On February 1, 2010, the Department of Housing and Urban Development relaxed the FHA rules that prohibit insuring mortgages on homes that are owned by the seller for less than 90 days. This could help the rehabilitation and resale of foreclosure properties.
This temporary waiver of their property flipping regulation will be in effect for the period of one year, unless extended or withdrawn by the FHA.
To ensure FHA borrowers are protected from inflated prices, the policy has certain restrictions, including:
- All transactions must be arms-length and there can be no identity of interest between the buyer and seller.
- If the sale price of the property is 20% or more above what the seller paid for the house, the waiver will only apply as follows:
A. The increase in value is justified by documented improvements, repair and/or rehabilitation work on the subject property or, if no work was performed, a second appraisal is obtained with a detailed justification for the increase in value, and
B. A property inspection is obtained which addresses the overall condition of the property, both interior and exterior including structure, foundation, roof, plumbing, insulation, etc. The property inspector must not have any interest in the property or have any relationship with the seller of the property. The inspector may not receive any compensation for referring or recommending contractors for any repair work deemed necessary by the inspection.