FHA Amends Anti-Flipping Rule

by Peter G. Miller
June 16th, 2008

The FHA has announced a change in its anti-flipping program to speed the sale of foreclosed homes.

Under HUD’s anti-flipping rule, borrowers cannot generally get an FHA loan if a property has been re-sold within the past 90 days. However, there are exceptions in such cases as when a property is sold by an estate, a community housing organization or a governmental agency.

Now HUD is moving to expand the exception list by dropping the rule when a home is being sold by a lender after foreclosure. As HUD explains:

“FHA finds that in addressing specific cases related to the mortgage crisis, waiving the regulations so that properties acquired by foreclosure by mortgagees that are not state- or federally-chartered would allow the properties to become eligible for FHA-insured financing during the 90-day period. This would reduce holding costs to mortgage lenders. An expansion of the exemption will result in a lessening of the likelihood of property value deterioration to adjoining and near-by properties as well as to the properties acquired by foreclosure.”

This is an idea which makes a lot of sense. The purpose of the anti-flipping rule is to eliminate the use of FHA loans to underwrite illegally-flipped homes. Since most illegal flippers must quickly re-sell homes to re-capture their cash, the 90-day standard is a major problem for them.

Unfortunately, the anti-flipping rule also hits legal and lawful investors who simply want to buy and quickly re-sell homes. This is a situation where no one has figured out a way to instantly separate the lawful from the unlawful, thus the need for a general ban.

HUD’s news release is below:

Measure seen to bring stability to home values and accelerate sale of vacant properties

WASHINGTON – In an effort to stabilize declining home values in certain neighborhoods, the Bush Administration today announced a temporary policy that will extend government-backed mortgage insurance and allow for the immediate sale of vacant foreclosed properties.

For one year, the Federal Housing Administration (FHA) will insure foreclosed properties marketed and sold by property disposition firms on behalf of lenders. The properties, which must purchased by owner-occupants, will no longer be subject to the customary 90-day waiting period.

“A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community’s recovery,” said Brian D. Montgomery, Assistant Secretary of Housing-Federal Housing Commissioner. “The action we take today will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes in neighborhoods across the country.”

FHA’s new temporary policy will help stabilize neighborhoods experiencing high rates of foreclosure by reducing the inventory of unsold properties. Many foreclosed properties remain vacant for months, inviting vandalism and reducing values of surrounding homes. To address that sizeable inventory, lenders have hired companies that specialize in the marketing and disposition of foreclosed homes. It’s reasonable and appropriate that these firms have the ability to sell the properties to borrowers using FHA financing.

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This prohibition is intended to prevent property “flipping,” a predatory practice that strips a home of its equity before being quickly resold at an inflated price to an unsuspecting buyer. FHA’s new policy will permit the immediate sale of foreclosed properties to legitimate borrowers wishing to use FHA-insured financing.

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12 Responses to “FHA Amends Anti-Flipping Rule”

  1. Joe Radzikowski Says:

    Hello Im trying to find out if rewriting the loan on my home is possible, Im currently in a tough position , I cannot afford the mortgage and will be forclosed on. Ive filed Chapter 7 , I was advised by my mortgage co to shortsale the property. I want to stay and if the mortgage was according to the current value of the home I could pay the mortgage, the house was worth 460,000 and is being offered on the shortsale as 290,000 , why sell it to someone else?  I could afford to pay a loan for 290.000, Can HUD REWRITE A MORTGAGE?



  2. Bill Says:

    Joe you crack me up:-) Go rent an apartment. You filed bankuptcy dude!!! I wouldn’t want to loan you any money…bankruptcy simply means your not opposed to telling your creditors to kiss it…”I’m going to borrow this money from you …but I might not pay it back” If you could afford a 290000 house, thats what you should’ve bought duhhh!!


  3. kelli mays Says:

    I have an FHA approval. Was suppose to close today. Then the UW comes back with “FHA requires a 2nd appraisal by another company”

    What?!?!?!?1 Apparently, the seller purchased the house for half of what he’s selling it for. It’s been longer than 90 days. There are FOUR (4) GoOD comps in the appraisal. I don’t understand why this is being required!?!??!?! now another appraisal cost of $425. what kind of )&@$)*$ is this???

  4. G. Michael Says:

    I know this is old news, because you’ve probably long since closed your loan, but it’s a standard procedure on FHA loans to ask for a 2nd appraisal when the value of the home has increased by 100% or more since the last sale. When investors buy and remodel homes, they have to justify the new selling price with documentation including the 2nd appraisal.

  5. jay Says:

    I purchased a property for cash from a trustee sale. I renovated and cleaned up the forclosure, then listed with a broker on the MLS. I have a buyer who wants to purchase the property using an FHA loan. Do I have to wait 90 days. I am a lawful flipper with clear title to this property. I listed the property at a mid range price below appraisals.
    Will the FHA allow us to move forward with the sale or do we have to wait 90 days??
    Please Advise.

  6. Gogo Says:

    Sorry Jay,

    You gotta wait 90 days like everyone else.

    Or try to compile a list of small community banks that do non-conforming residential loans (because they portfolio their own loans) and give the buyer a list of them they can approach as an alternative.

    Check the disclosure/legality requirements with an attorney.

  7. Jo Says:

    I’d like to know if I fall under the exception if I purchase a home before 90 days staight fha if the seller is a non-profit community development origization that purchased it from a shortsale forcloser,, remodeled then I bought if from them is that an exception..can I still buy it before the 90days and do fha in order to get it before the nov 30th dead line.

  8. James Tlabott Says:

    I had intentions of selling my home and moving to different state for other employement. Placed my house on the market and then was given a raise at my present employment. I wanted to take advantage of lower interest rates, refinance my house and use equity for improvements. Does the 90 prohibition apply?

  9. Peter G. Miller Says:

    Jim –

    The 90-day rules applies to sales. Check with a local lender for specifics.


  10. kelly Says:

    an investor bought a sherrif sale home in April 2009 and has sold it in December 2009, but he never put himself in title or recoreded the sherrifs deed. Do you have to wait 90 days since it just got recorded in December or can you go off the april purchase of the home since the sherrifs sale recognizes the investor as the owner of the property?

  11. khan Says:

    i wanted to find out what 90 days really means. I like a house which some investor bought and had repairs done on Nov 10 2009. Can i give the offer to them and ask to close on Feb 10 2010. Can they start the process and close on feb 10 and that be okay??? or the processing will start after Feb 10 and the loan will have to be closed sometime after that???

  12. Kevin Nolen Says:

    Ok guys, I am an investor

    I can tell you how it works in CA.

    IF you buy the property (doesnt matter if you get a loan or cash, doesnt matter if you buy it short sale, foreclosure, or standard way) for one price, and then lets say you put it up for sale within 90 days, the buyers CAN get an FHA LOAN, BUT, if your purchased was less than 90 days ago, they will base the homes value at what you paid (even if there is a new appraisal). There is no way around this, UNLESS the FHA buyer is buying it as a foreclosed home directly from a bank (basically the bank can flip and make money right away, but we cant-we have to wait 90 days then make a profit)

    The old way was FHA would do it if you showed proof of the increase (i.e. 50,000 in receipts for remodel to substantiate $ 50,000 more in price).

    I have a deal that FHA won’t close, and I bought it in AUG of 2009!!!! They dont like that I am selling it in FEB of 2010 and Im making a profit!!!!!!!!!!!!!


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