Underwriting conditions on a flip...ugh.

[Billie Miller]

Hello all,

We're set to sell a townhouse flip within a week and the underwriter is making it difficult. We bought this property as a wholesale, it was a double closing. So public records show that the property was sold twice on the same day, first for $107,000 and second for $120,000 (our purchase).

We listed the property at $200,000 and are U/C for $210,000. The contract is FHA, with a $10,000 cash over appraisal clause. We have owned it for about 3.5 months now.

The underwriter is all worked up because he thinks the property appreciated over $100K in 3 months and is questioning that. ($210,000-107,000). 

I just emailed the lender with the comps we used to justify our list price (of which there are several) and explained that we bought the property for below market value (because it was pre-forclosure, we paid cash, no inspection/appraisal/financing contingencies). I also gave a detailed list of the improvements (both to the lender and the appraiser) we made to it, showing why our property is better than the other comps, but listed at the same price.

Has anyone else encountered this? I don't really see why our original purchase price is the underwriter's business, considering it's priced according to comps.

Does anyone have any suggestions as to what other information (beyond explaining the difference between purchase price and market value lol) I can provide the lender and the underwriter to help this along?

Thanks!

[Aaron Pfeffer]

Doesn't seem like an FHA Flip rule issue since you've owned it over 90 days already...

But yes @Billie Miller, you are certainly not the only investor who has ever run up against an FHA underwriter being tough on the end seller. So far you've taken some good steps in proving your case, though it may ultimately still fall on deaf ears, because that is the nature (or insanity if you prefer) of the lending landscape these days. You've helped the underwriter, and now it's time to help yourself. Meaning, prepare for this not to go through with this FHA buyer at $210,000 and figure out a backup situation just in case. Were there backup offers? If so, have them get ready to fill in if the current buyers drag this situation out too long. And if no current backup buyer or you've taken this property off the market already because you think you've wrapped us this sale already, you may want to put it back on the market and get backups ready just in case. Maybe 20% down buyer next, even if the sales price takes a small hit. Being at the complete mercy of any lender or institution like the FHA is no place for the investor team to be.