Ask About A Real Estate Company
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
Updated about 16 years ago, 12/02/2008
Please 'splain it to me like I'm 12 years old.
I do not wish to criticize, but I have found the Norris Group's postings (here and elsewhere on the Internet) to be long on theory and short on detail. It was claimed at another board that lenders exist for end buyers and that these lenders don't require seasoning in order to use new value for a subsequent purchase. When asked specifically for the names of such lenders, there was no response.
If hard money is used for end buyers to purchase a flipper's property, what's the end buyer's down payment requirement, FICO score/credit history, what is the interest rate charged to the end buyer and for how long? If the interest rates are typical for hard money lenders (double digit), how is the end buyer going to afford the resulting monthly payment and for how long?
I would like to see, in clear detailed language, with dollar figures, how the purchase-auction-sale of a typical flip works. I'm really weary of real estate gurus claiming you can flip your way to millions when the practical reality is that major obstacles exist.
What is your exact question? Typically end buyers do not purchase with hard money, but they purchase with a traditional mortgage.
Hard money is typically for investors to purchase a property and fix things to allow it to qualify for a traditional mortgage.
So as an example:
Purchase Price: $88,000
Repairs: $20,000
Purchase Escrow: $1,000
Insurance: $1,200
Property Taxes: $500 (for rehab)
Gas,Water,Electric $900 (for rehab)
Sale $160,000
Cost $111,600
Sales Commission $9,600
Closing Escrow $1,000
Total Costs $122,200
$37,800 pretax profit
That is if you do a deal with all cash - otherwise there is financing costs involved. Not including any unexpected costs...
I'm referring to a post by Aaron Norris...
http://www.biggerpockets.com/forums/49/topics/24599
...wherein he said that his company fulfills the end buyer's need for funding by providing a hard money loan.
Since there are end buyer seasoning issues, I'm asking how a hard money loan to an end buyer works.
I need the link to the post where you think I said that because that is 100% NOT what we do. I need to delete or rewrite!
The hard money program we have is only for investors. We do not work with owner occupants. Flippers sell the home and our loan gets paid off.
We can't dictate what buyers come to the table with when we sell properties. We can ask they get pre-qaulified with our lenders to protect ourselves from pointless transactions but that's about it.
If they don't have a lender of choice we can recommend but we can't dictate.
If they come to the table with non-FHA financing, the seasoning rule does not apply and we can sell quickly without fear of the FHA rule. In the areas we are working (Moreno Valley, Riverside), most buyers are coming with FHA because of the low downpayment. All first time homebuyer money is gone (Nehemiah Program and the local city program). With cities getting millions of dollars from the government, I believe most will throw a good portion back to the first time buyer programs (so we hope).
To read about FHA directly, try the link below.
http://portal.hud.gov/portal/page?_pageid=73,3912104&_dad=portal&_schema=PORTAL
It's funny you bring up an example because I've been working on a sheet that gives a real example of a hard money loan. This doesn't include the sale side but helps understand the hard money side. Still working on it but I'd love feedback.
http://www.thenorrisgroup.com/hard-money-example.html
And Caitlyn, I sometimes post in a thread and don't track it or ever go back. There's so much to follow on these forums. The only other board I'm on is SDCIA. I can't find the thread you mentioned. Did you email me directly and I didn't get back to you? Cause if you did, that's not very like me. I apologize if I did.
The link to your post is above wherein you said...
"We are currently attempting an auction as a way to wholetail properties to the public with them understanding they can't come with FHA financing. We still have a few auctions left and about half have worked out."
Perhaps you weren't talking about providing financing to the end buyer. But my point is that gurus are saying that they immediately sell properties--wholesale [property still needs work] or retail--when, in fact, seasoning is a huge issue. When asked "Who was the end buyer's lender?" the response seems to always be the same: "I don't know; we had nothing to do with the end buyer's financing." I would think you'd keep a running list of end buyer lenders who don't have seasoning issues. They're scarce as hen's teeth.
