To protect purchasers from the predatory practice of “property flipping”, the FHA refuses to insure a mortgage on a home that was owned by the seller for less than 90 days. The practice of quickly reselling (flipping) properties often resulted in unsuspecting buyers paying inflated prices, according to the FHA.
FLORIDA PROPERTY FOR SALE BY HUD -$7,500
In an effort to stabilize home prices, the anti-flipping rule was temporarily waived in 2010 and later extended through December 31, 2011. Due to weak property markets, and high levels of foreclosure, Acting FHA Commissioner Carol Galante announced that the FHA’s temporary waiver of the anti-flipping regulations will be extended through December 31, 2012.
By extending the waiver, buyers will be allowed to use FHA mortgage financing to purchase distressed properties and have borrowers use FHA financing when the property is resold. Research conducted by the FHA determined that rehabilitating a property and reselling it often takes less than 90 days. Allowing subsequent purchasers to use FHA financing encourages sellers to accept potential FHA purchasers without being required to hold the property for 90 days. The FHA discovered that the anti-flipping regulations had prevented qualified FHA borrowers from buying affordable properties.
To protect purchasers from abuses associated with flipping, the FHA waiver continues to be limited to sales that meet 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. In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions. The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.”
The FHA waiver extension on property flipping is good news for both sellers and purchasers.