HUD Extends Property-Flipping Waiver: Retains Property Inspection Provision

RandalL Pence, ASHI’s man in D.C., reports that the U.S. Department of Housing and Urban Development (HUD) has extended its waiver of the regulation that prohibits the use of FHA financing to purchase single-family residences that are being resold within 90 days of the previous acquisition.

What’s important to home inspectors is that the requirement to use a property inspector in certain flipping circumstances has been retained.

Again, this is an acknowledgment by HUD of the public policy utility of home  inspections, as well as a somewhat expanded revenue opportunity for home inspectors. The primary message is the continually improving view of home inspection by HUD.  

Pence directed attention to Page 10 of the HUD announcement:

“2. In cases in which the sale of the property is greater than 20 percent above the seller’s acquisition cost, an FHA-approved mortgagee is eligible for the waiver only if the mortgagee:

a. Justifies the increase in value by retaining in the loan file supporting documentation and/or a second appraisal, which verifies that the seller has completed sufficient legitimate renovation, repair, and rehabilitation work on the subject property to substantiate the increase in value, or in cases where no such work is performed, the appraiser provides appropriate explanation of the increase in property value since the prior transfer; and

b. Orders a property inspection and provides the inspection report to the purchaser before closing. The mortgagee may charge the borrower for this inspection. The use of FHA-approved inspectors or 203(k) consultants is not required. The inspector must have no interest in the property or relationship with the seller, and must not receive compensation for the inspection from any party other than the mortgagee. Additionally, the inspector may not: compensate anyone for the referral of the inspection: receive any compensation for referring or recommending contractors to perform any repairs recommended by the inspection; or be involved with performing any repairs recommended by the inspection. At a minimum, the inspector must include:

i. The property structure including the foundation, floor, ceiling, walls and roof;

ii. The exterior, including siding, doors, windows, appurtenant structures such as decks and balconies, walkways and driveways;

iii. The roofing, plumbing systems, electrical systems, heating and air conditioning systems;

iv. All interiors; and

v. All insulation and ventilation systems, as well as fireplaces and solid fuel-burning appliances.”

The temporary waiver, which was instituted a year ago, was scheduled to expire February 1, 2011. It has been extended until December 31, 2011. Read the entire report here.