Home buyers beware!

I'm sure you all remember the "house flipping" phenomenom that contributed to the housing boom just a couple years ago. Guess what - it's back, but with a different twist. Investors are out there taking advantage of the glut of foreclosed properties on the market, and flipping these properties quickly, often without spending a cent on home repairs or upgrades. Of course, the investor is making a profit on this sale, so, would you, as a home buyer, be getting a bargain? Possibly - that's really outside the scope of this "buyer beware." I do expect that most of you will do your own research to determine if these properties is a good value.

Here's the risk to you as a consumer. While there is probably no fraud involved in these transactions, as was the case during the housing boom, and while you may be getting a very good price for a very nice house, you may not be able to find good financing for your purchase. Before you realize that financing options are scarce, you could jeopardize your earnest money deposit. FHA has had a 90 day "prior owner" rule for years, to discourage property flipping. They recently lifted that rule, but only for bank owned properties (foreclosures), and not even all bank owned properties will qualify for FHA financing. Fannie and Freddie do not have a 90 day flip rule, but they do look at "chain of title" to determine if the property you want to finance appears to be a flip. Most lenders will not finance properties that have not been owned 90 days by the seller.

So, how do you protect yourself? There are a few things you can and should do before you make an offer.
• Chain of title - a record of who has owned the property and for what length of time, is a matter of public record, and is available to you through the county records.
• If you are working with a realtor, your realtor can research the MLS for records of prior sales (assuming the house has been listed for sale).
• Ask the seller. If the seller lies, he/she is commiting fraud and can be fined heavily, as well as be sentenced to jail time, so it is unlikely this information will be withheld.
• Make the 90 day rule a condition of your purchase offer, AND detail the type of financing you want, or require, as an additional condition of your purchase. (I strongly suggest you have a realtor or attorney write up your purchase offer, to protect yourself, if you suspect house flipping is part of the transaction you are entertaining.)
• Talk to your lender, to determine IF financing is available, and what the terms of the financing will be.

When you limit your financing options, you may be forced to settle for higher rates, higher closing costs, and perhaps less attractive loan terms, in order to close your loan.

If any of you has experienced a problem with financing due to a 90 day rule, please comment on this post, to share your experience and to help others.

Make it a great day today. And, try to stay cool. We are in for a very hot week.

Best regards,

Shelby Bateson

www.shelbytncmortgage.com