If you get a conventional buyer... there is no seasoning issue. If you price the property right, there are still a lot of buyers in this market. So in my opinion, selling the property is the easy part. Price it right and keep lowering your price until it sells.
FHA which most buyers are nowadays have seasoning issues (3 months). Just factor that into your carrying costs...
cucaloco, both your postings rock. I've answered the other lender question on another post. But for the record, I don't have a resource for getting around FHA seasing rules but if you do, I want to know about it. Well, only if it's legal. More at the following link.
http://www.biggerpockets.com/forums/49/topics/24599-fha-hud-rules
Caitlyn, since your post is a copy of another you wrote in FHA/HUD rules.. here is a copy and paste of my comment in that discussion...
I have followed very closely the threads about seasoning issues, and have yet to see ANY that claim they can get around them. Quite on the contrary, I believe it has been very clear from Aaron that there are no magical ways to skirt seasoning. It is important to understand exactly what seasoning issues ARE and this has also been made very clear by Aaron and others on this forum. (Thank you for the link on FHA details, I will forward this to my escrow gal as I am tired of her saying “Well, because you are a corporation, you don’t have to worry.â€)
-"It's not "government intervention" that makes not only FHA but conventional lenders skittish about flipping. It's common sense."
I guess that is why most seasoned investors don't like the word "flip." It has been a term made popular through television shows, but has a connotation of fraud in the lending world. I know that The Norris Group uses the term “Wholesale" “Rehab†and "Retail" and usually avoids the word 'flip' as it is not specific enough and leads to confusion. Some people use ‘flip’ to describe a wholesale deal to another investor. Some use it to mean rehab and retail.
I have recently had an FHA underwriter tell me that if I were to produce receipts and a detailed rehab/cost sheet it might be possible to waive the 90 day hold. I produced the required documents and still had to wait 90 days! So I don't even think that is going to get us out of FHA seasoning.
Sorry if this post sounds like I am defensive about criticism against the Norris Group, but if you knew them and had worked with them you would understand. There isn’t a group of people on the planet more helpful and knowledgeable about rehab and retail investing willing to share their knowledge to help others. I know I am not the only one that feels this way!
And I've searched the link to the discussion you provided, and don't see anywhere the words that you've quoted Aaron as having wrote. Could you copy and paste them from his post for clarity?
Thanks
cucaloco wrote: If you get a conventional buyer... there is no seasoning issue.
The above statement is flat-out wrong, so I don't know why Aaron Norris thinks it "rocks." Please don't take it personally, cucaloco, but it's incorrect.
Folks, as we see, there's conflicting information in this thread and elsewhere about whether conforming lenders are concerned about seasoning. Whether you call it "flipping" or "wholesaling" or "rehabbing" or "retailing" is irrelevant to the end buyer's lender. All conforming lenders run a 24-month chain of title. If an investor has owned the property for less than 6-12 months (varies by lender), a new lender will NOT lend at the new price; but at the most recent price for which the wholesaler purchased it. This is hardly beneficial to the real estate investor expecting to pocket his profit.
No one is questioning the Norris Group's integrity, only their apparent unwillingness or inability to post exactly who these lenders are who have allegedly funded the Norris Group's end buyers in less than the typical 6-12 months.
Please, for the sake of investors everywhere...provide the names of these conventional lenders who have no problem with seasoning. The investing world is anxiously awaiting the solution to a very real problem.
As to whether Aaron Norris said that his group provides funding for the end buyer, I mistakenly interpreted his comment about using auctions as meaning that, as part of the auction process, his group also provides funding without seasoning at hard money prices.
I stand corrected.
summerhomes wrote: (Thank you for the link on FHA details, I will forward this to my escrow gal as I am tired of her saying “Well, because you are a corporation, you don’t have to worry.â€)
The confusion surrounding conforming vs. FHA seasoning can be stupefying.
We should all know by now that FHA's published guidelines are quite clear: no flipping before the investor's ownership has seasoned for 90 days. FHA's bona fide guidelines have been posted on this board several times, so there's no need to post them again.
