The Various 90-Day Restrictions


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UPDATE FOR JANUARY 1, 2015: If you read the article below, you’ll see that back in 2010, FHA waived the 90 Day Rule. But, as of January 1, 2015, the 90 Day Rule is back in effect. In other words, there is no longer a waiver and any resale to an FHA at this time will require the seller to have held the property for at least 90 days before resale. The FNMA Deed Restriction is unchanged as of this writing (i.e., it’s still in effect).

I’m writing this article because there seems to be a lot of confusion out there about the “90 Day Restriction” that investors tend to worry about. The reason for the all the confusion — in my opinion — is that there are actually two very different 90 day restrictions, and most investors don’t know the difference.

So, here it is…

FHA 90 Day Flip Restriction

This is the 90 day restriction (also known as the “90 day rule”) that I’ve written about several times on this blog. For many years, FHA put a restriction on BUYERS that basically said, “We will not provide you a mortgage on a property until the Seller has owned the property for at least 90 days.”

So, if you were selling a property, and wanted to sell to a Buyer who was getting an FHA loan, you’d essentially have to wait until day 91 to close on the sale (and many underwriters would actually make you wait until day 91 to write the contract and start the loan process!). Since many investors focus their sales to FHA buyers (generally, first-time homebuyers), this meant that you’d need to figure in at least 90 days into your hold time, and often closer to 150 days when the buyer needed to start the process on day 91.

Back in January of 2010, FHA waived that rule, and as of today, Buyers can get FHA loans within 90 days of the Seller purchasing the property, though it generally requires some extra hoops on the part of the Seller (for example, two appraisals). So, for all intents and purposes, the FHA 90 day restriction is no longer in force, though it certainly could be reinstated at some point in the future.

A couple takeaways here:

  • The 90 day flipping rule has been waived for a couple years now, and many lenders will now lend to FHA Buyers who are buying a property that has been owned by the Seller for under 90 days. This means that not only can the property be put under contract within the first 90 days, but the actual closing can occur within that 90 day period as well. For reference, the shortest time period I’ve been able to resell to an FHA Buyer after purchase has been 61 days, as that’s how long it took to rehab, list, get a contract and get the Buyer through the loan process.
  • While many lenders will now do FHA loans within 90 days, not all of them will. Despite the fact that FHA allows them to underwrite these loans, many of the big banks still won’t — I don’t know if there is a good reason they won’t, but they won’t. Oftentimes, your best bet in finding a lender who will do an FHA loan for a property that has been owned for less than 90 days is to work with a smaller local or regional bank or to find a mortgage broker who works with a variety of banks and can find one that will do this.
  • In my experience, many old school mortgage brokers don’t know that this rule has been waived — especially those loan officers at the large banks who won’t do these loans. They will swear on a stack of Bibles that it’s still “illegal” and that you won’t be able to find a lender to do this, but given that I’ve now helped get nearly a dozen of these loans for my Buyers over the past two years, I can promise you that it’s not only possible, it’s not that difficult.

Fannie Mae 90 Day Deed Restriction

This is the 90 day restriction that some REO sellers (most notably Fannie Mae and Freddie Mac) impose on SELLERS (buyers of their properties) that basically says, “When you purchase an REO from us, you are not allowed to resell it to anyone else for more than 20% above your purchase price for 90 days.

There are two parts to this restriction that basically plays out like this:

1. As a buyer of the property, you may resell within 90 days of purchase, as long as your resale is no more than 20% above what you purchased the property for. For example, if you purchase a property from Fannie Mae for $50,000, you are allowed to resell it within 90 day for up to $60,000). The 20% threshold doesn’t change by making repairs or anything else — in other words, in our example above, it doesn’t matter if you spend $20,000 in repairs and plan to spend $10,000 more in commissions, you can still only resell for up to $60,000 in the first 90 days.

2. As a buyer of the property, you may resell for any amount after 90 days from your original purchase. So, if you wait until day 91, you can turn around and resell the property without restriction on price.

