Bank of America 90 Day Anti-Flipping Policy: Who Benefits?

Bank of America 90 Day Anti-Flipping Policy: Who Benefits?

Bank of America is holding up the resale of a house I renovated. Their client, who has a stellar credit rating, is ready to close now and move into their new home. Here is the story. . .

One year ago I met the homeowner who was behind paying their mortgage. The homeowner agreed to short sale the property to me pending bank approval. The bank happened to be Bank of America (BOA). After months going through the short sale process with BOA, I finally closed on the property in July 2010.

Immediately after closing my contractor got to work renovating the house. The house needed updating throughout. We gutted both bathrooms and the kitchen. The bathrooms received new tile, new bathtubs, new sinks, new vanities, new toilets, and new lighting. The wall between the living room and kitchen was removed, creating an open living space. The new kitchen included cabinets, granite counter top, tile flooring, and new stainless steel appliance.

The hardwood floors and stairs were refinished and new carpet was installed in the basement. All the doors throughout the house were removed and replaced with new hinges and hardware. Wallboard was repaired throughout the house and every room received fresh coats of paint.

The brick outside was cleaned and the concrete exterior basement walls were painted. A new hand railing was installed on the front steps. The yard received new landscaping.

As you can tell, a lot of work was put into the house. When I purchased, one of the bathrooms had a missing toilet and sink. The hardwood floors looked horrible. Some doors were broken. The kitchen had not been updated in several decades. The oven looked like it was original from the 1960's. Mold had begun to appear in a small section of the basement.

After renovations were complete, the house was listed on the market. Within a week of being listed, I accepted an offer on the house. The process moved along at a good pace and the lender was ready to close within 30 days. Then within 10 days of closing the lender, Bank of America, decided that they could not close as scheduled because the contract and closing date was within 90 days of my acquisition of the property.

I countered to the lender that the date they were using for the 90 day period was incorrect because I had actually acquired the property and began paying on my private cash money loan 7 days prior to the recording of the deed. I showed the lender the HUD-1 statement verifying the correct closing date. The lender responded by saying that they had to use the date the deed was recorded rather than the true closing date!

Now the bank has tacked on an additional 8 days beyond the 90 days. A new contract needs to be signed on day 91 and the lender needs another week beyond the new contract date to close.

The ramifications of the bank's decision to their client means they will have to move out of their apartment and find another place to live temporarily for a couple of weeks until they can close on the property. To me as an investor, my profits are postponed, delaying closings on other distressed, vacant properties.

The 90 Day Rule

As I understand the 90 day rule, the lender can actually loan the money and close within the 90 days if certain conditions are met. One of the conditions includes me demonstrating that my profit is no more than 20% of my purchase price. I offered this documentation to the lender, but they would not even consider closing within 90 days because of their own in-house Bank of America policy.

The lender emailed me brief explanation of the Bank of America policy regarding the 90 day rule, which is stricter than the HUD 90 day rule. This is reproduced below.

Policy Changes:

Change Old Policy New Policy FHA Flipping Policy: Resales Occurring Between 0 and 90 Days Following Seller’s Acquisition Resales of Subject Property within 0-90 Days of the subject property are ineligible.

(Unless the seller falls into one of the exempted categories. See Eligible and Ineligible Properties for examples.)

HUD has issued a one year temporary waiver permitting FHA financing of a resale within 0-90 days of the seller’s acquisition of the property. Bank of America is allowing the waiver provided loan complies with the following conditions:

o Increases in the Property Sales Price over the Seller’s Acquisition Cost must be less than 20%. No exceptions will be allowed.

§ The seller’s acquisition cost is the price the seller paid for the property only, exclusive of any commissions, repairs, and improvements.

o All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.

As you can see, Bank of America has a total disregard for the costs an investor incurs in borrowing private money, renovating the property, and resale expenses.

Who Benefits By This Policy?

• I cannot speculate if or how the policy benefits Bank of America.

• I do know that their client, the home buyer, does not benefit.

• The local market has one less owner occupant while the house sits vacant.

• Dollars are not brought into the local economy while the closing is delayed.

• An investor and private money lender have their money tied up while the closing is delayed, preventing them from making offers on other vacant, distressed properties that need to be bought, renovated and resold.

• The next time I make an offer on a short sale or bank owned property, I must make a lower offer to off-set my holding costs for a longer period of time. The banks do not benefit by this scenario while they continue to hold excess inventory.

Who benefits by this policy? I don't know.