In contrast, there is no published Fannie or Freddie prohibition against flipping, but the practical reality is that conventional lenders practice what's called "risk overlays." Even if Fannie/Freddie said, "Flip away!" lenders apply, during the underwriting process, their own overlays of risk; flipping being one of them. I have yet to locate a conventional lender--I've inquired with dozens and dozens of them--that allows new value to be used for end buyer loan funding at the new (higher) appraised value.
The escrow gal referred to above is likely confusing (a) the limitation on the number of outstanding loans with (b) the seasoning issue. That is, if a corporation purchases properties, there's no limitation to the number of properties purchased by the corporation that can have a loan outstanding on them. A corporate purchase does not, however, solve the seasoning issue.
Are you repairing the property?
If repairs are done well, the new higher appraisal is valid. Especially if you go to escrow with a buyer that wants to own the home you've fixed. True market value changes when you turn something from beat up to fixed.
Which is why I wanted to clarify the term "flipping." You seem to be talking about "wholesaling," right? Because if there are major improvements made to the property (rehab and retail) the house can be immediatley sold with conventional financing as soon as the repairs are done because the sale is only contingent on a new appraisal reflecting a new "as-repaired" value.
I thought the term "flipping" generally means you buy low and sell high rather immediately. To a lender, I assure you that's what it means. All lenders to whom I have spoken--and I've asked this question many times--have seasoning requirements even if the property has been significantly improved. They are ALL skittish about flips.
If you disagree that all lenders have seasoning requirements even if the property has been significantly improved, please post the names of such lenders that don't have seasoning requirements and I'll contact them.
If you don't want to post the names of such lenders, please state that you don't want to post the names of such lenders and why. If you feel that the knowledge of such lenders is your competitive edge, that's a perfectly valid reason, in my opinion, for not disclosing the names of such lenders.
I'm merely attempting, through this thread, to separate fact from fiction. There's absolutely no attempt to denigrate the Norris Group or any other guru except that they all talk about flipping--as the term is generally used by lenders--without mentioning the very real obstacle of seasoning and how they confront it.
We can probably cease discussing FHA because everyone knows their iron-clad rule against re-selling < 90 days. No argument--and no known get-around--with respect to FHA.
This link to Fannie Mae's guidelines may assist our discussion.
http://tinyurl.com/5avyk4
Here's the pertinent section:
Definition of Purchase and Refinance Transactions
In the Selling Guide Part VII, Mortgage Eligibility, Chapter 1, Conventional Mortgages, Section 103 Eligible Transaction Types, the requirements for determining whether a transaction qualifies as a purchase money transaction, limited cash-out refinance transaction or a cash-out refinance transaction are stated.
We are adding the following new standard to the requirements for purchase money transactions set forth in Section 103.01 Purchase Money Transactions:
• The borrower(s) may not receive any cash back through a purchase money transaction, other than an amount representing (a) a reimbursement for the borrower’s overpayment of fees; (b) costs paid by the borrower in advance (e.g. earnest money deposit, appraisal, and credit report fees); or (c) a legitimate pro-rated real estate tax credit in locales where real estate taxes are paid in arrears. If the borrower receives cash back for a permissible purpose listed in the prior sentence, the lender must confirm that the minimum borrower contribution requirement associated with the selected mortgage product, if any, has been met.
In addition, the following clarification is being made for both limited cash-out refinance transactions in Part VII, Section 103.02 Limited Cash-Out Refinance Transactions and cash-out refinance transactions in Section 103.03 Cash-Out Refinance Transactions:
• For a refinance transaction (either limited cash-out or cash-out) to be eligible for sale to Fannie Mae, there must be a continuity of obligation if there is currently an outstanding lien that will be satisfied through the refinance transaction, i.e. there must be at least one borrower obligated on the new loan who was also a borrower obligated on the existing loan that is being refinanced. If there is no continuity of obligation, i.e. if no borrower on the outstanding loan that will be satisfied through the new loan is also a borrower on the new loan; the transaction must be treated as a purchase. If there is not currently an outstanding lien on the subject property, a loan to the property owner secured by the property will be considered a cash-out refinance in accordance with Section 103.03.
