Posted by JT - IN on September 24, 2001 at 09:34:43:
IB:
I disagree with your analysis here.
First off, the item #3 that you speak of: “(3) The property is being sold at below market value due to a distress sale or at a tax sale.”
This will not apply, unless the home is being sold at a LOSS. I don’t know about you, but I have no intentions of following this path, no matter what HUD does.
As it relates to “corresponding increase in the value of the property”, as in item #2, this will be highly interpretable by the underwriter at FHA, and will likely be very inconsistent, especially in the early stages. I feel that there will be some very disappointed investors, who in an attempt to make a fair profit, will have this interpretted to mean “you are trying to gouge the consumer”. Just another segment of the “consumer police”, that we deal with, in our eveyday lives.
A note worth making, is that this ruling does not pply to any home taht was purchased by an investor from HUD. Wonder why this is??? I suppose they don’t want to screw-up their own market, but don’t mind doing so for everyone else.
I think that you will see this be a larger problem, before you see it becoming a smaller one. What I mean by that is, you will begin to see these same issues on conventional, A & B mtg’s bfore long, as well, IMHO.
If anyone is interested, I have a letter in MS Word format that I am mailing to HUD tomorrow. I’ll be happy to email it to anyone that is interested.
Please get the word out to any potential flippers, rehabbers, and related professionals. This ruling could significantly change the way we as investors have to do business.
This May Not Affect Many Flips !!! - Posted by Dave Holls
Posted by Dave Holls on September 23, 2001 at 23:34:45:
I read an interesting paragraph at the end of the proposed rule change. It was concerning who will qualify for the mortgage insurance on a property. It was under (§ 203.37a Sale of property.), and concerned when the six month restriction does not apply.
It said " (c) Case-by case exceptions. HUD may grant exceptions to the provisions of this section, on a case-by-case basis, upon written demonstration by the mortgagee that the sales price of the property accurately corresponds to its market value. Such documentation may include, but is not limited to, evidence that:
(1) The sales price reflects a rapidly appreciating real estate market;
(2) The seller has made improvements that have resulted in a corresponding increase to the value to the property; or
(3) The property is being sold at below market value due to a distress sale or at a tax sale."
It would seem this would cover many instances of flipping, especially if you make improvements to the property. As the government does, they try to fix problems with sweeping change, but at least this time they may have left the backdoor open.
Thanks for this memo. I have forwarded it to the President of the CT Prop. Owners Association with instructions for her to get it out to ALL landlords in CT. (NOTE: The CPOA is the largest LL group in CT and the 2nd largest group in the northeast)-Dan
Posted by JT - IN on September 24, 2001 at 20:27:29:
On a few deals, where a “flipper” has bought the property one day, paying $ 24,000, and selling the next day, to an unsuspecting (uneducated) party, for $ 62,000, making little or no repairs. Obviously, there has been some abuses, when the above happens, but they go to the next level, trying to protect every possible scenario, and in the mean time, will hurt many more FHA buyers, looking at quality houses, at FMV.
It is just how large organizations react to a potential problem. They incinerate the trees, at the first sign of a forest fire…
Re: This May Not Affect Many Flips !!! - Posted by Rob FL
Posted by Rob FL on September 24, 2001 at 08:32:56:
Of course when you have to show them what you paid, all the receipts for repairs, and your new sales price they may balk and turn down the loan because your price is “inflated” because we decided to add in a profit for ourselves.
Aren’t appraisers supposed to determine what a property is worth? Aren’t inspectors supposed to determine if a property is in acceptable condition? Or are we supposed to be at the mercy of some guy behind a desk who may know very little about our business?
Re: This May Not Affect Many Flips !!! - Posted by IB (NJ)
Posted by IB (NJ) on September 24, 2001 at 09:04:09:
I’m sort of with Dave on this. Numbers 2 and 3 state:
(2) The seller has made improvements that have resulted in a corresponding increase to the value to the property; or
(3) The property is being sold at below market value due to a distress sale or at a tax sale."
I take #2 to mean APPRAISED “value” when referring to improvements increasing the value of a home. And #3 is actually concerned with market value which I take to mean that as long as our profit doesn’t cause the price of the house to exceed the market value we’re okay.
But I’d like to stress the point I made on other posts. We need our own special interest group (if we don’t have one already) that can lobby Congress and exert influence on FHA to develop rules and guidelines that are fair to everyone involved.
Re: This May Not Affect Many Flips !!! - Posted by Clare z
Posted by Clare z on September 24, 2001 at 12:19:25:
Yes, we do need a lobby, and/or a PR group. I would really like to see a cohesive plan/response to those negative articles that appear in the papers occasionally.