Written by SwingSign Corporation | 21 January 2011

A classic real-estate flip involves the quick resale of a house or condominium at a significantly higher price than the purchaser paid with only cosmetic improvements to the property, if any at all. Sometimes only the contract itself is being signed over to a new buyer at a higher price. For years the federal government prohibited the use of FHA mortgage financing by buyers purchasing homes from sellers who had owned the property for less than 90 days. The idea was to prevent speculators from defrauding the government through quick flips of houses - usually involving straw buyers and corrupt appraisers - at inflated prices. One side effect of that policy, however, had been to stifle purchase-and-renovate projects by legitimate, small-scale investors who buy houses after foreclosure or loan defaults and then resell them in substantially improved condition.

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In many parts of the country, first-time and moderate-income buyers often sought to buy these fixed-up houses using FHA-insured mortgages with 3.5 percent down payments, but were prevented from doing so by the long-standing "anti-flipping" rules. This, in turn, left large numbers of foreclosed, vacant houses sitting unsold and deteriorating, with negative effects on the values of neighboring properties. Last January, FHA Commissioner David Stevens announced a one-year suspension of that rule, permitting qualified buyers to obtain FHA mortgages on properties that were acquired by rehabbers less than 90 days before. The plan, set to expire at the end of this month, came with key safeguards for purchasers, including inspections and multiple appraisals in some cases to document the amounts spent by investors on the improvements. The FHA has extended the suspension for another year, opening a huge market to investors.