Several of our FHA sources no longer enforce the 90 day flip rule; irrespective of who the seller is (the seller can be an investor who just bought at auction, for example). However, the requirements get onerous if the current buyer is paying more than 20% more for the property than did the previous buyer. In this situation, the price increase must be justified, and further inspections and appraisals are required.
Here are the exact rules per one of our FHA sources:
Effective with fully executed sales contracts dated February 1, 2010, through January 31, 2011, the 90-day requirement can be waived for forward-mortgages only if all of the following apply:
a. Transaction is arms-length; there is no identity of interest between the buyer, seller or other parties to the transaction.
Including but not limited to: seller holds title to the property, any non-individual seller (i.e. LLC, corporation or trusts) was established and operating in accordance with applicable state and Federal laws; no pattern of previous flipping activity exists for subject property (i.e. multiple title transfers within a 12-month time frame, property was marketed openly and fairly via MLS, auction, For Sale By Owner offering or developer marketing).
b. If sales price is 20% or more over the seller’s acquisition cost, lender must:
a. Justify the increase in value with documentation supporting the increase in value was the result of renovation of the subject property and/or a second appraisal verifying seller has completed sufficient legitimate renovation, repair and rehabilitation work on the subject property to substantiate the increase in value, or in cases where no such work was performed, the appraiser provides appropriate explanation of the increase in property value since the prior title transfer
b. Obtain a property inspection via CMS and provide inspection report to the borrower before loan closing. Borrower may be charged the cost of the inspection. Inspector does not have to be FHA-approved inspector or 203(k) consultant. Inspection must include at minimum:
Property structure, including the foundation, floor, ceiling, walls and roof;
Exterior, including siding, doors, windows, appurtenant structures, such as decks and balconies, walkways, and driveways;
Roofing, plumbing systems, electrical systems, heating and air conditioning systems;
All interiors; and All insulation and ventilation systems, as well as fireplaces and solid-fuel burning appliances.
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