FHA 90 Day Flip Rule Suspension is set to expire February 1, 2011
The FHA 90 day flip rule was temporarily suspended for one year for all sellers effective February 1, 2010.
We all hope the waiver will be extended however, investors should prepare for the worst and assume the waiver will expire in February 1, 2011. If you are presently a party to a flip sale transaction check with the buyer's lender for their flip rule policy.
In anticipation of the waiver expiring, most lenders ceased accepting applications on homes subject to the FHA Flip rule.
The FHA 90 day flip rule was suspended on February 1, 2010 and the suspension expires February 1, 2011
The text of HUDs press release is reproduced below:
Pursuant to §7(q) of the Department of Housing and Urban Development Act (42 USC 3535 (q)) and 24 CFR 5.110, I hereby waive §203.37a(b)(2) of the regulations. The regulations at 24 CFR §203.37a(b)(2) provide that a mortgage for a property will not be eligible for FHA insurance if the contract of sale for the purchase of the property is executed within 90 days of the prior acquisition by the seller, and the seller does not come under any of the specific exemptions that apply to the 90-day rule.
This waiver is limited to home sales meeting the following conditions:
All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. Some ways that the lender can ensure that there is no inappropriate collusion or agreements between parties is to assess and determine the following:
- The seller holds title to the property;
- LLCs, corporations, or trusts that are serving as sellers were established and are operated in accordance with applicable state and Federal law;
- No pattern of previous flipping activity exists for the subject property, as evidenced by multiple title transfers within a 12-month time frame (chain of title information for the subject property can be found in the appraisal report);
- The property was marketed openly and fairly, via MLS, auction, For Sale by Owner offering, or developer marketing (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).
In cases in which the sales price of the property is 20 percent or more over and above the seller's acquisition cost, the waiver will only apply if the lender:
Justifies the increase in value by retaining in the loan file supporting documentation and/or a second appraisal which verities that the seller has completed sufficient legitimate renovation, repair, and rehabilitation work on the subject property to substantiate the increase in value or, in cases where no such work is performed, the appraiser provides appropriate explanation of the increase in property value since the prior title transfer: and
Orders a property inspection and provides the inspection report to the purchaser before closing. The lender may charge borrower for this inspection. The use of FHA-approved inspectors or 203(k) consultants is not required. The inspector must have no interest in the property or relationship or with the seller, and must not receive compensation for the inspection from any other party than the lender. Also, the inspector may not compensate anyone for the referral of the inspection. Additionally, the inspector may not receive any compensation for referring or recommending contractors to perform any repairs recommended by the inspection, and may not be involved with performing any repairs recommended by the inspection.
At a minimum, the inspection must include:
- The property structure, including the foundation, floor, ceiling, walls and roof;
- The exterior, including siding, doors, windows, appurtenant structures such as decks and balconies, walkways and driveways;
- The roofing, plumbing systems, electrical systems, heating and air conditioning systems;
- All interiors; and All insulation and ventilation systems, as well as fireplaces and solid-fuel-burning appliances.
The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HELM) for Purchase program.
Flip Rule History before February 2 Waiver
Several years ago FHA instituted an 90 day flip rule to halt what they felt were investor foreclosure abuses. Initially the 90 day flip rule required anyone selling a home with FHA financing to wait 90 days before they could accept a purchase contract. The 90 day Flip Rule only applies to FHA loans.
In 2008 FHA made a temporary exception for Bank owned foreclosures allowing banks to sell their REOs with FHA financing before the 90 day limit. The exception was to help sell the large number of recent foreclosures. The initial 90 day flip rule expired in 2009
This rule only applies to Banks selling Foreclosed property, all other home sellers must continue to wait 90 days before they can accept a contract on a home they plan to flip when their buyers wish to use FHA financing.
In May of 2009 the Flip Rule was extended only for banks. Below is a copy of the notice extending the 90 Day flip rule to May 10, 2010
This revised notice on the FHA property flipping waiver extension corrects the date in the last line of the notice that was published on 5/15/09:
"Federal Housing Commissioner Brian D. Montgomery has extended the temporary property flipping waiver to May 10, 2010. Under the waiver, homes that were foreclosed on and are being sold by the mortgagee or on its behalf may be purchased by FHA borrowers without regard to the 90-day seasoning period. The waiver does not apply to entities that purchase foreclosures either singly or in bulk for resale. Subsequent sales of such properties will continue to be subject to the standard regulatory requirements.
The waiver expires for all loans for which the sales agreements were signed by the seller and buyer on or before May 10, 2010. "
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