Replies to This Discussion

Permalink Reply by Anna Mackey SDHS on November 14, 2009 at 10:30am

Jana,
This deal will not work for your client because they are getting FHA financing, which - if I am correct - requires the property not to have been previously conveyed within 90 day period. You may need to move on to the next deal.

Permalink Reply by Bryant Tutas on November 14, 2009 at 11:53am

Interesting. Anna is correct about the 90 seasoning period before a property can be sold using FHA. But I wonder how this would come in to play if the investor has an equity agreement on the property. His ownership may have been added as an equity partner in which case the property would not have been conveyed. I'm just thinking out loud here.

Permalink Reply by Jeff Payne on November 17, 2009 at 8:31am

This is interesting, is the equity partner actually closing and then reselling the property or is the owner selling and the equity partner recieving proceeds from the difference?

Permalink Reply by Jana Hristova on November 17, 2009 at 3:38pm

The equity partner is closing and then reselling. The owner received his money upfront probably in the form of option money or higher rent.

Jeff Payne said:

This is interesting, is the equity partner actually closing and then reselling the property or is the owner selling and the equity partner recieving proceeds from the difference?

Permalink Reply by Cathy McAlister on November 17, 2009 at 7:29pm

Certainly a couple of red flags on this one. 1. I would want to make sure that the group is truly in title and what day they acquired interest 2. Run that ownership senario by your lender to make sure FHA would approve. 3. If what they have is an equity share agreement they may not actually be in title and they may not have actually put any money into the house as yet. If so, this could be a double escrow and there may be issues of disclosure of profits to the current owner. Every states laws are different, but you are right to be wary.

Permalink Reply by David Dee on December 4, 2009 at 9:52pm

Jana, this sounds like a strange case. Were you aware that there was this "equitable title" held by the investor seller to begin with? If it was not disclosed initially to you and the buyer, how did they sneak in between you and the bank? I'm curious how that took place.

I don't believe the buyer would qualify to go FHA on this. They may have to go conventional financing in order to close this deal.

Permalink Reply by Randall Wilks on December 9, 2009 at 1:27pm

There is lots of misinformation out there regarding these investor transactions. Most are legitimate but will be scrutinized. FreddieMac has issued clarification in their Addendum A.

FHA will work if the investor is willing to wait the 90 days.

ATTACHMENT A

Best Practices for Loans Involving Possible Property Flips
Transactions that Freddie Mac Considers to be Property Flips
The term property flip refers to a transaction in which a property is purchased and quickly resold for a significant profit. A large increase in property value coupled with a short time period between transactions may indicate that the property is being flipped. Properties targeted for property flips generally include properties that can be acquired at lower prices than other properties in the same neighborhood and often include real estate owned (REO) properties, properties subject to a “short sale”, other distressed properties or newly constructed properties where the builder or developer must liquidate housing inventory quickly. A property involved in a flip may be resold on the same day or within days, weeks, or months of the purchase. In some cases, the seller of a property flip never holds title to the property, but instead sells or assigns their interest in a contract to purchase the property to a third party.
Property flips are not inherently illegal and not all transactions involving a rapid purchase and resale are improper. Legitimate property flips are acceptable transactions in connection with loans purchased by Freddie Mac. Some indications of property flip transactions that may be legitimate include:

■ Sales of properties by a Government Sponsored Enterprise, state or federally chartered financial
institution, mortgage insurer, or federal, state or local government agency

■ Property sales by employers or relocation agencies related to employee relocations

■ Sales of properties that are acquired by the property seller through inheritance, divorce, or as a result of a legal settlement or proceeding

■ Sales of properties that have been substantially improved by bona fide and verified renovations since the property was acquired by the property seller in which any increase in sales price over the seller's acquisition costs is representative of the market given the improvements to the home

■ Sales of properties that the property seller acquired at below market value after purchasing as a result of a distress sale (i.e. REO sale, short sale, tax lien sale, bankruptcy trustee's sale, etc.), where any increase in the sales price over the property seller's acquisition cost can be clearly shown to be a result of the difference (if any) in the market's reaction to distress sales and typical arms-length market

http://www.FreddieMac.com
http://www.freddiemac.com/sell/guide/bulletins/pdf/bll0924xA.pdf

Permalink Reply by David Dee on December 9, 2009 at 8:08pm

Randall,
Thanks for the attached article. I agree what you've stated is true. There is a 90 seasoning to flip a property through FHA financing. However, in this case where Jana has a buyer who wants to go FHA right after the investor closed his deal will not work. The only way around this is for the buyer to go conventional financing. I spoke with another agent today who had a similar situation. There may be some issues with the buyer's lender due to the 'equitable title' which the investor holds. This can be tricky but some lenders may be able to perform.

Randall Wilks said:

There is lots of misinformation out there regarding these investor transactions. Most are legitimate but will be scrutinized. FreddieMac has issued clarification in their Addendum A.

FHA will work if the investor is willing to wait the 90 days.