A few months back I was interested in a HUD house that would’ve been a great flipper, however, after reading the rules, had to wait out the 9-10 days until it was open for investors. The house was under contract the first day it was listed but I decided to watch this one as I was suspious an investor might try to break some rules. Well…3 months later it looks like a dream and is FSBO!! >:( I’d really like to turn them in! >:( I try and do the right thing and wait as an investor only for some bozo to profit by breaking the rules. What would you do? Have you heard of investors getting away with it? My only concern is that HUD is so big that my complaint will be lost and that HUD never goes after these people anyway. Your thoughts on this would be appreciated.
Half my brain says, “Drop a dime – they’ll love the ensuing FBI investigation”.
The other half says, “Have a beer – let it go…go find another one”.
Keith
If I knew for sure that the house was bought during the “Owner Occupant Only” period and it has not been a year(?) yet, I would DEFINATELY file a complaint with your local HUD office. Nothing upsets me more than people who try to cheat to “win”. The thing to realize is if this person gets away with it this time, they’ll continue to cheat the system in the future. After filing a complaint, you could also call the person (anonymously - e.g., from a payphone) and tell them they’ve been “caught”. That way, in case HUD decides not to persue the issue, the person will think twice about doing it again.
The alleged cheating hurts our investment community. I personally don’t think we have a choice. We must police ourselves. Given that this is a felony conviction with fines and jail time most people who try to work around the rules are doing it in a big way. We should all turn them in and feel good about it. You could start with the local HUD office, HUD’s marketing firm, or the FBI directly.
-h
Or you could get someone into an investigation that they shouldn’t be in. People get laid off, change jobs, have kids, get married, etc. All these things can and will change your intended living arrangements so that what you wanted to owner occupy you realize that you can’t.
People spend alot of time and effort trying to get other people into trouble when in reality, it isn’t any of their business. Why let the ‘sour grapes’ dictate how you spend your time. Just go find another deal and move on with it.
Or you could get someone into an investigation that they shouldn’t be in. People get laid off, change jobs, have kids, get married, etc. All these things can and will change your intended living arrangements so that what you wanted to owner occupy you realize that you can’t.
Very possible. However, an investigation will uncover that very thing. My question would be, why is this person trying to sell FSBO if they are in such dire straits?
People spend alot of time and effort trying to get other people into trouble when in reality, it isn’t any of their business. Why let the ‘sour grapes’ dictate how you spend your time. Just go find another deal and move on with it.
Different strokes for different folks, perhaps??? To-may-toe or to-mot-oh???
In this case, the effort would be miniscule, IMHO (although I haven’t done it myself and not sure how much input HUD/FBI/whoever would require once a complaint is filed).
I have been watching this property closely since it sold. We do alot of rehabs in that particular area. The house was already half rehabbed when the former person lost it. It was priced dirt cheap because the house was in the process of being rewired for electricity. Noone has lived in the house. The rehab was finished out and now it is FSBO.
I was angry when I wrote my first comment…but I wouldn’t go so far as to call myself sour grapes although after reading my comments…someone could take it that way. That’s fine. I’ve encountered way too many “unfair” deals that didn’t go my way…it’s part of the business but I do get very angry when someone thinks they’re above the rules and profits anyways. I’d like to think the majority of investors are honest and hardworking or perhaps I’m just naive.
Have you guys seen the Fannie Mae anti flip clause?
GRANTEE HEREIN SHALL BE PROHIBITED FROM CONVEYING CAPTIONED PROPERTY TO A BONAFIDE PURCHASER FOR VALUE FOR A SALES PRICE OF GREATER THAN $___________________ FOR A PERIOD OF THREE MONTHS FROM THE DATE OF THIS DEED. GRANTEE SHALL ALSO BE PROHIBITED FROM ENCUMBERING SUBJECT PROPERTY WITH A SECURITY INTEREST IN THE PRINCIPAL AMOUNT OF GREATER THAN $________________ FOR A PERIOD OF THREE MONTHS FROM THE DATE OF THIS DEED. THESE RESTRICTIONS SHALL RUN WITH THE LAND AND ARE NOT PERSONAL TO GRANTEE. THIS RESTRICTION SHALL TERMINATE IMMEDIATELY UPON CONVEYANCE AT ANY FORECLOSURE SALE RELATED TO A MORTGAGE OR DEED OF TRUST. (the blanks are to be filled in with 120% of the sales price rounded to the nearest $100 )
That means that I can’t sell it within 3 months for more than 120% of the price which I have no problem with. The repairs will take more than 3 months. But the problem for me is that I can’t finance the property for more than 120% of the purchase price within 3 months. I finance my fix up costs. That means I need to overpay for the property in order to get enough money for the deal to finance itself!
okay what rule are we talking about?
I was angry when I wrote my first comment…but I wouldn’t go so far as to call myself sour grapes although after reading my comments…someone could take it that way. That’s fine. I’ve encountered way too many “unfair” deals that didn’t go my way…it’s part of the business but I do get very angry when someone thinks they’re above the rules and profits anyways. I’d like to think the majority of investors are honest and hardworking or perhaps I’m just naive.
