Resale of property within 90 of prior transfer - FHA Financing - Property Flipping

By
Mortgage and Lending with Branch Manager at Sierra Pacific Mortgage 189572

I had a few people ask me about having difficulties financing REO properties that have transferred within the last 90 days of ownership.  I have taken excerpts from the handbook to help clarify.  As always, feel free to contact me with any questions you might have!

Resales Occurring 90 Days or Less Following Acquisition

If the owner sells a property within 90 days after the date of acquisition, that property is not eligible security for a mortgage insured by FHA unless it falls within one of the exceptions to the time restrictions on resales set forth in §203.37a(c) of the regulations. FHA defines the seller's date of acquisition as the date of settlement on the seller's purchase of that property. The resale date is the date of execution of the sales contract by the buyer that will result in a mortgage to be insured by FHA.

Exceptions to 90-day Restriction

The following sales are exempt from the time restrictions provided by §203.37a:

· Sales by HUD of its 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 relocations 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.

 

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Rainmaker
340,294
Eric Reid
Renaissance Realty Group of Keller Williams Atlanta Partners - Lawrenceville, GA

OK So if i BUY a short sale and then try and sell it under 90 days I would be closing out my FHA based buyers ??

 

May 06, 2008 06:45 PM #1
Rainer
35,229
Paul Bozek
Branch Manager at Sierra Pacific Mortgage - Roseville, CA

Exactly! Since you're a private party, you would have to wait 90 days before the buyer could obtain FHA financing.  If you do the sale after 90 days but before 180 days, you would have to get 2 appraisals to justify a higher sales price than what you bought it for.

May 06, 2008 06:58 PM #2
Rainmaker
340,294
Eric Reid
Renaissance Realty Group of Keller Williams Atlanta Partners - Lawrenceville, GA
GREAT INFO.. SO BUY AND HOLD FOR 180 DAYS.. How best could this be done. If I bought a property and want to sell it at the closing table.
May 06, 2008 07:23 PM #3
Rainer
35,229
Paul Bozek
Branch Manager at Sierra Pacific Mortgage - Roseville, CA

Eric, I think you are referring to doing an assignment of contract.  If that's the case, FHA financing for your buyer is probably not the best way to go. 

Typically it will take 30-45 days to close on an FHA loan so all you have to worry about is the initial 45 days.  You can do all your fix ups or rehab during that time.  After that (under 180 days) just get 2 appraisals and you should be fine.  In today's market, FHA financing is pretty much the only viable option for homeowners.  If you look at some of my other blogs, I also talk about FHA rehab loans which you might be interested in.

May 06, 2008 07:30 PM #4
Rainmaker
340,294
Eric Reid
Renaissance Realty Group of Keller Williams Atlanta Partners - Lawrenceville, GA
WORLD OF HELP THANK YOU
May 06, 2008 08:46 PM #5
Rainmaker
1,931,592
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Great information. I will bookmark this. I once sold a house that the seller was flipping within 6 months and though it was not FHA financing , there were problems with the appraal. The appraiser said that the only comp he could use was the subject property and the seller had to show receipts for all work done. Thought the buyer had offered a higher price we had to reduce the price after the appraisal.

May 14, 2008 06:04 AM #6
Anonymous
Anonymous
Anonymous

Thanks for this information. I am going to bookmark this for future reference.

 

 

Judi Downing www.Downinghomesales.com

May 14, 2008 04:16 PM #7
Anonymous
Anonymous
Cara

If a property is bank owned and the bank is a member of FDIC(which I believe makes it a federally chartered financial institution), then this 90 day rule does not apply?  I'm being told by a broker that I can't purchase a house through FHA because the bank hasn't owned it for 90 days yet.  I beleive he is wrong.

Thanks for any insight

May 14, 2008 09:54 PM #8
Rainmaker
211,429
John Thomas
Primary Residential Mortgage Inc. - Newark, DE
First Time Home Buyer Expert

I would love to know the answer to the above question, Can a bank owned property be bought in under the 90 days if bank is FDIC?   There is going to be alot of these properties that FHA approved buyers will be looking at and I would really like to know if I have to advise them to wait 90 days before they can put an offer in or at least make sure sale date is 90 days after purchase date.

John Thomas - Certified Mortgage Planner

May 15, 2008 06:45 AM #9
Rainer
35,229
Paul Bozek
Branch Manager at Sierra Pacific Mortgage - Roseville, CA

Cara and John, the post is not something I just pulled out of nowhere.  I spoke with FHA directly AND my DE Underwriter.  You definately CAN close on a bank owned property under 90 days.  Anyone that tells you otherwise needs to do their homework.  Also, I don't know if a banking institution can NOT be FDIC insured.  Keep in mind most transactions will fall outside the 90 day rule as it takes time to get property back, time on market, time in escrow, etc.

