RealEstateConsumerInfo.com: FHA 90 Day Flipping Rule - How it pertains to both sides of the transaction

FHA has recently imposed some rules for both sellers and buyers when reselling their properties within 90 days of the previous acquisition.  This regulation might interfere with a sale on either side of the transaction so here's what you need to know:

Sellers need to know what rules to follow in order to sell to new buyers after the rehab work is completed.  The rule is applicable to all single family properties being resold with 90 days of prior acquisition.  (Effective from February 1st to December 31st, 2011).
 
Property 'flipping' refers to a property recently resold for a considerable profit with an artificially inflated value (HUD's words here, not mine), often resulting with a lenders collusion with the appraiser.  This is considered a predatory lending practice.

Here's what's still OK to do:  Investor purchases property and rehabs it with today's choices of updates that could include cabinets, windows, remodeling, carpeting, etc. and sells it to another buyer who chooses not to do the work.  Investor does make a profit on his work.  Investor happy = buyer happy with newly rehabbed home.  'Flipping' can also mean this example where an investor/owner transforms the property quickly to sell it to another buyer at a profit.  This is totally legal and is done all the time.  

Seller conditions and eligibility:

• The purchase is arms length in nature (no relatives, parties involved currently with the home).
• The property was fairly and openly marketed for sale through the MLS.  No previous flipping activity prior to 12 months evidenced by multiple title transfers.
• The mortgagee (seller) must justify and document any sales price that exceeds the seller's acquisition price by 20% or more.  This would included legitimate renovation, repair, rehab work done to the property.
• Seller must provide a 2nd appraisal on the property explaining the increase in property value since purchase.  An FHA approved appraiser must perform this appraisal and the buyer is not to pay for this cost.  So we'll need two FHA appraisals done in this situation, one the buyer will pay for, the seller will pay for the other.
  
• Orders a property inspection and provides the report to the purchaser before closing.  The inspector can have no relationship with the seller or interest in the property.

These added conditions could cost the seller/mortgagee an additional total of $1000.  It might be advantageous in order to sell the rehabbed property quickly and obviously to an FHA buyer.   Most first time home buyers are currently using this type of financing in our Northwest Suburban marketplace.