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This is a multi part blog on FHA loans.  I will be adding to this over the next few weeks.

What to know about FHA – Anti Flipping.

Unlike most conventional loans, FHA has unique requirements that prohibit the seller from having owned the home less than 90 days.  Attached is the  U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT MORTGAGEE LETTER 2006 -14

Property Flipping Prohibition Amendment

I suggest you read it and become familiar with it.  It describes that when writing an FHA loan as selling agent you should contact the listing agent and ensure the home has been owned by the same owner over the last 90 days.  If you are the listing agent, your seller will not be able to accept an FHA funded purchase if your seller has not owned the property for at least 90 days prior to contact date.

What is flipping:  Property flipping is 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.

What is the sale date:  It is NOT close of escrow.  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.  (See Mortgagee Letter 2006 -14 above Pg. 2)

Owner of Record:  The seller must also be the owner of record. Therefore you cannot “clean up the title” at close of escrow.  The seller must be on title at time of contract. (See Mortgagee Letter 2006 -14 above Pg. 2)

New Construction:  This rule does NOT apply.  Your buyer may use FHA funding on new construction.

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Exceptions?  Of course, this is real estate:  The rule does NOT apply to:

1.      Sales by HUD of its Real Estate Owned

2.      Sales by other United States Government agencies of single family properties pursuant to programs operated by these agencies.

3.      Sales of properties by nonprofits approved to purchase HUD-owned single-family properties at a discount with resale restrictions.

4.      Sales of properties that are acquired by the sellers by inheritance.

5.      Sales of properties purchased by employers or relocation agencies in connection with relocations of employees.

6.      Sales of properties by state and federally charted financial institutions and Government Sponsored Enterprises.

7.      Sales of properties by local and state government agencies.

8.      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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