Flipped homes

Re: Conventional Flip Policy


IMPORTANT NEWS…

Background: Property flip transactions refer to the process of purchasing an existing property,

then immediately reselling it for a profit. Property flips are not necessarily illegal unless the

transaction includes an act of fraud or misrepresentation such as an inflated appraised value.

Property flip transactions most often, but not always, involve distressed properties acquired at a

discounted price, then resold at an increased sales price to an uninformed buyer. To provide

some clarity around the underwriting of loans that may be flips, FAMC has implemented the

policy described below effective immediately.

Indicators: There are several indications that are common to property flipping. Loan files with

property flipping indication(s) will require a higher level of scrutiny during the loan review.

Some examples of indicators include (but are not limited to):

• Several ownership changes within a few months reflected on title or in Core Logic report.

• The appreciation of the subject property exceeds the typical appreciation in the market.

• The seller recently acquired the property for a significantly lower price, or there have been

several transfers of the property according to the tax assessment records.

• No real estate agent is involved in the transaction.

• The property was recently in foreclosure, or acquired at an REO sale at a considerably lower

sales price.

• Parties to the transaction are affiliated or related by birth or marriage.

• Owner listed on the appraisal and/or title does not match the property seller on the sales

contract.

• Sales contract has an unusually large earnest money deposit held by the property seller.

• Unusual fees or credits are reflected on the HUD-1.

• Title commitment references other deeds to be recorded simultaneously.

• Property seller is a corporation such as an LLC.

• Comparable sales used in the appraisal report are properties involving the same seller

and/or the same real estate broker as the subject property in an attempt to artificially inflate

the market.

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Exceptions: Examples of acceptable property flip transactions usually are as follows:

• Sales of properties by a US Government agency of single family properties pursuant to

programs operated by these agencies, state or federally chartered financial institution,

mortgage insurer, or federal, state, or local government to a buyer intending the occupy the

property as a primary residence.

• Property sales by relocation agencies or employers related to employee relocations.

• Sales of properties that have been substantially improved through legitimate and verified

renovations since the property was acquired by the seller. Any increase in the sales price

over the seller’s acquisition cost should be representative of the market given the

improvements made to the subject property.

Policy: Property flip transactions will be considered by FAMC for conforming loan amounts on

Owner-occupied, single-family detached residences only as follows:

• Properties acquired by the seller within the last 90 days are acceptable provided the

increase in the sales price is less than 20% and the LTV is less than 80% (see chart below).

• Properties with a sales increase of 20% or more must have been owned by the seller for a

minimum of 91 days prior to the date the borrower entered into the contract for purchase of

the subject property (see chart below).

• If the sales price has increased 20% or more since the most recent purchase, the

underwriter must determine if the increase can be justified.

o If the value increase is due to recent renovations or improvements, the appraiser

must supply interior photos of the renovations and comment on the cost of the

Repairs/renovations and likely contribution to the value increase.

o Receipts, building permits and/or signed contracts must be submitted.

• The property seller must be the owner of record.

• Loans requiring mortgage insurance must be submitted to the MI Company for

underwriting and approval. FAMC will not delegate MI on these loans.

• A complete/full appraisal is required regardless of AU feedback.

• Loan must not reflect any interested-party characteristics.



From one of our Lenders policies