FHA Returned to Anti-House Flipping Restriction January 1, 2015

FHA Returned to Anti-House Flipping Restriction January 1, 2015

While you were ringing in the new year, the FHA was ringing in the anti-house flipping restriction

What does this mean to you? In short… the FHA’s Property flipping temporary waiver on the 90 Day Rule expired on December 31, 2014 and will not be extended. This was announced by the Federal Housing Authority on December 11, 2014.  It is important news for investors and home buyers to be aware of starting January 1, 2015 as investors will need to wait 91 days before they can execute a sales contract on a flip for a buyer using FHA financing to purchase the property.

What is a “flip” or “flipping”?

Property flipping is described by HUD as a practice whereby a property is resold a short period of time after it is purchased by the seller for a considerable profit with an artificially inflated value, often abetted by a lender’s collusion with the appraiser. FHA’s policy prohibiting property flipping eliminates the most egregious examples of predatory flips of properties within the FHA mortgage insurance programs.  FHA prohibits properties being sold within the first 90 days of purchase.

Overview of FHA’s Property Flipping Policy that becomes Effective Again January 1, 2015

FHA requires that:

a) only owners of record may sell properties that will be financed using FHA-insured mortgages

b) any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing

c) that for resales that occur between 91 and 180 days where the new sales price exceeds the previous sales price by 100 percent or more, FHA will require additional documentation validating the property’s value. FHA also has flexibility to examine and require additional evidence of appraised value when properties are re-sold within 12 months.

FHA has made Exceptions to the 90 Day Flipping Rule for the following:

• Sales by HUD if it’s Real Estate Owned
• Sales by other United States Government agencies of single family properties pursuant to programs operated by these agencies.
• Sales of properties by nonprofits approved to purchase HUD-owned single-family properties at a discount with resale restrictions.
• Sales of properties that are acquired by the sellers by inheritance.
• Sales of properties purchased by employers or relocation agencies in connection with relocation of employees.
• Sales of properties by state and federally charted financial institutions and Government Sponsored Enterprises.
• Sales of properties by local and state government agencies.
• Upon FHA’s announcement of eligibility in a notice (i.e., ML), sales of properties located in areas designated by the President as federal disaster areas, will be exempt from the restrictions of the property-flipping rule. The notice will specify how long the exception will be in effect and the specific disaster area affected.

If you have further questions on the FHA anti-flipping restriction, or a mortgage question in general, please feel free to contact us anytime!