HUD Waives 90-Day Re-sale Rule

In an effort to stabilize home prices and accelerate the sale of vacant homes, HUD Secretary Shaun Donovan announced a temporary policy change which allows for quicker re-sale of foreclosed homes and expands access to FHA mortgage insurance.
Under current rules, FHA will not insure the mortgage on a home unless it has been owned by the seller for at least 90 days. The new temporary waiver will suspend this rule beginning February 1, 2010 and will be in effect for one year.
The new policy is expected to encourage investors to buy foreclosed homes, fix them up and re-sale them. According to a press release on HUD’s website, “In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.”
The new waiver also carries stipulations to prevent predatory practices such as “flipping”:

  • all transactions must be an “arms-length” – buyers, sellers and other involved in the sale must not have the same interests
  • if the sales price is more than 20% of the previous sales price, the lender must met certain conditions

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