HUD Waives FHA 90 Day Rule on Flipping
In an effort to expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties, HUD has announced a temporary waiver of the 90-day flipping rule. The waiver takes effect February 1, 2010, and lasts for one year, unless otherwise extended or withdrawn by HUD.
The waiver is limited to those sales that meet the following conditions:
- All transactions must be arms-length, with no identity of interest between the buyer and seller or any other parties participating in the sales transaction, including:
- Seller must hold title
- LLCs, Corporations and trusts must be established in accordance with state and federal law
- No evidence of previous flipping within 12 months
- Evidence that property was marketed openly, such as via MLS, auction, FSBO
- The waiver is limited to forward mortgages and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program
- If the sales price of the property is 20% or more above the seller’s acquisition cost, the waiver will apply only if the lender meets the following condition
- Significant work has been done to the home (documented by a second appraisal verifying that legitimate repairs and rehabilitation have been done to substantiate an increase of more than 20%)
- In cases where no work has been done, the appraiser must provide explanation to support the increase since the prior transfer
- A property inspection must be provided to the buyer prior to closing. (The lender may charge the borrower for the inspection.) The inspector does not need to be FHA approved, but must have no interest in the property, must not receive compensation other than from the lender and may not be involved with the repairs recommended from inspection.
The complete text of the waiver — including what the inspection must include — is available on the HUD website
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