FHA Flipping Rules no longer apply.

On 5/14/2008, I took an application, ran credit and did a pre-qualification. Great news. The customer qualified for an FHA home up to $150,000. Here it is November 2009. 18 months later, the buyer is ready to make an offer on a house. According to the agent, Staci has looked at over 100 homes in the past 18 months and this is the one she wants. I went to the assessor's website to check the taxes on the property and noticed that it was owned by a company. The flag went up in my head to ask the agent how long since the last sale of the property. 61 days.

61 Days! I started reading the HUD manual to see what exceptions, if any, existed in regards to the "90 day flipping rule". There are some exceptions such as a bank owned (REO) property or a house owned by a relocation company but none applied to this scenario. Under this rule, we can't even write a contract until the 91st day.

The buyer's agent called the listing agent (who was also the owner) to discuss the situation. "Can you take it off the market for 30 days? ""No" was the reply. The listing agent suggested we write a contract stipulating a conventional loan and establish a 35 day inspection period. On the day the property becomes FHA eligible, you cancel the contract and present a new one with an FHA loan. That was the essence of the discussion.

The buyer's agent (relatively new to the business) then called me. She told me what the other agent had suggested and we agreed that this was not in the best interest of anyone on our side of the table. Besides that, it was fraudulent. We agreed that since we couldn't deliver a conventional loan, we wouldn't make an offer proposing just that. Her broker agreed wholeheartedly.

We would like to tie this property up for the next 30 days, but we can't see a way to do it. Unfortunately, we feel fairly confident that someone else will purchase or write a contract on this property, no ifs, ands or buts...

What have we learned here? For the listing agent: please put it in the listing that the property is not FHA eligible until a specific date. Buyer's agent: Call your lender to discuss anything that might be a potential red flag. In this market we need everyone to be upfront about the situation. Having our buyer fall in love with a property, only to find out that she can't make an offer, is really lousy!

And after all of this, as of February 1st, 2010, the flipping rule has been suspended for one year.

_________________________________

Patrick Randles

Sunstreet Mortgage, LLC

Tucson, AZ 85718

(520)850-7485