August 2006 Issue
Page 2

NATIONAL NEWS

HUD's FLIPPING RULE REVISED

Effective July 7, 2006, the Department of Housing and Urban Development has amended its regulations that address the predatory practice of property "flipping" and established certain time restrictions regarding the sale of properties whose purchase is being financed with Federal Housing Administration mortgage insurance. Appraiser transgressions were mentioned among the comments received in response to the December 23, 2004, interim rule on the subject.
 
One commenter wrote that investors, including real estate agents, should be exempt from time restrictions on resales since “they make legitimate livings purchasing and reconditioning distressed properties.” The commenter wrote that one of the rule's consequences may be continued curtailment of real estate investors in the affordable housing market. Exceptions to the time sale restrictions should be granted on a case-by-case basis when the mortgagee can show that the sales price of the property corresponds with its market value.

HUD responded that “while most investors do operate in a responsible manner, the abuses uncovered that resulted in the issuance of HUD's regulatory prohibition on property flipping were the result of actions by investors, other sellers, real estate agents, appraisers, and others with a vested interest in the sale of real estate.” HUD further stated that “mortgagees have always been required to show that the sales price corresponds to the market value; the problem lies with false appraised values, which are often central to the egregious abuse that the property flipping regulations are designed to prevent.”

In response to an assertion that the HUD rule may unfairly link the time in which a recently acquired property is sold with separate fraudulent acts, HUD said it recognizes that the time resale restrictions are not a total solution to predatory lending but that in its examination of predatory lending practices, “egregious examples of predatory lending included property resales occurring within a short time period and organized by appraisers and lenders as pre-arranged transactions with an unwitting buyer.” The department asserted that “this illustrates that property resales in short time frames often correlate with predatory lending practices. Thus, a 90-day holding period helps assure [sic] that the buyer is not victimized by a seller who acquires a property with the intention of immediately flipping it to the buyer for an amount that could not be realized without the help of the appraiser and others who would profit illicitly from the resale.”
 
The final rule broadens the exceptions to the time restrictions on sales to include government-sponsored enterprises, state- and federally chartered financial institutions, nonprofit organizations approved to purchase HUD Real Estate-Owned single-family properties at a discount with resale restrictions, local and state governments and their instrumentalities, and, upon announcement by HUD through issuance of a notice, sales of properties in areas designated by the President as federal disaster areas.
 
For more information, contact: Margaret Burns, Director, Office of Single Family Program Development at HUD. (202) 708-2121.  Reprinted from realtor.org

JUNK FAX RULE TO TAKE EFFECT

Rules requiring businesses to offer recipients a cost-free way to opt out of receiving unsolicited advertising faxes, even if the business and the recipient have an established business relationship, takes effect August 30, 2006.  The rules implement the Junk Fax Protection Act, which Congress passed in 2005.

For NAR guidance, visit http://www.realtor.org/letterlw.nsf/pages/0406fccfaxrules

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