by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
The FHA suspended the 90-day flip rule as of February 1, 2010, for a period of up to one year. I’m not so sure lenders are going to play ball, though. I’ve found that lenders are implementing the 90-day seasoning rule for all loans, not just FHA, these past six months.
I warned the readers on Bigger Pockets about my observations and offered this advice:
If you purchase a property that looks like a good flip opportunity, you should be careful to not enter into a residential purchase agreement (RPA), from an enthusiastic buyer, for at least 91-days from the date the deed was recorded. I’m certain there will be instances where certain lenders will follow the HUD policy to the letter of the law but for now, I’d enter every potential flip planning for a minimum 90-day holding period before you market the property.
Bigger Pockets has a lot of experienced investors and speculators who read the articles there. Ryan Hinricher suggested that some lenders may be playing ball:
This is probably going to go both ways. I would imagine some lenders will continue with overlays despite the 1 year suspend on the rule. As an investor who was an underwriter, the best thing to do is understand if your lending sources are going to work with the suspension or ignore it. My thoughts = lender by lender. I’m planning on flipping many deals within 90 days.
Ryan’s comment proves that there are no absolutes in lending, especially today. While I think my observations are indicative of a growing trend, I imagine that a few lenders will follow the HUD guidelines to the letter and fund those transactions. My guess is that those lenders will charge a premium for those transactions, costing the buyer/borrower more money for the risk involved.
Should real estate scavengers, who buy distressed properties and remarket them at a profit, wait the 90 days to enter a residential purchase agreement or consider a “buy-down”, so that the lenient but more expensive lenders’ terms are consistent with “market rates”?
Ryan Ward says:
Well, I’ve spoken with a correspondent lender underwriter locally about this, my wife :), and she seems to think that there aren’t any overlays that will disallow this so it looks to be good. I called another underwriter I know for BB&T and they seem to be willing to accept the suspension as well.
The bigger problem will likely be from knucklehead investors who buy in their name and then place it in an LLC or something and then try to sell in under 90 days.
That is not allowed and could cause a lot of problems for people who don’t understand the rules…
January 29, 2010 — 6:50 pm
Jeff Brown says:
I’m thinkin’ with as many lenders retaining the 90 day policy, trusting the ones saying they’re honoring the suspension is too risky for me. Trusting a lender? Really? I’ve not lasted 40 years in this business doing that — been burned too many times. Waiting 90 days ain’t gonna kill ya. And if it does, you may have been in a deal just a tad to thin for your own good.
To each their own.
January 30, 2010 — 9:07 am
Kevin Cottrell says:
As was noted above, in St Louis area, we’re seeing many lenders not accepting the 1 year suspension of the 90 day rule – business as usual. Unless you can confirm in writing, I agree with Jeff that the best course is to proceed with caution.
January 30, 2010 — 12:57 pm