FHA Loans Anti-Flipping Policy - What does this mean for you?

I caught wind of a brand new listing near Tahoe Park today before it actually went in to MLS, that sounded like a possible fit for one of my current buyer clients. When I called the listing agent to find out the scoop on the property, in the course of our conversation she mentioned that the house had been recently acquired by the seller via a Trustee Sale (foreclosure auction by the bank on the county courthouse steps).

RED FLAG!

So, I immediately called the buyer's loan officer, and he confirmed what I suspected. The buyer is using an FHA loan program, and FHA has strict guidelines regarding the purchase of "flipped" homes. FHA defines a flipped property as one that has changed ownership within the last 90 days. FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days...the exception to this anti-flipping rule is REO property marketed and sold by property disposition firms (asset management companies) on behalf of lenders / banks.

Buyers - if you are using an FHA loan program, make sure that your agent confirms the property has been owned by the seller for longer than 90 days. If you are purchasing a home from an investor who fixed up a property to sell, you may have issues when it comes time to fund your loan. When you look at the pre-liminary title report, see if there are any recent recordations in this regard. Your agent should be on top of this for you.

Sellers - if you are planning on rehabilitating a property and selling it prior to your 90th day of ownership, understand that you may be limiting your pool of buyers. Other scenarios are considered "flipping" per FHA as well. For example, if your property transfers ownership in and out of a living trust, or if the property transfers ownership in and out of a Corporation or LLC you may have the same issue.

There is an an appeal process (if the seller is not a bank or asset management company) and has owned the property for 90 days or less...however there is no guarantee that an exception will be granted though. Just be aware...