FHA Handbook 4000.1.II.A.1.b.
(3) Restrictions on Property Flipping
Property Flipping is indicative of a practice whereby recently acquired Property is resold for a considerable profit with an artificially inflated value.
Property Flipping refers to the purchase and subsequent resale of a Property in a short period of time.
(i) Time Restriction on Transfers of Title
The eligibility of a Property for a Mortgage insured by FHA is determined by the time that has elapsed between the date the seller has acquired title to the Property and the date of execution of the sales contract that will result in the FHA-insured Mortgage.
FHA defines the seller’s date of acquisition as the date the seller acquired legal ownership of that Property. FHA defines the resale date as the date of execution of the sales contract by all parties intending to finance the Property with an FHA-insured Mortgage.
(ii) Restriction on Resales Occurring 90 Days or Fewer After Acquisition
A Property that is being resold 90 Days or fewer following the seller’s date of acquisition is not eligible for an FHA-insured Mortgage.
(iii) Resales Occurring Between 91 Days and 180 Days After Acquisition
A Mortgagee must obtain a second appraisal by another Appraiser if:
· the resale date of a Property is between 91 and 180 Days following the acquisition of the Property by the seller; and
· the resale price is 100 percent or more over the price paid by the seller to acquire the Property.
If the second appraisal supports a value of the Property that is more than 5 percent lower than the value of the first appraisal, the lower value must be used as the Property Value in determining the Adjusted Value.
The cost of the second appraisal may not be charged to the Borrower.
(iv) Exceptions to Time Restrictions on Resale
Exceptions to time restrictions on resale are:
- · Properties acquired by an employer or relocation agency in connection with the relocation of an employee;
- · resales by HUD under its REO program;
- · sales by other U.S. government agencies of Single Family Properties pursuant to programs operated by these agencies;
- · sales of Properties by nonprofits approved to purchase HUD owned Single Family Properties at a discount with resale restrictions;
- · sales of Properties that are acquired by the seller by inheritance;
- · sales of Properties by state and federally-chartered financial institutions and Government-Sponsored Enterprises (GSE);
- · sales of Properties by local and state government agencies; and
- sales of Properties within PDMDA, (Presidentially Declared Major Disaster Area) only upon issuance of a notice of an exception from HUD