FHA has prohibited insuring a Florida home mortgage on a home owned by the seller for less than 90 days. This restriction was imposed in 2003 to prevent property flipping. On January 15, 2010, HUD announced a temporary (1 year) waiver of the prohibition with strict conditions to insure against predatory practices. Effective with Florida Home Mortgages underwritten on or after April 1, 2010, Most lenders will allow the 90 day waiver for all property sellers, including private sale transactions, but prohibits FHA financing for properties owned less than 90 days if the sales price is greater than or equal to a 20% increase over the seller's acquisition cost.
The 90 days is calculated from the seller's acquisition date to the purchase contract date of the new transaction.Regardless of who the property seller is, if the resale occurs within 0 to 90 days, the following requirements must be met:
1. All transactions must be arms length, with no identity of interest between buyer and seller or other parties participating in the sales transactions. Specific ways to ensure an armslength transaction include:
a. Property seller currently holds title to the property.
b. LLCs, corporations, or trusts, serving as sellers must meet all applicable state and Federal law.
c. No pattern of previous flipping activity exists on the subject property, as evidenced by multiple title transfers within a 12 month period time frame (chain of title information for the subject property can be found on 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 with an "assignment of contract of sale", which represents a special arrangement between seller and buyer may be a red flag).
2. Transactions with sales price greater than or equal to a 20% increase over seller's acquisition cost, are not allowed.
There are several reasons you might be interested in paying special attention to this guideline.
#1. If you're a first time home buyer and have gotten your contract in on time to qualify for the tax credit, it's also important that you close on time as well. If the requirements stated above are not met. You can rest assure closing on your loan will be extremely difficult if even possible.
#2. Realtors before you invest your energy, time and money you want to make sure you know if the seller is an investor group as well as all of the specific details pertaining to the property. Some times this information is not posted in the public records if the sale is recent.
#3. Real Estate investors you want to make sure you can sell your investment property as smoothly as possible. Providing this information to all parties involved will help you see a faster return on your investment.