May 15, 2008 01:03 PM #10
Anonymous
Anonymous
Michael Daniels

I have a unique situation.  I was in the process of purchasing a condo and due to circumstances arrising from the broker and UW I missed my contract deadline.  I was able to get an extension from the seller and we missed the second deadline.  Why, I don't know!  My broker then called a private lender and I was able to meet the second deadline, but not with my FHA loan.  I had 45 day balloon note and my broker assured me I could refinance prior to the 45 timeframe.  Then I was told by several UW's and brokers about the FHA 90-day anti-flipping rule.  My question is, the purchase price of the condo is $64,600, I have to refinance this loan FHA b/c I do not have the 15% it will cost me to do conventional.  However, I will not be "flipping" the property in the since that this is not a Cash Out refinance, I will only be taking out a mortgage to pay what I owe.  NOTHING MORE.  Does the 90-day rule apply to situations as the one in which I just described?

Jun 01, 2008 01:10 PM #11
Anonymous
Anonymous
Jared

I'm trying to sell a home that was deeded to me by my parents 3 years ago.  Deed has not yet been recorded.  Buyers are FHA.  I can record to become the owner of record for FHA purposes.  But, does it then look like there has been a sale in the last 90 days?  The 90 say rule says the seller's acquisition date is the settlement date.  Other FHA documents define the settlement date in terms of liens, blah blah blah...as if people only acquire homes through the use of a mortgage.  So my question is, if there was no mortgage involved when I acquired the home, the "date of settlement" is the date of the deed rather than the date of recording, right?

Jul 19, 2008 11:14 AM #12
Rainer
32,618
Scott Hoag
Caliber Home Loans, Inc - Clearwater, FL
Preferred Lender / Mortgage Company

Thank you for the excellent info.  I found that after I pulled an FHA case number on day 20 after acquisition by the seller that FHA won't do a loan on the home for 180 days.  the My Community program from conventional loans will work with some lenders, but require a 5% down payment.

Is it OK to quote some of you info here with a link back to you?

Aug 14, 2008 03:40 AM #13
Rainer
35,229
Paul Bozek
Branch Manager at Sierra Pacific Mortgage - Roseville, CA

Scott, feel free to quote the info.  I don't have a problem with it whatsoever.

Aug 15, 2008 12:40 PM #14
Rainer
10,782
Scott Hendrix
Century 21 Select Properties - Knoxville, TN
Realtor, Historic Home Specialist

I recently had this happen to me.  My FHA buyer and I went through a three month process trying to get one to close.  Part of this was due to the owners (bank owned) not replying for long periods of time and inspections and appraisals.  What kills me is that, in the price range we had to stay in, it was very hard to find a house that was liveable, much less one that could go FHA.  Once we finally, barely got an appraiser to give the green light, guess what??  We were told the 90-day rule applied and we were out of the game, and my client out some money.  Now, this is a house that I would move into, with some cleaning of course.  It was structurally sound and had some chipped paint, but it was like pulling teeth for FHA to look at it.  It seems that it is so hard to find people homes in the lower price range and get them a loan--knowing good and well they would make the home beautiful and wouldn't die from chipped paint!  I know some rules have changed, thank goodness, but why does it have to be so hard for everyone?!

Aug 15, 2008 12:55 PM #15
Anonymous
Anonymous
Bob

I flipped two homes in 2009 and both buyers were getting conventional mortages, I was told by their mortgage companies I had to wait 90 days for resale. So I am a little confused, is it only FHA mortages that have to wait 90 days or all mortages?

Bob

Feb 17, 2010 05:37 PM #16
Rainer
35,229
Paul Bozek
Branch Manager at Sierra Pacific Mortgage - Roseville, CA

Bob,

Conventional guidelines don't have a flip rule.  If you have a high markup from your purchase price, then the lender might require a wait period, 2 appraisals or receipts to justify the increase in sales price.  FHA to my knowledge was the only one that required a 90 day hold period.  Investors like conventional buyers with 20% down because there is no or very little red tape.  You might have had a conventional buyer at 95 or 90% ltv at which point a mortgage insurance company is involved and they require an addtional approval on top of the lender approval. 

Bob, contact me directly as I have a GREAT way to reduce your risk with your flips and get your properties flipped quicker. 

Hope this helps!

Feb 17, 2010 06:16 PM #17
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