Perhaps some other definitions would help us.
A "conforming" lender is a lender that sells to Fannie Mae or Freddie Mac in the secondary market. These "conduit lenders" underwrite the loan in a manner acceptable to Fannie/Freddie guidelines. A loan thereafter sold to Fannie/Freddie "conforms" to Fannie/Freddie guidelines.
As they sell loans to Fannie/Freddie, they replenish their "warehouse line" through "spot bond prices" that are published daily at Fannie/Freddie's site. If you're a paid subscriber to "All Regs," you can view spot bond pricing.
http://tinyurl.com/62arqx
A "conventional" lender is a lender that doesn't underwrite to FHA guidelines but may not be underwriting to Fannie/Freddie guidelines, either. Such a lender may be a portfolio lender (defined below) or a credit union.
A "portfolio" lender is a lender that lends its own money and doesn't sell to Fannie/Freddie in the secondary market. However, nearly all lenders--portfolio, credit union and other--typically underwrite to Fannie/Freddie guidelines because:
(a) They may want to sell the loan to Fannie/Freddie in the future to raise cash;
(b) Fannie/Freddie guidelines (with the exception of them veering from sound underwriting standards during the period leading to the credit crisis) are conservative and proven over time; and
(c) Most non-conforming lenders don't want to put their own money at risk.
Credit unions are sometimes--but not always--the exception because they're ostensibly lending their members' money.
Likewise portfolio lenders who are ostensibly lending their shareholders' money.
An "FHA" loan is a loan guaranteed by the Federal Housing Administration of the United States Department of Housing and Urban Development (HUD) through its "mutual mortgage insurance" program.
Fannie Mae guideline re Property Flipping.
http://tinyurl.com/6l4bxt
Another one...
http://tinyurl.com/5sbk25
Pertinent portion:
Property Flipping
Part XI: Property and Appraisal Guidelines, Chapter 4, Section 406, Sales Comparison Approach to Value. Based on internal analysis and lender feedback, we are revising our policy to more specifically address the issue of property flipping. Property flipping generally refers to the process of purchasing existing properties with the intention of immediately reselling the properties for a profit. Individuals that flip properties employ a variety of different approaches to reach this objective. The primary scenario in property flipping is to identify a property that can be acquired at a discounted price then resell the property for a profit. Some individuals hold title for months or just days, while some may only assign or sell their interest in a contract to acquire the property to a third party.
Property flipping is not illegal per se; however, when an immediate resale is attended by acts of fraud or misrepresentation, including but not limited to, appraisals with inflated property values and other misleading or fraudulent documentation, it can result in a predatory transaction. The unfortunate victim of such a predatory property flipping scheme is an uninformed homebuyer who may have paid too much for a property. This practice is problematic for Fannie Mae, our customers, and homeowners and their neighborhoods. Below we outline
Caitlyn, awesome research! Thank you putting that much work into the clarification of your question. I’ll bet this post will be referred back to for quite a while when discussing the seasoning issue. I fear that I have jumped into this discussion having misinterpreted what you are asking and if so I am sorry and will butt out. :)
1. I still want to hammer the point of the definition of “flipping.†This is where I fear we are talking about two different things. For all of the reasons you posted is why experienced investors who rehab properties and resell to the retail public don’t like the television word of “flip this house.†You are right by lender definition flipping has implied or express implications of fraud and therefore might possibly run into seasoning issues. I don’t “flip†properties in this sense. What both I and the Norris Group do is buy property at a discount, do a complete renovation, and resell at the retail market value. To most in the investor world, this is not “flipping;†but that has become muddied by trying to communicate to the general public who are used to “Flip This Houseâ€, “Flip That House†“Flipping Out†“Property Ladder†and any other made-for -TV reality show involving rehabbing property and reselling for a profit. (Yes, I watch them all! Flipping Out is the best imo.) E.G. When I talk to another investor who asks what my preferred method is in this market I say I “rehab and retail†property. If I am talking to my second cousin whom I just met at Thanksgiving dinner I say I “flip houses†for a living.
