until the 91st day before they could accept an offer from a buyer using FHA financing.
ANTI-FLIPPING RULE EXTENDED: HUD recently extended the rule wavier through December 31, 2011. This new policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales, without having to wait 90 days to enter into a purchase agreement with another buyer.
HUD apparently was comfortable in extending this rule waiver because FHA representatives report that they haven’t encountered the kind of fraud and defaults associated with flipped properties that they had in previous years.
LIMITATIONS: To protect FHA borrowers against predatory flipping practices, the waiver is limited to sales that meet the following general conditions:
1. All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
2. No pattern of previous flipping can exist for the property.
3. In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the buyer’s lender meets certain specified conditions.
Some ways that the lender can ensure that there is no inappropriate collusion or agreement between parties is to assess and determine the following:
a. The seller holds title to the property;
b. LLCs, corporations, or trusts that are serving as sellers were established and are operated in accordance with applicable state and Federal law:
c. No pattern of previous flipping activity exists for the subject property, as evidenced by multiple title transfers within a 12-month time frame, as would be evidenced in the chain of title information for the subject property;
d. The property was marketed openly and fairly, via MLS, auction, For Sale by Owner offering, or developer marketing.
e. Any sales contracts that refer to an “assignment of contract of sale,” which represents a special arrangement between seller and buyer may be a red flag.
PRACTICE TIPS:
1. While this is generally good news for facilitation of sales, this may tempt more unscrupulous “flippers” to come into the market. For example, be wary of working with “short sale flippers.”
2. Issues related to dealing with short sale flippers have been outlined in the Broker Risk Management “Short Sales White Paper” which is available upon request by calling our office at: (866) 276-7475.
DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
Copyright© Broker Risk Management 2011 02/04/11