The directors of the California Association of Realtors® (CAR) have recently adopted the following motion at their fall meetings: "That C.A.R. in conjunction with NAR, "SUPPORT" the elimination of the FHA 90-day anti-flipping rule, and that C.A.R. write and publish a letter to the FHA Commissioner in opposition to the FHA 90-day anti-flipping rule." While support for the motion was not unanimous, it passed by a significant majority. Could Texas and other states be soon to follow? HUD describes flipping as this: "Property flipping is a practice whereby a property is resold a short period of time after it is purchased by the seller for a considerable profit with an artificially inflated value, often abetted by a lender's collusion with the appraiser. FHA's policy prohibiting property flipping eliminates the most egregious examples of predatory flips of properties with the FHA mortgage insurance programs"
The 90 day rule, which is the primary component of FHA's anti-flipping policy. No FHA funding will be provided for properties purchased within 90 days of the seller's acquisition of the property. Proponents of the CAR motion argued that, in the current environment, the effect of the anti-flipping rule was actually to harm potential FHA buyers and to shut them out of the real estate market. The fact that buyers using FHA financing are less preferable to many sellers than those who have cash and is especially true in the REO area of home sales. This is because banks want faster escrows than can be expected from FHA financing. It is frequently the case that an REO property will be in poor condition, requiring repairs, and will not pass an FHA appraisal. Effectively, then, FHA buyers are shut out of the REO market.
Investors buy REOs to hold; others buy to realize a short-term profit. They usually must do rehab work to bring the property into marketable condition and that work adds value and, of course, the investor(s) will seek to profit from this. Does that mean the property will be sold for an artificially inflated value; of course not. This is especially not true in today's appraisals where it is hard to get an appraisal to come in at market value.
These realities are shutting FHA buyers out of the REO market and with the 90-day rule they are also shut out of the opportunity to buy a rehabbed house. Hopefully TAR (Texas Association of Realtors) will jump on the bandwagon and argue the same points along with other states and we can do something about this.
www.BuyFortWorthForeclosures.com