REO servicing and FHA Dilema!

[Paul Cordero]

My dept. is currently battling with an FHA rep. who will not approve an FHA loan on an REO we have for sale because he is classifying our practice of liquidating REOs as "Flipping".

We recently aquired a portfolio of NPAs from Lehman Bros to service. Our servicing duties include the liquidation of REOs. When the portfolio is transferred, we usually quit claim the deed into our name from whoever owns it. This deed is for the transfer of service on the notes. This gives us all the rights to service the property as well as liquidate REOs. We have yet to convince the rep that we are not flipping!

I am writing this as a caution when using FHA to purchase REOs. Has anyone else run into this?