Live in michigan was offered a property. The seller wants to flip property over to me I want the seller to give me a seller’ second and we are having problems. What should I do?
HUD No. 03-055
Lemar Wooley (202) 708-0685 x 6631 www.hud.gov/news
BUSH ADMINISTRATION PROVIDES HOMEBUYERS NEW PROTECTION FROM PREDATORY LENDING PRACTICE
New “Anti-Flipping” Rule Holds Lenders, Sellers and Appraisers Accountable
WASHINGTON - Housing and Urban Development Secretary Mel Martinez today announced a new initiative in the Bush Administration’s efforts to crack down on predatory lending. HUD published a final rule today in the Federal Register addressing property “flipping” on mortgages insured by the Federal Housing Administration (FHA). Property “flipping” occurs when a recently acquired property is resold for a considerable profit with an artificially inflated value. “The Bush Administration is committed to maintaining a strong housing market in which consumers can feel confident that they are protected from unscrupulous practices,” Martinez said. “This final rule represents a major step in our efforts to eliminate predatory lending practices.”
Predatory lending results when home purchasers become unwitting victims of lenders, sellers and appraisers, often working together. The unsuspecting homebuyers either purchase homes with sales prices far in excess of the fair market value, or are substantially overcharged with costs associated with obtaining a mortgage.
The final rule, “FR-4615 Prohibition of Property Flipping in HUD’s Single Family Mortgage Insurance Programs,” (view as TEXT or view as PDF file) 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.
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 additional 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. 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.
Other recent actions by the Bush Administration to protect homeowners from predatory lending and promote homeownership include: A proposed rule making lenders accountable for appraisals on mortgage insured by FHA. A recent plan announced by HUD to expand protection of homeowners by proposing performance standards for appraisers of FHA-single family homes under its Appraiser Watch Initiative. Under Appraiser Watch, some 25,000 appraisers will be held accountable for faulty appraisals, which too often lead to default and foreclosure. FHA will monitor appraisers’ default and claim rates and will levy sanctions - including removal from its list of approved appraisers - against those whose rates are excessive.
A proposal to reform the regulatory requirements of the Real Estate Settlement Procedures Act (RESPA) that would make the process of buying and refinancing a home significantly simpler, potentially less expensive and would protect consumers from unscrupulous lending practices. The “Homebuyer Bill of Rights,” which requires greater disclosure of costs associated with buying a home, allows consumers more choices in choosing providers of closing services, limits excessive settlement fees and encourages innovation and competition in the marketplace.
HUD is the nation’s housing agency committed to increasing homeownership, particularly among minorities, creating affordable housing opportunities for low-income Americans, supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development as well as enforces the nation’s fair housing laws. More information about HUD and its programs is available on the Internet. ###
Da Wiz
Since Illegal flipping is based on using inflated appraisals and usually is the result of several individuals working in concert to “defraud” the unsuspecting or amatuer Real Estate buyer.
Most legit investors would never even consider doing what these hand full of crooks do.
Not sure if you just overlooked the fact or did so with intent, but these “NEW” HUD guidelines were released in May of 2003. At least that is what the HUD site you posted states when you look them up.
Well quite often another way to deal with some of this is if you buy from a foreclosure sale providing proof of that is all that’s required to get around these regulations. You just have to provide substantiation of your pricing :D.
Here’s a slightly different wrinkle on the fraud issue;
Buyer/Borrower’s aren’t unwitting dupes at all…they’re often times the source of the fraud!!!
They shop lenders, who in turn shop appraisers–until they find someone who’ll hit the number they need to get their loan. If something goes south…blame the appraiser (kinda like blaming the accountants for the stock market fiasco).
There’s an online petition w/nearly 9,000 signatures of U.S. appraisers (that’s aprx. 10% of appraisers nationwide)–requesting relief from the unethical practices of lenders, & agents alike.
Due to ever increasing pressure from buyers, sellers, borrowers, lenders & agents–I left appraising for mortgage lending purposes behind in 2003. The pressure was becoming worse and worse, year after year, and I found myself unable to compete ethically…so I quite (best decision I ever made professionally). Also, realize appraisers are at the bottom of the totem pole in the process.
Pressure on appraisers comes via refusal of lenders to pay them if they don’t ‘hit the number.’ or witholding future assignments for failure to ‘hit the number’ once too often. Occasionally, an unethical Real Estate Agent is the one applying the pressure on the appraiser by pressuring the lender (these few unscrupulous Agents threaten to withold referrals from lenders if the lenders appraiser doesn’t ‘hit the number’). Borrowers are the worst though…they want a loan, and anyone who’d be unfortunate enough to cause that not to happen becomes a target of their displeasure (they then shop other lenders till they find one who’ll give them what they want…a loan).
The only way to stop this type of fraud is to afford Appraisers some kind of protection (perhaps requiring a lottery system for lenders to aquire appraisals).
-Infowell
Well, now supposing your situation doesn’t involve you as a predatory lender/buyer, and that there’s no fraud involved (all of which could be true, but man did this thread take off on its own quick!), tell us–Why are you having problems?
I think new investers need to know what property flipping means.
Just buying a house at foreclosure and trying to resale it after lots of repairs, makes the new invester wonder if he must keep the house for a specified amount of time.
What if an FHA buyer comes along and falls in love with the newly remodeled house? Are you saying 90days must go by before they can buy the house? We are talking about a trust worthy person who bought the house at the Sheriff’s sale, and it was trashed and had to be redone.
Thanks