Some time back, in an effort to protect the public from predatory practices the FHA laid out some very strict rules regarding how investors could, or could NOT, use federally insured loans to finance their business. Flipping is the general term used to describe the practice purchasing a home needing repair, then quickly doing that repair and reselling the home at a profit.
Unfortunately, some unscrupulous types gave the practice a dirty name, even committing bank fraud in their purchase practices. They might purchase the home at an artificially low price by misrepresenting the home’s and neighborhood’s value, then resell it at a huge profit doing little or no repair work.
A second unsavory practice we’ve observed is doing only superficial and/or cosmetic work leaving the real defects but hiding them from view. In the latter case the buyer is actually defrauded by misrepresentation of the home’s condition.
In an attempt to curtail this, the feds refused to insure the flip type transactions. The unfortunate result was that honest investors and contractors were also prevented from getting the funding needed to help get these blighted homes into a salable condition and back onto the market. For this reason we applaud the recently overturned decision. Within strict guidelines flips can now be funded using FHA guaranteed loans, and the new home owner can use and FHA loan to purchase it.
The practices the decision tried to stop are already illegal. It is illegal to misrepresent the value to the bank in order to buy a home, and it is also illegal to NOT disclose all known facts to a buyer that might influence what a prudent buyer might be willing to pay (set the price).
$ To read more on the overturned decision go HERE.
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