FHA Property Flipping
Waiver Effective 02/01/2010 to 01/31/2011 (EXPIRED)
Pursuant to §7(q) of the Department of Housing and Urban Development Act (42 USC 3535 (q)) and 24 CFR 5.110,
I hereby waive §203.37a(b)(2) of the regulations. The regulations at 24 CFR §203.37a(b)(2) provide that a mortgage
for a property will not be eligible for FHA insurance if the contract of sale for the purchase of the property is executed
within 90 days of the prior acquisition by the seller, and the seller does not come under any of the specific exemptions that
apply to the 90-day rule. This waiver, which takes effect on February 1, 2010, is limited to those sales meeting the following
conditions:
a.
The seller holds title to the property;
b. LLCs, corporations, or trusts that are serving as sellers were established
and are operated in accordance with applicable state and Federal law;
c. No pattern of previous flipping activity exists
for the subject property, as evidenced by multiple title transfers within a 12-month time frame (chain of title information
forthe subject property can be found in the appraisal report);
d. The property was marketed openly and fairly, via MLS,
auction, For Sale by Owner offering, or developer marketing (any sales contracts that refer to an "assignment of contract
of sale," which represents a special arrangement between seller and buyer may be a red flag).
2. In
cases in which the sales price of the property is 20 percent or more over and above the seller's acquisition cost,
the waiver will only apply if the lender:
1. Section §203.37a(b)(2) of the FHA regulations provides that FHA will not insure a mortgage for
a property if the contract of sale is executed within 90 days of the acquisition of the property by the seller. Several exceptions
to this 90-day resale restriction are contained in §203.37a(c). The properties sold by HUD and other exempted entities
are usually obtained through foreclosure.
2. On June 7, 2006, a final rule, contained in §203.37a©, was published
to broaden the exemptions from the 90-day resale restriction as follows:
a. Sales by HUD of REO and single
family assets in revitalization areas;
b. Sales by another agency of the United States Government of REO single family
properties pursuant to programs operated by these agencies;
c. Sales by nonprofit organizations approved to purchase
HUD REO at a discount with resale restrictions;
d. Sales of properties that were acquired by the seller through inheritance;
e.
Sales of properties purchased by an employer or relocation agency in connection with the relocation of an employee;
f.
Sales of properties by state and federally chartered financial institutions and any other Government Sponsored Enterprise
(GSE);
g. Sales of properties by local and state government agencies; and
h. Sales of properties located in Presidentially
Declared Disaster Areas, but only upon announcement by HUD through the issuance of a Mortgagee Letter.
3.
On June 9, 2008, a waiver of §203.37a(b)(2) was granted exempting sales of REO properties acquired by mortgagees, whether
sold directly or by subsidiaries or vendors to whom they transferred title, from the 90-day resale restriction. On May 15,
2009, the FHA Commissioner extended this waiver for all loans for which sales agreements were signed by the seller and buyer
on or before May 10, 2010.
4. On September 14, 2009, a waiver of §203.37a(b)(2) was granted exempting sales of
properties that had previously been foreclosed on or abandoned, which were acquired and resold by for-profit and non-profit
entities using funding from and performing under agreements with state and local government agencies under HUD's Neighborhood
Stabilization Program (NSP), from the 90-day resale restriction.
5. Since the promulgation of §203.37a, the volume
of foreclosures has increased dramatically, especially over the past two years. In examining its policy regarding the 90-day
resale restriction contained in §203.37a, FHA finds that a temporary relaxation of its eligible property requirements
can also help address the foreclosure crisis.
6. FHA finds that eliminating the 90-day resale restriction for buyers
will give FHA a greater opportunity to dispose of its single family REO properties in a way that maximizes return to the FHA
mortgage insurance fund; also, permitting buyers to use FHA-insured financing to purchase other bank-owned properties, or
properties sold through private sales for resale, will help create market conditions that will allow homes to resell as quickly
as possible, thus helping to stabilize real estate prices as well as helping stabilize neighborhoods and communities where
foreclosure activity has been high.
7. HUD REO, many bank-owned properties, and properties sold through private sale
are often sold in an "as-is" state, without repairs or warranties. Many of these homes require repairs and are purchased
by buyers with the financial means and necessary resources to complete needed rehabilitation work and return the homes to
the market at fair market prices.
8. Acquiring, rehabilitating and then reselling these properties to prospective homeowners
takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent sale within 90 days of acquisition
adversely impacts the willingness of purchasers to bid on these properties, as theses potential buyers need to consider holding
cost associated with the purchase, along with the risk of vandalism associated with allowing a property to sit vacant over
a 90-day period of time. Thus, the 90-day resale restriction often hinders community stabilization and revitalization.
9.
As a result of the currently tightened credit market, FHA-insured mortgage financing is often the only means of financing
available to potential homebuyers. FHA has an unprecedented opportunity to fulfill its mission by helping many homeowners
find affordable housing while contributing to the stabilization of neighborhoods and communities.
1.
To help facilitate the return of repaired and habitable properties to the market in a timely fashion, additional exemptions
to the 90-day resale restriction period must be granted for the purchase of properties by investors. This policy change will
help to sell properties that may otherwise remain vacant for up to 90 days, while offering affordable housing options to buyers
wishing to use FHA-insured financing.
2. All other guidance concerning property flipping prohibition remains unchanged.
3.
The most expeditious means of effectuating such additional exemptions is by waiving §203.37a(b)(2).
4. The above
findings constitute good cause for the waiver, as required by 24 CFR §5.110.
5. A waiver of §203.37a(b)(2)
will not violate any statutory requirements.
6. The waiver shall expire one year from February 1, 2010, unless otherwise
extended or withdrawn by the Commissioner. If FHA discovers that there is a significant increase in mortgage defaults and
mortgage insurance claims attributable to insured mortgages obtained through this waiver, the Commissioner may, at his discretion,
withdraw this waiver immediately.
Signed: David H. Stevens