2. There is no specific reason no one is providing the names of lenders who don’t have seasoning issues, because I think we are actually talking about two different things. I will accept any solid non-FHA offer once construction is complete on the rehab. I can then enter immediately enter escrow and close 30 days later. I have not had seasoning issues for this. The two I have completed most recently that were not FHA had buyers with loans from Bank of America and Wells Fargo. Again, no seasoning issue because we simply had to get the property to appraise at the “after repair†comps. The fact that the 1st sale was 70-100k lower is easily explained in the “fixer, needs repair†comps that were used to purchase the property. These are essentially two completely different homes.
3. From your profile, I can’t see what Sate you are in, but both Aaron and I are in California where ALMOST all of our properties are purchased as REO. So the scenario would be:
A. Bob buys an REO house straight from bank. The house has plywood across the front door and sliding doors, holes in the drywall, a disgusting and dated kitchen and bathrooms, and a bad roof. He pays 100k for the property as this is close (within 20% let’s say) to what the comps are for that type of ‘fixer†inventory. He uses hard money or cash to fund. He closes escrow 21 days later and is now the owner of the property. Using his construction crew, he puts 40k into the house replacing windows, new cabinets etc. until the house is a perfectly fixed, move-in ready, updated gem. This takes 25 days to complete construction. He then lists the house and gets a non FHA offer for 200k on the first day. He accepts the offer and sells the house to the new owner 30 days later. He has owned the property for a total of 55 days and makes a profit of 40k. The difference between the 100k he bought it for and the 200k he sold it for are not subject to seasoning issues as the new lender has sent out their certified appraiser who has checked comps for move in ready updated inventory and verified this is what the property is currently worth.
Based on this example, tell me what part I am being erroneous or missing the point. (Believe me, it won’t be the first time I am talking out my @#$!)
Summerhomes wrote: I don’t “flip†properties in this sense. What both I and the Norris Group do is buy property at a discount, do a complete renovation, and resell at the retail market value.
First, Summerhomes, thank you. I feel heard! :-)
It doesn't matter what you, the rehabbing investor, calls it or what you feel about what you're doing. The lender calls it a flip. :-)
To better clarify, I, a mortgage broker, sent the following email to wholesale account executives representing over 50 lenders, including Bank of America and Wells Fargo.
What's the seasoning period for the following scenario? Let's say I buy a house in February for $100,000 and two months later find a buyer willing to pay $200,000. The house, now fully renovated, will appraise for $200,000; maybe a little more. How many days must I own this property before I can re-sell it for $200,000 and pocket a $50,000 profit (sales price minus cost of repairs)?
The responses consistently came back "six months" or "12 months."
Only one lender (Citimortgage) said, "As long as you can justify the new sales price with proof of renovation (invoices, receipts, etc.), you can immediately use the higher appraised value for resale purposes."
Two weeks later, the same Citimortgage sales rep said, "Our seasoning policy has changed to six months. You must still document the higher value."
It's not that I don't believe your claim that you've experienced no seasoning issues. It's that no one wants to buy a house and experience seasoning problems, so we want to know ahead of time the names of lenders that will lend on new value.
I'm going to write to my Bank of America and Wells Fargo wholesale account reps and pose the question again. I shall post their responses here.
I am looking forward to their responses. Very interesting! I know you are not discounting the fact that many people are actually DOING this right now without seasoning problems. But are you saying that the ones we have in escrow will likely fall out as this is the NEWEST in lending regulations? That would actually make FHA attractive to investors!!!
My Wells Fargo wholesale rep wrote back this evening. She said, "Seasoning for new higher value is six months at Wells Fargo; even then only if you, the investor, did your purchase loan with us, and the end buyer gets their loan from us, too."
