Waiver for "90-day Anti-Flipping" Rule Extended Until 2014

FHA has extended the temporary waiver for "90-day anti-flipping" rule until 2014.

In 2003, FHA had imposed the 90-day standard holding rule for properties to avoid fraud by teams of mortgage loan officers, realtors, and appraisers. The flips (or selling the properties in less than 90 days for a profit) resulted to significant losses to FHA's insurance fund. 

Starting 2010, FHA has waived the "90-day anti-flipping" rule and has been extending it annually since 2011. For this year, the agency has opted for 2-years extension. FHA says that they have made the 2-year term extension in order "to provide greater levels of certainty" for the lenders and buyers.  The waiver will allow the sellers to resell their properties quicker.  FHA firmly believes that the waiver will result to stability in real estate prices. According to FHA records, the agency has successfully insured mortgages on 62,250 homes worth $11 billion, where the seller had held the property for less than 90 days.

Among the key requirements that will continue during the latest waiver: (Source: fha.gov)

All transactions must be arm's-length, with no identity interest between the buyer and seller or other participants. Lenders are required to ensure that the seller actually holds title to the property. (In earlier flipping schemes, buy-sell transactions sometimes moved so fast that the seller never acquired legal title.) There should be no "pattern" of previous flips of the property during the 12 months preceding the transaction.

In cases where the sales price of the resold property is more than 20 percent more than what the seller paid for it, there must be documentation showing the renovations and repairs that justify the markedly higher resale price. A second appraisal may be used to substantiate the increase in value, but the second appraiser must be selected from FHA's roster. When no significant renovations occur and the price is 20 percent higher than acquisition, the appraiser must provide "appropriate explanation" for the sudden increase.

Inspections are required of all the key components of the building structure and systems when price jumps exceed 20 percent. The inspection report must be provided to the purchaser before closing. If the inspection reveals structural or "health and safety" defects, repairs must be completed before the closing and a final inspection performed to ensure that the repairs have been made.

The new extension of the "90-day anti-flipping" rule will definitely benefit the single-family investors! This is because the longer a home is held, the more expensive it is to the investor, so investors aim to sell the properties at the shortest possible time.  If you are interested in investing in real estate, please visit www.anchoragehomedeals.com.