On Dec 29, 2011,U.S. Department of Housing and Urban Development (HUD) announced that it was extending its waiver of the “90-Day Anti-Flipping” regulation through the end of 2012.
The extension of this waiver will allow owner-occupant buyers to purchase homes, which have been owned by the Seller for less than 90 days using FHA-backed loans. These types of homes are usually “Investor Owned” AKA “Flipped Properties” or  “Fix-and-Flips”. The investor purchased the home at a low price, because it is in poor condition, usually from a lender and then updates/remodels the home and resells it at a higher price.

The waiver to the “90-Day Anti-Flipping Rule” was first implemented in 2010 and was set to expire at the end of 2011.  HUD put the waiver in place because they believed that with mounting foreclosures, blocking the sale of flipped homes will hurt  neighborhoods “struggling to overcome the possible effects of abandonment and blight.” Indirectly this adds to the slowdown  of the US economic recovery.

The “90-Day Anti-Flipping Rule” which originally took effect back in 2003, was created to prevent FHA-backed loans from being used to purchase homes that had been owned by a Seller for less than 90 days. The regulation was put into place to curb the spike in unscrupulous home flipping that drove real estate prices up during the boom (aka housing-bubble) and which was a contributing factor to the recent market crash. HUD decided to implement the waiver of the “90-Day Anti-Flipping Rule”, to help the real estate market rebound by encouraging the investors to purchase foreclosures and distressed properties and refurbish them.  Since most of these “flipped” properties are purchased by first time home buyers, the FHA loans with low down payments are the preferred way to finance these homes.

Although the waiver makes it easier to resell refurbished homes, the waiver does contain restrictions to prevent predatory flipping. If the sales price of a flipped property is 20 percent more than what the seller bought it for, the seller must justify the additional cost. That can include providing documentation on renovation expenses.

Under the terms of the waiver, all sales must be “arms length” transactions, meaning there is no personal or business relationship between buyers and sellers. The lender must demonstrate that the property was not subject to prior flipping and that the property was fairly and openly marketed for sale.

Since the waiver was put into place in 2010, FHA has insured nearly 42,000 mortgages worth more than $7 billion on homes resold within 90 days of the last purchase.

As a buyer of a flipped property there are still some things to keep in mind before you make an offer on the property. For example you may be required to pay for two appraisals.  Call me to discuss this situation and other considerations.

More information can be found at HUD, here is a link: http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2011/HUDNo.11-292