The Federal Housing Administration (FHA) has decided to continue to suspend it’s ‘Anti-Flipping‘ rule on loans of renovated houses owned less than 90 days beyond the scheduled Dec. 31 expiration deadline.
Originally, due to a bevy of scandals in Los Angeles, New York, Baltimore, Washington, D.C., and other large cities over widespread fraudulent flips — in which houses were sometimes resold for double their previous price within days or even hours — the FHA stopped insuring loans on houses whose sellers had owned them for less than 90 days. This anti-flipping rule became a deterrent to several fix and flippers.
However, in 2010, the Obama Administration proposed a temporary reprieve due to expire at the end of the year which allowed homes to be flipped quickly provided they met certain guidelines. In 2011 and 2012, the reprieve was extended.
Now it has been extended once again through 2013.
The quick flip policy is widely considered one of the key federal government moves that has actually helped the housing market and encouraged private investors in large numbers — often small-scale operations — to buy foreclosed and deteriorating houses from lenders, then repair them and resell within short periods of time.
Since the plan was first put into place by the Obama administration in February 2010, more than 65,000 renovated homes have been financed using more than $11 billion in FHA-backed loans, according to federal officials. Roughly 23,000 of these properties were acquired and resold with FHA loans within the last year alone.
Anti-Flipping Rule Standards
However, according to the LA Times, there are some standards in place to prevent fraud from occurring:
The FHA’s policy requires property sellers to comply with a detailed list of standards. Among the most prominent:
• You can’t play games on ownership. All transactions must be arm’s length with “no identity of interest between the buyer and seller or other parties” involved in the sale. You can’t buy a house from your uncle at a bargain price, hire your brother to do a few quick repairs to it, then resell it for a huge profit to an unsophisticated buyer, supported by a hyped-up appraisal signed by a friend or partner.
• The seller of the rehabilitated house must have clear legal title to it. This may sound elementary, but some flippers during the late 1990s never bothered to acquire title and record it. They took over the property one day, slapped a little paint on the outside and sold it for cash the following day.
• If the selling price is 20% higher than what the house cost the seller, a second appraisal, conducted by a member of the FHA’s panel of approved appraisers, is mandatory to be certain that the improvements made to the property justify the increased price.
• An independent inspection report, conducted by a professional with no connection to other participants in the transaction, is also mandatory when the price jump is more than 20%. If there are repairs that are still needed that could affect the “health and safety” of the purchasers, they must be completed and a re-inspection conducted before the closing. http://www.latimes.com/business/realestate/la-fi-harney-20121216,0,7259629.story