Recently, HUD enacted a ruling that a property could not be purchased and resold in less than 90 days. Well, you could, but the property would not be eligible for FHA insurance meaning the buyer could not qualify for FHA backed loans.
Effective February 1, 2010, this 90 day waiting period is waived.
There are conditions, of course. Some of them include:
- the transactions must be arms length. There must be no interest between the buyer, seller and/or any other party to the transaction.
- no additional flipping activity exists during the previous 12 month time frame for the subject property
- the property was marketed openly
- if the sales price is more than 20% above the sellers purchase price, increase in value must be justified by supporting documentation and appraisal as well as inspection
Why is this unnecessary 90 day wait period finally being waived (even if temporarily)?
To quote the source, “FHA finds that eliminating the 90-day resale restriction for buyers will give FHA a greater opportunity to dispose of its REO properties in a way that maximizes return to the FHA mortgage insurance fund; also, permitting buyers to use FHA-insured financing to purchase other bank-owned properties, or properties sold through private sales for resale, will help create market conditions that will allow homes to resell as quickly as possible, thus helping to stabilize real estate prices as well as helping to stabilize neighborhoods and communities where foreclosure activity has been high.”
They go on to state that they realize many REO and bank owned properties are sold “as is” to people who are able to fix them up to resell them. The regulations they’ve been putting in place of late are a hindrance to the very people who are able to keep neighborhoods from deteriorating.
I am an investor and we, as a group, are always amazed at the limitations put on what we do. This token change is a step that will ultimately help everyone involved in the process. I have a rehab crew of about 15 and can get a lot of work done to a house in a very short time frame. I want my purchases back on the market as quickly as possible, typically within 3 weeks, no more than a month. The faster the properties move, the more workers I can keep employed.
I have had buyers waiting for homes to be completed so they can make an offer and I have sold properties at the first open house after renovation. The “wait to close” frustration from both myself as the seller and from my buyer is completely unnecessary.
And, the sooner I can sell, the sooner I can restore another property which improves another neighborhood.
Beyond all this, holding costs alone are a problem for any seller. Vacancy insurance is extremely high and the risk of vandalism increases the longer a property is vacant. Risk of water damage and pest infiltration also goes up when a property sits empty.
I am thrilled that some of these unnecessary regulations are being recognized and changed. For all the complaining I’ve done about over-regulating in the past 6 months, its good to have something to finally cheer about. How interesting to be excited about the overturning of a rule that never made sense in the first place.
Signed January 15, 2010, by David Stevens, Assistant Secretary for Housing – Federal Housing Commissioner, this waiver will be in effect for one year.