Maybe not the best analogies, but I see it like this … If you knew someone embezzled money from a corporation, would you turn a blind eye, or turn them in? If you knew someone robbed a bank, would you turn a blind eye, or turn them in? It’s a crime - a FEDERAL crime at that. Forget about morals, to me, it is my DUTY as a citizen of this country to do the right thing and turn the thief in. If it turns out I am wrong, I will apologize to the person to their face. That’s why I stress the need to be absolutely sure the person broker the law.
As far as investors go … like with anything else, they come in all shapes, sizes, colors, attitudes, and level of honesty. I’ve talked with a lot of investors and read many books on REI, and the underlying message is this … if you are crooked enough to do these things now, you’ll be crooked enough (and probably moreso) to do other things later.
I agree wholeheartly what you’re saying.
What Fannie Mae program are you using to purchase the house that involves financing in more than the current value (i.e. financing in repairs based on ARV)?
He’s not…this prevents you from buying the property and flipping if for an inflated price…
Keith
Again, that’s also only a rule that anyone getting A-paper conventional financing would have to deal with. Sub-prime, self-insuring, portfolio and non-conforming lenders do not adhere to Fannie, Freddie or HUD guidelines.
Even with conforming products there is no rule that prevents it. All you have to do is to verify the reason for the increased price. Fannie, Freddie, HUD and VA do not prevent or even discourage ‘fix and sell’ properties. They are trying to discourage the ‘double closing’ or ‘flipping’ in the traditional sense of the word.
For instance, that rule you’re referring to is the same as the HUD rule. However, HUD allows for properties to be sold for greater than 20% more than they were purchased for as long as you can document what improvements have cause the subject property to increase in value. The improvements do not have to be dollar for dollar (i.e. if you put $5,000 into a house in repairs, you can increase the sales price more than the $5000 for it to make sense). If the property increases in value more than 20% but less than 100% the documentation needed is paid invoices or paid receipts for materials. The appraiser just has to comment on what improvements were done and how those improvements have affected the value of the home. If the sales price is 100% or more from the original purchase price within the last 12 months the requirement is to document the repairs and an independent appraisal ordered by the lender (a second appraisal, that cannot be paid for by the purchaser) to verify the subject property opinion of value byt he first appraiser.
These rules do not prevent anything that we currently do. What they are in place for is to prevent collusion between appraiser and interested parties to the transaction.
The 90 days, well that’s an arbitrary number that Fannie and HUD have come up with. It’s just based on the previous transaction date and the contract date not any other information in the file.
Who cares.Flip the daggone thing in 3 months.After all 3 months is about 90 days , right? well you close on Jan1st. put it on the market Jan. 2nd , get a contract Jan 3rd Selling the property for 150% what you paid but 40%below market value. unless its a cash deal your buyer will be more than glad to wait for 60 days to close as it will probably take that long anyhow to convince a bank to finance .QUIT CHEATING …THERE IS NO NEED TO.
Getting back to the subject at hand and I’ll promise to let this die…The house is now listed on the MLS with a realtor. I had my realtor check into some things and she came back with this:
“I did some checking around about the *** house thing. The short answer is that it’s really pretty unenforceable. All they have to say is that they planned to live in it and changed their minds. It’s one of those things that is more expensive to prove than it’s worth. It really burns me up too. They may have a difficult time getting a new appraisal for whoever buys it, since it will look pretty suspicious given what they paid for it. They may have so show every receipt plus before and after pictures, and since it wasn’t that bad in the first place…”
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Soooo…I guess you can get away with bidding on a HUD house as “owner/occupied” even if you are planning to flip the darn thing in a few months. Never mind the 10 day waiting period for “INVESTORS”. No worries about a BIG FINE and investigation…just make your money lying and cheating. Where’s the justice? sigh!..On to the next one…
Well, they can’t bid on another OO Hud property for 2 more years so it’s not like this investor is killing your business. Who knows, it’s possible they did actually have a change in plans.
Well, they can’t bid on another OO Hud property for 2 more years so it’s not like this investor is killing your business.
Exactly. They pretty much locked themselves up anyway going this route.
Now, I wonder what will happen if they try to bid on another HUD property within those 2 years? I haven’t checked the HUD paperwork, but I’m pretty sure they have to acknowledge somewhere that they haven’t bought one in the previous 2 years. The question is will HUD automatically catch them committing a fraudulent act during the processing, or will it be just another “unenforceable” act that can only be caught if someone did some real investigating.
That’s just it. The reason it’s ‘unenforceable’ regarding the occupancy status is that it is very difficult to prove they lied. All they have to say is that they had a change in plans based on something that happened in their life. It really is hard to prove the ‘intent’ there. That is entirely different that someone lying when bidding on another property within 2 years for OO status. That is easy to prove.
That is entirely different that someone lying when bidding on another property within 2 years for OO status. That is easy to prove.
Yes, but how easy is easy? IOW, is it autmatically flagged during HUD’s processing of the paperwork (i.e., between the time the offer was submitted and the property closed), or is it something that must be manually scrutinized? I would think in this day-n-age it would be the former, but we’re talking about the government here.