Recently I have has a friend have a title seasoning issue during his sell. Personally I didn’t deal with it on my sale. I was just wondering from some experienced people about pitfalls, issues that develop and, and possible protection we can take to make sure future sales are not impacted by this issue. Anything I can do in purchase of property or exactly the best way to not deal with tat headache.
Thanks
Always find out how long the seller has been on title. I’d go as far as even asking about the owners previous to the seller. Make sure that the information is given to the mortgage consultant as soon as possibe. They’ll know what lenders will allow financing. As their client you should be able to consult with them in these matters.
There are a variety of programs from no seasoning to 12 months seasoning. It will depend upon your credit,income,assets, and # of properties owned.
Thanks Investment, But I was more speaking on the end of selling a property that has been owned for lets say 75 days. If there becomes a snag in the financing for the new buyer, what are some suggestions?
Don’t let it “snag.” If you know that you’re going to be selling within 3-6 months of buying, then you need to line up financing that does not require any title seasoning. A good, preferrably referred, mortgage broker in your area should be able to handle that, on problem.
Another point. Title seasoning tends to only become a problem if the buyer is B or less in their credit rating. A credit buyers rarely encounter seasoning issues.
Raj
Dont allow a FHA option. These require that the seller be on title for minimum 90 days.
Team up with a mortgage broker that knows how to get these loans through. Offer their services to your prospective buyers as a free consultation. Whoever does the loan should be prepared to have the appraiser make great notes about anywork that was done on the property.
I have dealt with 12 month, 6 month and zero month seasoning requirements from lenders. What a pain.
Important for Investors
Time Restrictions on Re-sales:
Re-sales occurring 90 days or less following acquisition will not be eligible for a mortgage to be insured by FHA. FHA’s analysis disclosed that among the most egregious examples of predatory lending was on “flips” that occurred within a very brief time span, often within days. Thus, the “quick flips” will be eliminated.
Re-sales occurring between 91 and 180 days will be eligible provided that the lender obtains an appraisal from an independent appraiser based on a re-sale percentage threshold established by FHA; this threshold would be relatively high so as to not adversely affect legitimate rehabilitation efforts but still deter unscrupulous sellers, lenders, and appraisers from attempting to flip properties and defraud homebuyers. Lenders may also prove that the increased value is the result of rehabilitation of the property. ’ Buyer cannot pay for the second appraisal and seller must document cost of all repairs.
Re-sales occurring between 90 days and one year will be subject to a requirement that the lender obtain additional documentation to support the value to address circumstances or locations where HUD identifies property flipping as a problem. This authority would supersede the higher expected threshold established for the above-mentioned 90 to 180 day period and will be invoked when FHA determines that substantial abuse may be occurring in a particular locality.
The final rule, “FR-4615 Prohibition of Property Flipping in HUD’s Single Family Mortgage Insurance Programs,” makes recently flipped properties ineligible for FHA mortgage insurance. It also allows FHA to better manage its insurance risk by requiring additional support for a property’s value when a significant increase between sales occurs. Features include:
Sale by Owner of Record: Only the owner of record may sell a home to an individual who will obtain FHA mortgage insurance for the loan; it may not involve any sale or assignment of the sales contract, a procedure often observed when the homebuyer is determined to have been a victim of predatory practices.
Great that you mentioned that. I had to disclose the approximate improvement value of a flip I rehabbed to justify the difference between my cost and my selling price. Plus, I was looking for 10k higher than the latest comp.(and it was worth it)
I had to list evey improvement and the associated cost. Fortunately I was able to list the ‘Value’ of each improvement not the actual cost. (The labor was deeply discounted.) I was not required to back it up with any further documentation.
That was the first time I had to do that.
I think Jeff’s technique is the way to go. The fact is there are some operators out there either pulling mortgage scams and/or straight out ripping people off with overpriced property. A legit rehab and subsquent is pretty easy document and justify.
I know now what your friend may have been referring to. Fannie Mae has a deed restriction on most of the properties for sale off their foreclosure lists. This restricts a sale or any financing over 120% of the purchase prices. This means if you buy a property with cash or 100% financing that you cant take out any additional financing. It also means that you could not use a rehab loan as this would exceed the sales price. Furthermore it also means that an investor can’t finish a project and sell for the profit they probably intended. The restriction was originally 12 months, dropped to 6 months, and I just heard possibly dropped to 3 months. Still checking to see if nationwide.
Anyone know if title seasoning still applies if a property is put into a trust?