FHA 90 day waiver
Jan 27th, 2010 by Vinny
This is hopefully the best news to date and I think we will start to see a huge shift in the market:
Today HUD lifted its rule prohibiting FHA borrowers from purchasing properties which were acquired within 90 days by the seller. The waiver of this rule takes effect February 1, 2010. Here are the main limitations:
1. The transaction must be arms-length. In order to ensure no inappropriate collusion between parties, the following rules must be met:
a. Seller holds title to the property;
b. LLCs, corporations and trusts that are serving as sellers must be organized and operating in accordance with State and Federal law;
c. There must be no pattern of flipping for the preceding 12 months; and
d. The property must be marketed openly and fairly (an MLS listing would satisfy this requirement). Sales that have an “assignment of contract” would be a red flag.
2. If the sales price is 20% or more than the seller’s acquisition costs, the waiver only applies if:
a. There is some evidence to justify the increase in value or a second appraisal. This requires evidence that the seller performed legitimate renovation, repair or rehab work to substantiate the value or, where no such work has been performed, the appraiser provides an explanation of the increase in property value; and
b. A property inspection must be ordered and the report provided to the buyer before closing. The inspector must have no interest in the property or relationship with the seller.
So the main questions that we will be finding out over the next few weeks is, what does a pattern of flipping entail (wholesaler to me is that too many?) and how to justify the increase in costs of property over 20%. If you purchase a property you have to raise the price by 30% to even think about making a profit, especially after any bit of rehabs..
