Effective February 1, 2010, the Federal Housing Administration (FHA) will place a one-year moratorium on its 90-day anti-flipping rule under waiver of requirements of 24 CFR 203.37a(b)(2). , unless otherwise extended or withdrawn by the Commissioner. This will allow buyers with FHA-backed loans to buy homes that have been held for less than 90 days.
“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties, ” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”
The waiver is limited to those sales meeting the following conditions:
- All transactions must be arms-length, with no interest between the seller and the buyer or any other parties involved in the sales transaction.
- The seller holds title to the property.
- LLCs, corporations, or trusts that are serving as sellers were established and operated in accordance with state and Federal laws.
- No pattern of previous flipping exists for the property, as shown by multiple title transfers within the last 12 months.
- The property was marketed openly and fairly.
- Assignment of a contract for sale will trigger a red flag.
In cases where the sales price is 20% or more over and above the seller’s acquisition cost, the waiver will only apply if the lender:
- Justifies the increase in value by retaining supporting documentation and/or a second appraisal which verifies the seller has completed legitimate renovation, repair, and rehabilitation to substantiate the increase in value, or in cases where no work is performed, the appraiser provides sufficient explanation of the increase in value.
- Orders a property inspection and provides the inspection report to the purchaser before closing. The lender may charge the borrower for this inspection. The use of FHA-approved inspectors is not required.
- At a minimum, the inspection must include: the property structure, including: the foundation, floor, ceiling, walls and roof. The exterior, including: the siding, doors, windows, decks, balconies, walkways, and driveways. All interiors and all insulation and ventilation systems, fireplaces, and fuel-burning appliances.
- The waiver is limited to forward mortgages and does not apply to Home Equity Conversion Mortgage (HECM) for Purchase program.
FHA finds that eliminating the 90-day resale restriction for buyers will permit buyers to use FHA-insured funding to purchase other bank-owned properties, or properties sold through private resale, which will allow homes to resell as quickly as possible.