On December 9, 2014, the Federal Housing Administration’s (FHA) Office of Single Family Housing announced that the temporary waiver of the property flipping regulation is scheduled to expire on December 31, 2014.  This deadline means that sales contracts executed after 11:59 pm on December 31, 2014 for properties that were previously acquired by the seller within 90 days will no longer be able to obtain a mortgage insured by the FHA.

By way of background, in 2003, the U.S. Department of Housing and Urban Development (HUD) issued the property flipping regulation in an effort to stop predatory lending practice with respect to mortgages insured by FHA.  Thereafter, in 2006, HUD expanded exemptions to the time restriction for certain types of sales (e.g. REO sales).  See 24 CFR § 203.37a(c).  Nonetheless, due to the downturn in the market, which led to a rise in homeowners defaulting on their mortgages and an increase in foreclosed homes, HUD granted a temporary waiver of the property flipping rule in 2010.

The property flipping rule provides that FHA will not insure a mortgage for a single family property if the contract of sale is executed within 90 days of the acquisition of the property by the seller.  See 24 CFR § 203.37a(b)(2).  According to the FHA, a sales contract is executed when all parties to the contract have signed the contract, and the contract is enforceable under the law of the state the property is located.  Similarly, “the acquisition date is the date that [the] seller has the power, under the law of the state in which the property is located, to transfer title to a buyer.”  24 CFR part 203.

FHA will not extend the waiver beyond December 31, 2014.  Accordingly, once the waiver expires, if a property is acquired within 90 days of the execution of a contract, the purchaser will not qualify for an FHA insured mortgage.  In other words, the purchaser will be prohibited from obtaining an FHA insured mortgage if the seller acquired the property within 90 days of the date when the buyer and seller execute a contract.

For more information, go to http://portal.hud.gov/hudportal/HUD?src=/FHAFAQ; http://www.gpo.gov/fdsys/pkg/FR-2012-11-29/pdf/2012-28918.pdf; http://www.ecfr.gov/cgi-bin/text-idx?rgn=div8&node=24:


About the author:

Nikki J. Salgat, Esq. is associate counsel to the Arizona Association of REALTORS®. This article is of a general nature and reflects only the opinion of the author at the time it was drafted.  It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

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