The extension is excellent news for investors who have been snapping up foreclosures in order to “flip” them (most flipping occurs within 90 days). FHA’s research concluded that by disallowing flipped properties – at least on a temporary basis – it would hamper an important part of the recovery in the real estate market. Since the rule was first waived in February, 2010, FHA has financed $7 billion in home sales – about 42,000 properties total.
Speaking with DSNews.com recently, FHA’s acting commissioner, Carol Galante stated, “We must make every effort to promote recovery in every responsible way we can. This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight.”
There are limits to activity however in an effort to prevent predatory activity. The waiver has been written with specific conditions to prevent inflated transactions and the potential for mortgage fraud. For example, any transaction that FHA finances must be conducted at arms-length; no link between buyers and sellers may exist. There are also documentation requirements if the sale price is 20% or more over the seller’s acquisition cost.