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Helpful Links:
Cook County Recorder of
Deeds
U.S. Department of
Housing and Urban Development |
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REHABBERS ALERT!! Way to go FHA!!
By Michael S. Friman, Partner and Beth Prendergast, Associate
With the increased need for FHA financing, rehabbers in traditionally distressed neighborhoods were hand-cuffed by tight HUD regulations. The regulations prohibited sellers from “flipping” homes within 90 days of purchase where the purchaser was using FHA financing. Thus, homes would stay on the market for longer periods than necessary, increasing holding costs and oftentimes resulting in vandalism or missed opportunities for re-sale. Recognizing the need to stabilize neighborhoods and stimulate sales (a breath of fresh air given previous HUD policies), HUD recently announced (with little “fanfare”) a temporary policy that will expand access to FHA mortgage insurance for buyers of rehabbed or foreclosed properties. HUD acknowledged that, in today’s real estate market, acquiring, rehabilitating and reselling foreclosed or distressed properties often takes less than 90 days. With the dramatic increase of foreclosures over the past two years, the 90-day restriction was proving too restrictive for traditional rehabbers.
The original purpose of the 90-day restriction was to protect FHA borrowers against predatory practices of “flipping,” where properties are quickly resold at inflated prices without any actual increase in value of the property. While such predatory practices remain a concern, the FHA has determined that a temporary waiver of the restriction, where certain conditions are met, is necessary to facilitate the return of repaired and habitable properties to the market in a timely fashion, thereby helping to stabilize real estate prices and revitalize neighborhoods and communities.
For a period of one year from February, 1 2010, the 90-day resale restriction is waived for buyers wishing to use FHA-insured financing where the sale meets ALL of the following 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. (The waiver contains recommendations for lenders to verify the lack of collusion between the parties.)
• In cases in which the sales price of the property is 20% or more above the seller's acquisition cost, the waiver will only apply if the lender adequately justifies the increase in value (usually through verification of repairs) and orders a property inspection and provides the inspection report to the purchaser before closing.
• The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for Purchase program.
To Download a PDF Version of the HUD Temporary Policy ( Click Here )
In short, HUD has taken positive steps in the right direction to rectify an unprecedented problem. Along with the extension and expansion of new home purchaser credits, the FHA waiver should help spark home sales in the near future. |
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