I wrote back to ask, "What if I bought the property with a hard money loan? You would never have lent on this property as it needed a lot of work."
I'll let you know what she says. Nothing yet from my Bank of America rep.
Summerhomes, for the last, say, six flips you did, who were your end buyers' lender(s)? That information would be on your HUD-1 closing statement.
Here's what I'm saying: So many lenders say that seasoning is 6-12 months, I wonder where all these end buyers are getting their loans? For example, the Norris Group says, "We don't know where our end buyers are getting their loans. As the seller, we don't have anything to do with that." This statement belies the fact that I have yet to find a lender that will lend on new (higher) appraised value before < 6 months ownership seasoning.
The only sure thing is if the investor holds the property for at least 90 days (FHA) or for as long as 6-12 months (conforming).
BTW, an added caveat to FHA's mandatory and undisputed 90 day seasoning rule is that if the new appraised value is more than 100% higher than the prior sales price, a second appraisal is required. This information came from the Assistant Secretary for Housing Federal Housing Commissioner.
SUBJECT: Property Flipping Prohibition Amendment
On June 7, 2006, HUD published a final rule in the Federal Register amending regulations at 24 CFR 203.37a prohibiting property flipping in HUD's single-family mortgage insurance programs by providing additional exceptions to the time restrictions on sales. The rule and this mortgagee letter become effective for mortgages endorsed for insurance on or after July 7, 2006. This Mortgagee Letter also rescinds, in their entirety, Mortgagee Letters 2003-07 and 2005-05.
The additional categories of properties exempted from the time restrictions include sales of properties by:
•· State and Federally chartered financial Institutions and government-sponsored enterprises (GSEs) (e.g., Fannie Mae and Freddie Mac)
•· Local and State government agencies
•· Nonprofits approved to purchase HUD REO properties at a discount
http://www.hud.gov/offices/hsg/sfh/np/np_hoc.cfm
•· Sales of properties within Presidentially-Declared Disaster Areas (upon FHA's announcement of eligibility in a mortgagee letter specific to said disaster)
Prohibition on Property Flipping Described
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 within the FHA mortgage insurance programs.
Overview of FHA's Property Flipping Policy
FHA requires that: a) only owners of record may sell properties that will be financed using FHA-insured mortgages; b) any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing; and c) that for resales that occur between 91 and 180 days where the new sales price exceeds the previous sales price by 100 percent or more, FHA will require additional documentation validating the property's value. FHA also has flexibility to examine and require additional evidence of appraised value when properties are re-sold within 12 months.
Sale by Owner of Record
To be eligible for a mortgage insured by FHA, the property must be purchased from the owner of record and the transaction may not involve any sale or assignment of the sales contract. This requirement applies to all FHA purchase money mortgages regardless of the time between resales.
The mortgage lender must obtain documentation verifying that the seller is the owner of record and submit this to HUD as part of the insurance endorsement binder; it is to be placed behind the appraisal on the left side of the case binder. This documentation may include, but is not limited to, a property sales history report, a copy of the recorded deed from the seller, or 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. Mortgagees participating in the Lender Insurance program (see ML 2005-36) are to retain this documentation and provide it to FHA upon request.
Resales Occurring 90 Days or Less Following Acquisition
If the owner sells a property within 90 days after the date of acquisition, that property is not eligible security for a mortgage insured by FHA unless it falls within one of the exceptions to the time restrictions on resales set forth in §203.37a(c) of the regulations. FHA defines the seller's date of acquisition as the date of settlement on the seller's purchase of that property. The resale date is the date of execution of the sales contract by the buyer that will result in a mortgage to be insured by FHA.
As an example, a property acquired by the seller is not eligible for a mortgage to be insured for the buyer unless the seller has owned that property for at least 90 days. The seller must also be the owner of record.
