December 30th, 2011 10:17 AM by Sherry Lee
Government extends waiver of anti-flipping law, allowing homes to be bought and then sold in 90 days
By Kimberly Miller Palm Beach Post Staff Writer
Florida homebuyers will be able to purchase flipped properties with FHA loans through next year as federal officials try to speed the resale of foreclosed and abandoned homes.
The U.S. Department of Housing and Urban Development announced today that it was extending a 2010 waiver of its anti-flipping regulation, which was scheduled to end Saturday.
The rule forbids Federal Housing Administration-backed loans from being used to buy homes that have been owned by the seller for less than 90 days. It was put in place to thwart the kind of unscrupulous home flipping that drove up real estate prices during the boom and which is partly blamed for the market crash.
But with mounting foreclosures and a shadow inventory of 1.6 million not-yet-listed homes nationwide, federal officials said blocking the sale of flipped homes will hurt neighborhoods "struggling to overcome the possible effects of abandonment and blight."
Realtors said today that the extension was expected and that it is a boon to homebuyers as well as investors looking for quick turnarounds on refurbished homes.
"Right now, we really can't afford anything delaying or discouraging a qualified buyer willing to buy a home at fair market value," said Realtor Shannon Brink of RE/MAX Prestige Realty in West Palm Beach.
Brink said he's had past clients with FHA loans who had to delay a closing date to accommodate the 90-day waiting period. In some cases, he said, the buyer lost the home because of the delay.
The practice of flipping homes got a bad reputation during the build-up of the housing market as investors bought properties to resell quickly at marked up prices. Sometimes only minor cosmetic improvements were made to the homes before they were resold.
HUD, recognizing the potential problems caused by flipping in 2003, enacted the 90-day rule.
FHA loans, which require full credit and employment documentation, made up only a small portion of mortgages at the time so the rule had little impact, said Bill Richardson, president of the Realtors Association of the Palm Beaches. More popular during the market peak were stated-income loans or those with more lax requirements.
Today, FHA loans, while mostly for first-time homebuyers, are the preferred method of financing.
"When other financing dried up and banks stopped lending, everyone started doing FHA deals," Richardson said.
HUD's rule waiver does contain restrictions to prevent predatory flipping. If the sales price of a flipped property is 20 percent more than what the seller bought it for, the seller must justify the additional cost. That can include providing documentation on renovation expenses.
Also, sales must be arms-length, meaning there is no personal or business relationship between buyers and sellers.
Since the original waiver went into effect in February 2010, FHA has insured nearly 42,000 mortgages nationwide worth more than $7 billion on homes resold within 90 days of the last purchase.
Don Cameron, a real estate investor who owns a South Florida franchise of We Buy Ugly Houses, said extending the waiver through Dec. 31, 2012 only makes sense.
As much as 95 percent of the purchases of his refurbished homes are FHA financed, he said. It takes his company about 45 days to renovate homes, which usually sell within 30 days of being listed.
"It's certainly an inducement to move real estate and reduce inventories," he said about the waiver. "In a depressed market, everyone is looking for value and our homes are in pristine condition. Why wait 90 days before you can close on a home?"
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