May 1, 2003 HUD imposed a 90 Day Title Seasoning requirement for all new FHA loans. This was their big idea to help protect the consumers from the Big Bad Flippers. It only took 6 years and a housing market crash to show the elitists the errors of their ways. Now they need our help to fix their mess.
They finally came to their senses and temporarily suspended title 24 CFR §203.37a(b)(2), which is the 90 Day Title Seasoning Requirement. This is only a temporary suspension. Starting February 1, 2010 and expiring on 1/31/2011, First time Home Buyers who apply for an FHA loan will not have the 90 Day Title Seasoning Requirement. However, we as investors will still need to follow a few guidelines in order to Resell (Flip) our Short Sales / REO’s and Flips to First Time Home Buyers who are applying for an FHA loan.
See HUD’s Press Release: http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories
/2010/HUDNo.10-011
Guidelines Investors Must Follow:
(read FHA ’s official release for all the details at: http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf)
- All Transactions must be Arms-Length.
- The Seller Holds Title.
- bLLC’s corporations or trusts that are servicing as the sellers were established and are operated in accordance with applicable state and federal laws.
- No pattern of previous flipping activity exists for the subject property within a 12 month period.
- The Property was Marketed openly and fairly.
- Assignment of Contracts may be Red Flagged.
- In cases which the sales price is 20% or more over and above the seller’s acquisition cost, the waiver will only apply if the lender:
- Justify increased Value
- My require a second appraisal
- Proof of work performed
- Independent Property Inspection
- 3. The waiver is limited to forward mortgages, and does not apply to Home Equity Conversion Mortgages (HECM) for Purchase Program.
This is a HUGE change and it will make it ten times easier for investors to resell Short Sales and Rehabs without having to find buyers who can qualify for conventional financing. FHA is the #1 lender to first time home buyers and let’s face it, our resell market is the first time homebuyers. It has just been difficult for us to resell to first time homebuyers over the last several years because of the title seasoning rules. The lenders who did not have those title seasoning rules had such lending requirements, primarily the down payments, that eliminated about 75% of the first time homebuyers from buying from us, unless we held onto the properties for so long that our holding cost eat up most of our profits and we risked those vacant properties becoming vandalized before the title seasoning time frames had passed.
For now anyways, we can get back to what we do best, fix either financial problems or structural problems in a timely manner and resell those properties for a profit. Everyone wins this way. The banks will have less foreclosures, the sellers will be able to get out of their problems, properties that need extensive work can be bought the traditional way and the biggest winner of all will be the first time home buyers who need FHA financing will now be able to buy completely renovated properties that will last for many years before they need maintenance or repairs again and the economy, especially the housing markets will start to see a recovery.