There are a couple nuances to be aware of with this 90 day restriction:

  • The restriction is what is known as a “deed restriction,” which means that it’s actually written on the deed to the property when you purchase it. In other words, if you try to sell for above 20% within 90 days, the closing attorney will likely refuse to close the deal based on the restriction he sees on the deed. And even if the attorney were willing to close the deal, no title insurance company would insure the title within these 90 day period. So, there’s no “honor system” with this rule.
  • Because the restriction is literally on the deed, it applies not only to you as the original buyer, but also to any secondary buyers as well. In other words, using our example above where you purchase a Fannie Mae property for $50,000, if you were to sell it to someone else for $55,000, they could still only resell it with the 90 day period (from the time of the original purchase from Fannie Mae) for $60,000. There’s nothing stopping them from selling it for less than $60,000 — and there’s nothing stopping lots of additional sales for less than $60,000 — but if anyone wants to sell for more than $60,000, they’ll have to wait until 90 days after your original purchase.
  • Unlike the FHA restriction that often would not allow you to even get the property under contract within 90 days, this restriction only says that you can’t resell the property for 90 days. So, there is nothing stopping you from finding a buyer and putting the property under contract to resell the same day you purchase it…you just have to wait 90 days to actually complete the sale
  • The Fannie Mae deed restriction also says that you can’t “encumber” the purchased property for more than 20% above the purchase price for 90 days either. In other words, if you purchase the property for $50,000, you would not be allowed to get a loan against the property for more than $60,000 for at least 90 days. This can certainly impact investors who get “rehab loans” that provide both the purchase funds and the rehab funds, as it wouldn’t allow the total loan to be more than 20% above the actual purchase price.
  • While Fannie Mae and Freddie Mac are the largest REO sellers to impose this 90 day deed restriction, they’re not the only ones. Some other banks also impose these restrictions on REO sales, and one or two banks are now imposes restrictions on short sales as well (though 30 days are more common on short sales). So, make certain that you read any addendum provided by the REO seller to determine if you’ll be subject to a restriction on resale.





29 Responses to “The Various 90-Day Restrictions”

  1. T says:

    Great Info! I am currently rehabbing a fannie mae property which falls under the 90 day deed restriction. There was a great deal of confusion sorrounding this during my due diligence period – lots of “experts” I spoke with seemed to have their own understanding of what the rule meant, though none of them were correct. It’s good to see a clear and concise explanation these rules. the 90 day deed restriction is a bit of a pain, but something I’m willing to work around if the deal is good enough :)

  2. Mark says:

    Thank you very much for clarifying these restrictions.

    M Mark

  3. Shane in TX says:

    Just curious…did you put this on BP as well? It would be well suited and appreciated.

    Thanks as always for filling in the gray (grey?) areas.

    ~Shane

  4. Luis says:

    I don’t think you mentioned that whether you are selling within the 90 day restriction or not more than likely a second appraisal will also be required and of course a lot more scrutiny.
    I just sold my latest flip and even though it was outside the 90 days and the buyer was getting a conventional loan they still required the 2d appraisal and requirement after requirement.
    Pretty much all banks put some kind of restriction on properties resold within 90 days or even a short time frame whether the loan is FHA/Fannie/Freddie or not.

  5. Stephen says:

    Thanks for the info. I have been wholesaling for a few months now and I was looking at a Fannie Mae home yesterday. I thought that there was a restriction on these homes, I just couldn’t remember what it was. So basically, to wholesale a Fannie Mae home , it would have to be for a cash price no more than 20% of the original sale price, excluding hard money rehab loans.

  6. J Scott says:

    Hi Stephen,

    That’s mostly correct. Your resale doesn’t have to be cash (your buyer can be getting financing), but the sale amount can be no more than 20% above the purchase price. As for getting rehab loans on a FNMA purchase, you can’t encumber the property for more than 20% above purchase price either, so you couldn’t get a rehab loan (or a refinance) for more than 20% above the purchase price either. That’s for the first 90 days after purchase.

  7. Janet says:

    Hello, can you talk about the changes that happened this year. I was told that you have to wait 12 months now to get above the 20%. That will put a damper on things! I want to rehab and resell. My question is if I option the property (property has been in sellers name for at least 12 months), and I use cash to rehab, then the house is sold and I exercise my option at closing to reap a higher profit Will that work?

    Thanks, Janet

  8. J Scott says:

    Hi Janet,

    Are you talking about the FNMA restriction on your resale of an REO you purchased? Or are you talking about FHA restriction on lending on a property that has been held less than 90 days?

    The FNMA restriction is still 90 days before you can resell for above 20% more than you purchased for. It’s not 12 months.

    The FHA restriction has been lifted, and while you can resell as quickly as you want for any amount above purchase price, you’ll find that you have to jump through some extra hoops (extra appraisal, show receipts to underwriter, etc). Here’s an article about that:

    http://www.123flip.com/education/fha-90-day-rule/

    I don’t know of any rules that prohibit resale for anywhere near 12 months…

  9. thefirsttimeflipper says:

    I would also like to point out that the 90-day rule begins when the deed is recorded…not when you close on the home! Just found this out while I am sitting on a property. Not good news!

