Starting in February, FHA is relaxing their anti-flipping rule for 1 year. The anti-flipping rule prohibited a property from using FHA financing if it the home was sold within 90 days of the sellers buying the property. The idea behind this was to discourage fraud, as a big percentage of defaulted loans were bought and sold (usually for a much higher price) within a short period of time. In order for this fraud to work, there had to be an organized effort to defraud, this often meant a straw buyer (someone who was paid to pretend to be the buyer) and a dishonest mortgage lender and appraiser. This fraud caused millions of dollars of losses for FHA. Over the last 2 years, FHA, along with mortgage guidelines in general, tightened and HUD put an effort on enforcing their rules, and catching and punishing the offenders. So, a lot of the abuses have already been curbed.

The anti-flipping rule while well intentioned did have some draw backs. For one, the 90 days could be a whole lot more time, the way they days were counted. The clock didn’t start based on the day the purchase (from the seller) was closed, but when it was recorded. And the 90 days wasn’t until the close by the new buyer, but from the date of the new contract to purchase. So if a legitimate investor bought a property and the sale wasn’t recorded for 30 days, which is common, which means he is adding an extra month before he can sell it. This rule was hurting HUD itself, as it is doing its best to turn over its inventory of foreclosed homes, and this rule was slowing down the process. The quicker foreclosures can be sold and bought by buyers who intend to live in them, the better it is not only for the buyer and seller, but also the community.

Some restrictions apply. In order to qualify for the moratorium, the sale needs to be an arms length transaction ( a real sale, with the buyer and seller no related and not working together). If the new sale price is more than 20% higher (which most are) the buyer will need to get a home inspection (which they should plan on getting anyway) and the appraiser has to note that the increase in property value is correct and warranted. This won’t affect most FHA home buyers, but for those buyers who do buy a recently acquired and remodeled home, this means a lot less time and aggravation in getting to their closing.

Peter Thompson 630-479-6424

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