Buying Foreclosures – De-Flipping the Flippers

If you’re a real estate investor, then you’ve got a home buying bonanza for foreclosed homes for sale going on! The market is saturated with these opportunities. But enter the U.S. Department of Housing and Urban Development (HUD) to apply the brakes and give some relief to the traditional home buying-FHA mortgage recipient and the real estate market as a whole.

Traditionally a buyer wanting to use FHA financing to purchase a home meant that the seller must have owned the property for at least 90 days.  This kept investors from buying these homes and fixing them up because they would have had to hold them well past the time it took to rehab them.  This cost too much money for most.  

But this HUD Waiver on foreclosed properties was made effective on February 1, 2010 and is in effect for at least one year. The governing principle here is to shield FHA borrowers against ‘predatory practices’ where a quick turnaround of a property will encourage its sale at an inflated price, hence the requirement on the part of the flipper to own the property for 90 days. It also opens the floodgates for FHA borrowers to purchase HUD-owned properties, bank-owned properties, or privately sold properties and should help price stabilization and community revitalization.

According to the release from www.hud.gov, “…This waiver is limited to those sales meeting the following general conditions:

•All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.

•In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.

•The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.”

I think trying to treat everyone the same is a good practice in theory. It reduces all opportunities to the lowest common denominator and ultimately helps us move toward this brand new market that is slowly emerging from the rubble.

But as we’ve seen, sweeping changes are still subject to credit overlays and time restriction overlays by the individual lender institutions. At the end of the day, we’re talking about guidelines; guidelines created in response to a situation that are still subject to the whims of the lender. Basically, the more things change, the more…they change.

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