  10. J Scott says:

    Brandon –

    That’s going to depend on the lender. FHA doesn’t have the 90 day rule anymore, and when they did, it was up to the underwriter to decide if the 90 days started when the house was purchased (closing date) or when the deed was recorded.

    These days, with no FHA rule, there are three types of lenders:

    1. Those that don’t require 90 at all
    2. Those that require 90 days and start at the date of purchase settlement
    3. Those that require 90 days and start at the date of deed recording

    Those in the #3 category are by far the worst, and if you’re dealing with a lender who is implemented this restriction, I suggest finding a new lender. Preferably one that fits into the #1 category. Then require your buyers to use this lender. Wells Fargo is generally a good choice these days…

  11. Helen Duckworth says:

    All of the above is very interesting, Thank you. However, how do I find out if the waiver now extended through 2014 aspplies to 2015.

    Thanks
    Helen

  12. J Scott says:

    Hi Helen,

    The waiver was NOT extended through 2015. It is now expired, and things are back to what they were pre-2010…

  13. Matt M says:

    I’m new to investing and still learning the ropes. Regarding flipping, now that the old laws are back in effect, do you have any pearls of wisdom for us newbies to keep us out of trouble?

  14. J Scott says:

    Hey Matt –
    Encourage your FHA buyers to switch to conventional loans instead. These days, conventional loans are cheaper (PMI), they have similar downpayments (under 5%) and you won’t have to worry about the 90 day seasoning issue.

  15. Matt M says:

    A definite ‘duhh!’ moment…Iv’e been so focused on targeting first time FHA buyers, that did not even occur to me.

  16. SNelson says:

    I have just purchased a bank/FannieMae property. To my surprise at closing I find the 90 day resale restriction on my deed. I WAS NOT notified I was buying a Fanniemae property and DID NOT have any such addendum on my purchase agreement. I am an investor and purchased thru HUBZU auction. I am very familiar with purchase agreements and there were no resale restrictions on the agreement I signed. What would you do?

  17. J Scott says:

    SNelson –

    If you signed the FNMA purchase addendum (standard addendum for FNMA REOs), it would have been in there. If you don’t believe you signed that addendum, I would suggest contacting the title company and ask them to prove to you that you agreed to the deed restriction. If they can’t provide an executed agreement where you agreed to the restriction, they should be willing to remove the restriction (otherwise, they’d face legal repercussions if you chose to sue them).

    Curious what happens…please let me know!

  18. Wendy Jansema says:

    As far as purchasing a HUD home as an investor…what if any are the deed restrictions regarding buying as an individual as opposed to buying in my LLC? I have tried to look it up but have not had any luck finding out what the requirements are as a purchaser…I had heard that I would not be able to resell it within 90 days if purchased in my LLC I could only do that if I purchased as an individual ..my intent is to rehab and resell asap…can you tell me what section of the guidelines that would fall under?

    Thanks..

  19. Nikoluss says:

    J Scott,

    First off the is the most informative explanation I’ve looked at on this issue so thank you. Also, sorry for the lengthy question in advance.

    Regarding the Fannie Mae Restrictions. This is the verbiage on the addendum:

    GRANTEE HEREIN SHALL BE PROHIBITED FROM CONVEYING CAPTIONED PROPERTY FOR A SALES PRICE
    OF GREATER THAN $___________________ FOR A PERIOD OF ____ MONTH(S) FROM THE DATE OF THE
    RECORDING OF THIS DEED. GRANTEE SHALL ALSO BE PROHIBITED FROM ENCUMBERING SUBJECT
    PROPERTY WITH A SECURITY INTEREST IN THE PRINCIPAL AMOUNT OF GREATER THAN
    $________________ FOR A PERIOD OF ____ MONTH(S) FROM THE DATE OF THE RECORDING OF THIS DEED.
    THESE RESTRICTIONS SHALL RUN WITH THE LAND AND ARE NOT PERSONAL TO GRANTEE.

    You mentioned that since the restriction is actually printed on the Deed, the re-sale (conveying) restriction of 120% applies to me and any secondary buyers.

    Q1) Does that mean that the financing (encumbering) restriction of 120% applies to any secondary buyers as well?

    I ask because this is the situation: I am paying cash for a Fannie Mae property. Since I am paying cash, I’m not worried about the financing UNLESS it also applies to any secondary buyers. You might be thinking, what does it matter because I can’t sell it for 90 days anyways right? However, our company is very strict about the number of hold days. You mentioned that I can put it under contract before 90 days and push out the closing date in regards to the re-sale (conveying) restriction. I’m hoping this works the same way for the financing (encumbering) restriction. What I’m trying to avoid is being told I can’t open escrow until day 91 EVEN if the lender doesn’t require 90 days.

