The 90 day no flip rule.  HUD typically declares per 24 CFR §203.37a(b)(2) that FHA financing cannot be used if the contract of sale for the purchase of the property is executed within 90 days of the prior acquisition by the seller. 

The February 2010 Waiver of the Flipping Rule.  On February 1, 2010, and lasting for a period of one year, HUD waived the flipping rules with conditions.  The entire terms can be read BY CLICKING HERE .  You need to know the conditions.

Conditions.  These conditions are causing last minute denials by underwriters.  If the buyer is using FHA financing, ensure the Seller is aware of these restrictions to avoid last minute hurdles, cancellations etc.:

  1. 20% Net Sale Price Rule – The waiver DOES NOT apply, i.e. your FHA loan will be denied if the sales price is 20 percent higher than what the Seller paid.  Unless the following hurdles are overcome:
    1. Lender justifies the increase by retaining a second appraisal and
    2. Lender orders a property inspection and provides the inspection report to the purchaser before closing. This can be at the cost of the borrower and FHA approved inspectors are not required.  The details are in the HUD link .
  2. Arms – Length.  The transaction must be arms-length, or you will not be able to gain FHA financing.  There must not be any identity of interest between the buyer and seller or other parties participating in the transaction.  Some ways that the lender can ensure there is no in appropriate collusion or agreements between parties is to analyze:
    1. Seller holds title.
    2. LLCs, corporations etc. that are sellers were established under accordance with applicable law.
    3. No multiple transfers within a 12 month time frame.
    4. Property was marketed openly and fairly (MLS).

 

This is continuation (part 3) of my FHA blogs on flipping. 

Please visit the first installation on flipping: https://ameglegal.wordpress.com/2008/03/28/tgif-legal-tip-fha-loan-anti-flipping-rules/ 

 

Please visit the second installation on flipping: https://ameglegal.wordpress.com/2008/06/27/tgif-legal-tip-fha-update/

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