FHA 90-day rule

Foreclosures, Short Sales, Tax Foreclosures
1

Hi guys,

Question: I have a short sale and the lender is FHA. I am looking only to purchase it with cash and resale to an end buyer, does that mean I have to hold this property for 90-days if I am buying with cash?

Could someone explain the 90-day rule please so I am clear. :help
Thanks.

2

The 90 day rule regarding FHA applies to the title seasoning period, meaning the period of ownership between owners. When you buy the property, (cash or otherwise) and your end buyer is using FHA financing, your name must be on title for a minimum of 90 days before FHA will fund the resale to your end buyer. Make sense?

3

Isn’t that only if we are earning more than 20% above our purchase price?

4

Just create a trust and deed the property to the trust. Then sell the trust the buyer.

5

Hi,

I am a newbie here and as far as I know it is important to this rule thoroughly as, it is actually for 91 days that is the key point of this rule is if I buy the house today and want to resell it to the buyer than I have to wait from today before reselling the property to the buyer.

Thanks!!

6

Just a small comment, but it’s a good idea to talk with the lender to get the information. I’ve sold a few this way and have always been told that it is 91 days if the property is being sold FHA…OK, but there is a small issue and that is that NOTHING can even be dated until the 91st day and that includes the purchase contract and the appraisal, which actually means that it will take over 100 days to sale the property, more like about 110 to 120 days. I have one right now that we’re rehabing and have just started the marketing process and I’m telling people that if they want to move in and get the first time home buyer $8,000 credit and go FHA, we need to find them another home.

7

I have read on here many times that people are buying it under an LLC and just selling the LLC to the potential buyer. Wouldn’t this be the easiest way to get around the 30 and 90 day seasoning? I am curious how you would get paid on this transaction. I’m guessing you would get paid on the settlement statement on the A-B since you wouldn’t have a B-C. Anyone know how investor would get paid by selling an LLC to avoid seasoning?

8

90 day seasoning is being waivered 2/2010

http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf

9

Yep, I was just going to post this. There are some considerations though… read the PDF, but here is a synopsis :

  1. Effective 2/1/2010
  2. Transactions must be arms length – no inappropriate collusion and no identity of interest between the buyer and seller or other parties. This can be determined using the following:
    1. Seller holds title to the property
    2. LLC’s, Corporations, or Trusts which are sellers are operating within the law
    3. No pattern of previous flipping exists for the same property within a 12-month time frame
    4. Property was marketed openly and fairly via MLS, auction, FSBO (for sale by owner) or developer marketing
  3. In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender:
    1. Justifies the increase in value by retaining loan file supporting documentation and / or a second appraisal that verifies the seller has completed sufficient renovation / repair / renhabilitation work
    2. Orders a property inspection and provides inspection to the purchaser prior to closing. FHA approved inspectors are not required. Inspection must include, at a minimum:
      1. Structural inspection, including roof, foundation, floors, ceiling, walls, and roof
      2. Exterior, including siding, doors, windows, decks, balconies, walkways, an driveways
      3. Plumbing, electrical, heating, and air conditioning systems
      4. Insulation and ventilation systems, including fireplaces and fuel burning appliances
  4. Waiver is limited to forward mortgages, and does not apply to Home Equity Conversion Mortgage (HECM) for Purchase program
10

Just to let you know I have this in Attorney review right now. The way this is all written you can’t really just read it and 100% understand it. THere are things written in there where the seller has to be on title when the property is sold. That being said the FHA is saying in provision 6-122 There can’t be a quit claim on the property even to a Land Trust 90 days prior to the sell of the property. If anyone wants to know the fianl break down on how the law breaks down into easy to understand terms let me know I am hoping this will be done on tuesday. Trust me we will figure out the ins and outs of this really soon. We will be up to speed proir to the change.

11

Summit, can you give an update on this?

12

I just got this back from him I am going to review it and will let you know.

13

Any update Summit?

I’ve sold a short sale flip to an FHA buyer before and had the buyers do a bridge loan. The issue with that is it costs more money and of course the buyers wanted me to pay for it. If we don’t have to worry about FHA at all then that is a huge bonus.

14

If you are using land trusts you should always put the property in the land trust when you start the short sale process that way the 90 day seasoning has passed.

15

According to my attorney it’s pretty straight forward. With this new rule, FHA has legitimized the investor short sale flip process.

As long as the guidelines are followed the property can be sold immediately after you take title. But we all know that means as long as it takes title to record and then we have to get that proof to the FHA lender.

In the case of the spread being larger than 20%, the appraiser can justify this by noting in the appraisal that the short sale approval removed the property from the ‘distressed’ category so it can be sold for retail market value.

Of course every FHA underwriter is going to interpret the new rule their own way.

16

I got the full report back and was going to copy paste it in here… The problem with that is this is a PDF File. There is more to this then what meets the eye and can go 100 different ways. The main point to touch on here is YES like shortsalepro said you can flip this property and you have to get that proof to the FHA lender now here is the issue depending on the State you are doing business this process can take anywhere for 5-45 days. The rule here is that you have to be the owner on record with the county. For a county to get the deed recorded can be a long process. Now with the way this is written some lenders will also tell you taht the Seller has to be on deed at least days prior to closing. So this brings us back to Jan. 14th 2009 NO flipping for 90 days. To be honest your better off still not taking FHA. The whole way of looking at this is that all the lenders will figure this all out 366 days after the 1 year policy takes effect.

THIS IS WHY I SAY BUY THE NOTE!

17
18

Summit, are you sure about this? I just got off the phone with a nearby county (one which I’m doing a short sale with an FHA buyer) and they said this is recorded the moment you pay for it. You’re given a book and page number.

19

Ryanpal,

   Depends on the State you are in. I think you are in Jersey so yes there you might be in luck. Some states it takes longer for the Deed to get totally recorded and some lenders are going to check with the County 20 minutes prior to funding the deal. So it really depends on the state
20

The 90-Day Rule are actually rules on property reselling.
One example is: If you want to re sell a house to a buyer with the FHA loan, the rule is you have 90days before you can resell it to a buyer.