    Q2) If my end buyer’s lender does NOT require 90 days, we can sign the contract and open escrow before 90 days and close on day 91 correct?
    Q3) Who makes the decision that we CAN NOT execute a contract and open escrow before 90 days? The lender or the title company’s attorney? If the lender makes this decision, not the title company, then this should never be an issue and I’m worried about nothing.

  20. J Scott says:

    Hey Nikoluss,

    1. Yes, the 120% applies to secondary buyers as well. In other words, if you pay $100K for a property, the deed restriction will indicate that you can not sell nor encumber the property for more than $120K for 90 days. That means you you can sell for $119,900 anytime you want (or get a loan for $119,900 any time you want), but if you try to sell for more than $120K or if your end-buyer tries to resell or encumber the property for more than $120K, he’ll be violating the deed restriction.

    As for as opening escrow before Day 90 and closing escrow (settling on the sale) on Day 91, the deed restriction does not prohibit that. In fact, nobody should prohibit that based on the purchase deed restriction. But, see #2…

    2. Assuming your buyer’s lender doesn’t require a seasoning period, you’re good to close on Day 91 (see #1 above). Now, if you’re dealing with an FHA buyer that has a 90 day seasoning requirement for FHA, in theory you can still close on Day 91 (FHA doesn’t prohibit this). But, in reality, some specific lenders will say, “Even though FHA is okay with putting the property under contract before 90 days and closing on Day 91, WE’RE not okay with it, and will require that the buyer wait until Day 91 to sign the contract.” So, you need to ask the FHA lender (the underwriter, specifically) whether there will be any issue with getting the contract prior to Day 90 and closing on Day 91. There are plenty of lenders/underwriters that will have no problem with that — you just need to find one.

    3. See #2. The underwriter will make the decision when it comes to FHA seasoning rules.

    Does that make sense?

  21. J Scott says:

    Hi Wendy,

    Unless something has changed in the past couple months that I don’t know about, HUD has no deed restrictions, regardless of whether you purchase as an individual or LLC. You should be fine to rehab and resell, even within the 90 days. Though keep in mind that if you’re reselling an FHA buyer, FHA has reinstituted their 90 day rule as of last month.

  22. J Scott says:

    Nikoluss –

    Just to ensure that you’re aware, please take a look at the update I posted on this page: http://www.123flip.com/education/the-various-90-day-restrictions/

  23. Snelson says:

    Re: your response 1/29 – thank you!
    I had not signed FNMA purchase addendum and upon the
    Title company notifying bank of this – all resale restrictions
    Were removed from the deed.
    Thanks again for your input!

  24. J Scott says:

    Congrats! That’s awesome…

  25. Sarah says:

    I am in the process of buying a home that was a short sale that is being “flipped”. It was not disclosed to us that there is a deed restriction, however, we found this restriction on our own. The seller is not supposed to sell the property for 30 days and is not to sell for more than 20% (actual amount not to exceed listed on document) for 90 days. The property was listed for sale less than 30 days and for more than 20%. We would close after the 30 days but again the price we agreed to was more than the 20% restriction that we were not aware of. As a buyer in this situation would we be held liable for the seller violating the deed restriction? Should we back out of the deal?

  26. J Scott says:

    Hi Sarah,

    I’m not an attorney, so don’t take this as legal advice. If there was a deed restriction, that would most likely prohibit you from closing on the property within the 30 day period (the title company would see the restriction when they pull title and prohibit the sale). But, as long as the closing takes place after the 30 day period, there should be no issue, as the restriction would have expired in that time frame. Regardless, I don’t believe there is any liability on the buyer in this situation, even if the title company makes a mistake and lets you purchase the property within the 30 days.

    My recommendation would be to make the title company aware of the restriction (if they don’t already know), and follow their advice on closing. I don’t believe there should be an issue after the 30 days, though.

  27. KEVIN says:

    Many investors are buying fannie mae properties, how are they getting pass the 120%/90 day rule on the real estate purchase addendum?
    It says you can not encumber the property for more than 120% of the purchase price for 90 days after deed recordation. That does not allow you to take out a rehab loan for the property.
    Is there a work around.

  28. J Scott says:

    Hey Kevin,

    Unfortunately, there isn’t a work-around for the FNMA rules. You’ll either have to wait the 90 days to take out the loan (which means sitting on the property for three months before you start rehabbing), or you’ll have to get the rest of the money you need without encumbering the property. Perhaps you can collateralize another property you own? Or perhaps you can find an equity partner who can bring some money without liening the house? Or perhaps you can get a private loan from friends/family without creating an encumbrance?

  29. Kevin says:

    Thanks

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