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Property Flipping and the CFPB

Consumer Finance Protection Bureau Protects Clients

from Paying Too Much for Recently Flipped Properties

Appraisal Rules – Effective January 18, 2014

Austin is a hot market right now. We are seeing more investors flipping property. Here is a quick reminder of the CFPB's rules for flipping.

One of the primary benefits from CFPB is protecting consumers from paying too much for a property that was recently flipped within 90 days, or between 91 days and180 days, that has experienced an increase in value by certain percentage thresholds.

Basic Rules:

  • A certified or licensed appraiser must appraise the property
  • The appraiser must perform a complete inspection of the interior of the home
  • Three days before loan closing, the lender must give the applicants a free copy of ALL appraisals obtained
  • The lender must tell the borrower
    • the purpose of the appraisal
    • lender will provide the applicant with a copy of any written appraisal report free of charge,
    • lender may charge the applicant for the appraisal (except as described below for flipped properties)
    • applicant may choose to have a separate appraisal completed at their own expense

Rules for Recently Flipped Properties

  • An additional appraisal is required (at no cost to the borrower whatsoever) and must include an interior inspection of the property
    • When the borrower is purchasing a property that was purchased by the seller less than 6 months before the borrower signs the purchase contract, or
    • When there is a value increase (as represented by the new sales price) of 10% or more if the seller bought the home within the past 90 days, or
    • When there is a value increase (as represented by the new sales price) of 20% or more if the seller bought the home within the past 91-180 days
  • Exemptions for this rule specifically:
    • If the property is in a rural area
    • When purchasing from a local, State or Federal Government Agency
    • When the seller acquired the title to the property through foreclosure, deed-in-lieu of foreclosure
    • When purchasing from a non-profit entity that as part of a local, State or Federal Government program
    • When the seller acquired the property through inheritance, or through a dissolution of marriage
    • When purchasing from an employer or relocation agency in connection with the relocation of an employee
    • When purchasing from a service member who received a deployment or permanent change of station order
    • Located in an area that was designated by the President as a federally declared disaster area based on certain parameters
    • Loans for initial construction of a dwelling
    • Temporary Bridge Loans (for 12 months or less)
    • Loans secured by a new manufactured home

I wanted you to be aware of some of the additional requirements because it may take longer to process the loans due to the possibility of a 2nd appraisal.

"The information provided has been based on rules and regulations issued by Federal Agencies and interpreted for you by Interpretations are not guaranteed but we attempt to make them both easy to understand and help you sell more real estate. Check with your local and state authorities to ensure that you meet all requirements and disclosures."

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