The Charleston, South Carolina area is a great place to live or have a vacation home. The weather is great, the beaches are fantastic, golf courses are abundant, there are many historical sites, the architecture is unbelievable, the dining is unbeatable, and the people are the friendliest in the country. It is because of these reasons that I believe Charleston SC Real Estate is truly unique. I look forward to helping you with any of your Charleston SC Real Estate needs in Charleston, Berkeley, or Dorchester counties. Today’s article is titled:
New Federal Guidelines on the Prohibition of Flipping
4.7: Prohibition on Property Flipping (03/01/11)
Introduction: This topic contains information on the prohibition on property flipping, including.
1. Definition of property flipping
2. Inapplicability of property flipping restrictions to new construction
3. Requirement that the seller must be the owner of record
4. Appraiser responsibility for analyzing prior sales of a property
5. Restriction on resales occurring 90 days or less after acquisition
6. Required second appraisal on properties sold between 91 and 180 days after acquisition
7. Resales occurring between 91 days and 12 months following acquisition, and
8. Exceptions to the 90-day restriction.
Change Date: March 1, 2011
4155.2 4.7.a: Definition of Property Flipping
The term property flipping refers to a practice whereby recently acquired property is resold for a considerable profit with an artificially inflated value, often abetted by a lender's collusion with an appraiser.
4155.2 4.7.b: Inapplicability of Property Flipping Restrictions to New Construction
The restrictions listed in this topic, and in 24 CFR 203.37a do not apply to a builder selling a newly built home or building a home for a borrower wishing to use FHA-insured financing.
4155.2 4.7.c: Seller Must Be the Owner of Record to be eligible for a mortgage insured by FHA:
1. A property must be purchased from the owner of record
2. The transaction may not involve any sale or assignment of the sales contract, and
3. The lender must obtain, and submit in the case binder to HUD, documentation verifying that the seller is the owner or record.
Such documentation may include, but is not limited to:
1. A property sales history report
2. A copy of the recorded deed from the seller, or
3. Other documentation, such as a copy of a property tax bill, title commitment or binder, demonstrating the seller's ownership of the property and the date it was acquired.
Note: This requirement applies to all FHA purchase money mortgages, regardless of the time between resales.
4155.2 4.7.d: Appraiser Responsibility for Analyzing Prior Sales of a Property
To be in compliance with updated Standard Rule 1-5 of the Uniform Standards of Professional Appraisal Practice (USPAP), appraisers are required to analyze any prior sales of a subject property in the previous three years for one to four family residential properties.
Mortgage lenders may rely on the information provided by the appraiser in the Uniform Residential Appraisal Report (URAR) describing the Date, Price and Data for Prior Sales for the subject property within the last three years.
4155.2 4.7.e: Restriction on ReSales Occurring 90 Days or Less After Acquisition
If a property is re-sold 90 days or fewer following the date of acquisition by the seller, the property is not eligible for a mortgage insured by FHA.
FHA defines the:
1. Seller's date of acquisition as the date of settlement on the seller's purchase of that property, and
2. Resale date as the date of execution of the sales contract by a buyer intending to finance the property with an FHA-insured loan.
Reference: For exceptions to the 90-day restriction, see HUD 4155.2 4.7.h
4155.2 4.7.f: Second Appraisal Required on Properties Sold Between 91 and 180 Days After Acquisition
A lender must obtain a second appraisal by another appraiser if:
1. The resale date of a property is between 91 and 180 days following the acquisition of the property by the seller, and
2. The resale price is 100% or more over the price paid by the seller when the property was acquired.
FHA reserves the right to revise the resale percentage level at which this second appraisal is required by publishing a notice in the Federal Register.
Example: If a property is re-sold for $80,000 within six months of the seller's acquisition of that property for $40,000, the lender must obtain a second independent appraisal supporting the $80,000 sales price. Even if the lender provides documentation showing the cost and extent of rehabilitation that went into the property resulting in the increased value, the second appraisal is still required.
Note: The cost of the second appraisal may not be charged to the borrower.
4155.2 4.7.g: Resales Occurring Between 91 Days and 12 Months Following Acquisition
FHA reserves the right to require additional documentation from a lender to support the resale value of a property if:
1. The resale date is more than 90 days after the date of acquisition by the seller, but before the end of the twelfth month following the date of acquisition, and
2. The resale price is 5% or greater than the lowest sale price of the property during the preceding 12 months.
At FHA's discretion, such documentation may include, but is not limited to, an appraisal from another appraiser.
4155.2 4.7.h Exceptions to the 90-day Restriction
The only exceptions to the 90-day resale restriction described in HUD 4155.2 4.7.e are for:
1. Properties acquired by an employer or relocation agency in connection with the relocation of an employee
2. Resales by HUD under its Real Estate Owned (REO) program
2. Sales by other United States Government agencies of single family properties pursuant to programs operated by these agencies
3. Sales of properties by nonprofits approved to purchase HUD-owned single family properties at a discount with resale restrictions
4. Sales of properties that are acquired by the seller by inheritance
5. Sales of properties by state and federally-chartered financial institutions and government sponsored enterprises
6. Sales of properties by local and state government agencies, and
7. Sales of properties within Presidentially Declared Disaster Areas.
Any subsequent resales of the properties described above must meet the 90-day threshold in order for the mortgage to be eligible as security for FHA insurance.
Note: Homeownership Centers (HOCs) do not have the authority to waive the 90-day resale restriction because it is a regulatory requirement and not an administrative policy.
As always, your thoughts, questions, or comments are greatly appreciated.
Let me know if I can help with any of your Charleston SC Real Estate needs or questions.
See Charleston SC Real Estate Blog for local attractions and current Charleston events.
Look at Charleston SC Real Estate homes anywhere in the tri-county area.
View my entire inventory of VisualTours of Charleston SC Real Estate homes at http://www.visualtour.com/inventory.asp?U=182210
Sincerely,
"Carolina Joe" Idleman
http://www.charlestonscrealestateforsale.com