Resales Occurring Between 91 and 180 Days Following Acquisition
If the resale date is between 91 and 180 days following acquisition by the seller, the lender is required to obtain a second appraisal made by another appraiser if the resale price is 100 percent or more over the price paid by the seller when the property was acquired.
As an example, if a property is resold for $80,000 within six months of the seller's acquisition of that property for $40,000, the mortgage lender must obtain a second independent appraisal supporting the $80,000 sales price. The mortgage lender may also provide documentation showing the costs and extent of rehabilitation that went into the property resulting in the increased value but must still obtain the second appraisal. The cost of the second appraisal may not be charged to the homebuyer.
FHA also reserves the right to revise the resale percentage level at which this second appraisal is required by publishing a notice in the Federal Register.
Resales Occurring Between 91 Days and 12 Months Following Acquisition
If 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, FHA reserves the right to require additional documentation from the lender to support the resale value if the resale price is 5 percent or greater than the lowest sales 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.
FHA will announce its determination to require the additional appraisal and other value documentation, such as an automated valuation method (AVM), through a Federal Register issuance. This requirement may be established either nationwide or on a regional basis, at FHA's discretion.
Exceptions to 90-day Restriction
The following sales are exempt from the time restrictions provided by §203.37a:
•· Sales by HUD of its Real Estate Owned
•· Sales by other United States Government agencies of single family properties pursuant to programs operated by these agencies.
•· Sales of properties by nonprofits approved to purchase HUD-owned single-family properties at a discount with resale restrictions.
•· Sales of properties that are acquired by the sellers by inheritance.
•· Sales of properties purchased by employers or relocation agencies in connection with relocations of employees.
•· Sales of properties by state and federally charted financial institutions and Government Sponsored Enterprises. ( Please see attached requirements for this exception)
•· Sales of properties by local and state government agencies.
•· Upon FHA's announcement of eligibility in a notice (i.e., ML), sales of properties located in areas designated by the President as federal disaster areas, will be exempt from the restrictions of the property-flipping rule. The notice will specify how long the exception will be in effect and the specific disaster area affected.
Date of Property Acquisition Determined by the Appraiser
Mortgage lenders may rely on information provided by the appraiser in compliance with the updated Standard Rule 1-5 of the Uniform Standards of Professional Appraisal Practice (USPAP). This rule requires appraisers to analyze any prior sales of the subject property that occurred within specific time periods, now set for the previous three years for one-to-four family residential properties.
As a result, the information contained on the Uniform Residential Appraisal Report or other applicable appraisal report form describing the Date, Price and Data for prior Sales is to include all transactions for the subject property within three years of the date of the appraisal and the comparable sales within 12 months of the date of the comparable sale. Appraisers are responsible for considering and analyzing any prior sales of the property being appraised within three years of the date of the appraisal and the comparables that are utilized within 12 months of the date of the comparable sale.
Therefore, provided that the URAR completed by the appraiser shows the most recent sale of the property to have occurred at least one year previously, no additional documentation is required from the mortgage lender. The mortgage lender remains accountable for verifying that the seller is the owner of record and may rely on information developed by the appraiser for this purpose if provided. However, if the lender obtains conflicting information before loan settlement, it must resolve the discrepancy and document the file accordingly.
See Mortgagee Letter 2006-14 at
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee
Does using a hml help establish a new value for the home, being as the hml's loan will include the repair costs?
S. Williams, short answer = no.
As I said above, my follow up question to my Wells Fargo wholesale rep was: "What if I bought the property with a hard money loan? You would never have lent on this property as it needed a lot of work."
She came back with a nonsensical answer, so I said, "Please pose my question to an underwriter," which she did.
The underwriter sent a .pdf file of new guidelines effective December 15. When I figure out how to convert a .pdf file so that I can cut/paste here, I'll be back to do so.
An underwriter at Taylor, Bean & Whitaker (wholesale only; loans available only through brokers) wrote:
So far we don’t have title seasoning requirements for the seller. The appraiser will have to justify the increase in value. Things can change but you’ll be OK as of now.