Previous Law
May 22, 2003
MORTGAGEE LETTER 2003-07 TO:
ALL APPROVED MORTGAGEES ALL FHA ROSTER APPRAISERS
SUBJECT: Prohibition of Property Flipping
On May 1, 2003, the Department of Housing and Urban Development published a final rule in The Federal Register amending the mortgage insurance regulations to prevent the practice of flipping on properties that will be financed with Federal Housing Administration (FHA) insured mortgages.
Property flipping is a practice whereby a recently acquired property is resold for a considerable profit with an artificially inflated value, often abetted by a lender’s collusion with the appraiser.
These changes to existing credit policies, in effect for all mortgage loan applications signed on or after June 2, 2003, will eliminate the most egregious examples of predatory flips of properties within the FHA mortgage insurance programs and, thus, preclude home purchasers using FHA financing from becoming victims of predatory flipping activity.
This Mortgagee Letter provides a synopsis of the final rule, as well as specific guidance to assist lenders in complying with these new requirements.
We urge mortgage lenders and appraisers to review the entire published final rule as well.
Highlights of Final Rule
The final rule requires that:
- a) only owners of record can sell properties that will be financed using FHA insured mortgages;
- b) any re-sale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing; and
- c) that for re-sales that occur between 91 and 180 days where the new sales price exceeds the previous sales price by 100 percent or more, FHA will require additional documentation validating the property’s value.
In addition, the rule provides flexibility for FHA to examine and require additional evidence of appraised value when properties are re-sold within 12 months.
Sale by Owner of Record
To be eligible for a mortgage insured by FHA, the property must be purchased from the owner of record and the transaction may not involve any sale or assignment of the sales contract.
This requirement applies to all FHA purchase money mortgages regardless of the time between re-sales.
The mortgage lender must obtain documentation verifying that the seller is the owner of record and submit this to HUD as part of the insurance endorsement binder; it is to be placed behind the appraisal on the left side of the case binder.
This documentation may include, but is not limited to, a property sales history report, a copy of the recorded deed from the seller, or other documentation such as a copy of a property tax bill, title commitment or binder, demonstrating the seller’s ownership of the property and the date it was acquired.
Re-sales
Occurring 90 Days or Less Following Acquisition If a property is re-sold 90 days or fewer following the date of acquisition by the seller, the property is not eligible for a mortgage insured by FHA.
FHA defines the seller’s date of acquisition as the date of settlement on the seller’s purchase of that property.
The re-sale date is the date of execution of the sales contract by the buyer that will result in a mortgage to be insured by FHA.
As an example, a property acquired by the seller is not eligible for a mortgage to be insured for the buyer unless the seller has owned that property for at least 90 days.
The seller must also be the owner of record.
Re-sales
Occurring Between 91 and 180 Days Following Acquisition
If the re-sale date is between 91 and 180 days following acquisition by the seller, the lender is required to obtain a second appraisal made by another appraiser if the resale price is 100 percent or more over the price paid by the seller when the property was acquired.
As an example, if a property is re-sold for $80,000 within six months of the seller’s acquisition of that property for $40,000, the mortgage lender must obtain a second independent appraisal supporting the $80,000 sales price.
The mortgage lender may also provide documentation showing the costs and extent of rehabilitation that went into the property resulting in the increased value but must still obtain the second appraisal.
The cost of the second appraisal may not be charged to the homebuyer.
FHA also reserves the right to revise the re-sale percentage level at which this second appraisal is required by publishing a notice in the Federal Register.
Re-sales Occurring Between 91 Days and 12 Months Following Acquisition
If the re-sale date is more than 90 days after the date of acquisition by the seller but before the end of the twelfth month following the date of acquisition, FHA reserves the right to require additional documentation from the lender to support the re-sale value if the re-sale price is 5 percent or greater than the lowest sales price of the property during the preceding 12 months.
At FHA’s discretion, such documentation may include, but is not limited to, an appraisal from another appraiser. FHA will announce its determination to require the additional appraisal and other value documentation, such as an automated valuation method (AVM), through a Federal Register issuance.
This requirement may be established either nationwide or on a regional basis, at FHA’s discretion.
Exceptions to 90-day Restriction
The final rule exempts properties acquired by an employer or relocation agency in connection with the relocation of an employee from the time restriction on re-sales.
Re-sales by HUD under its Real Estate Owned (REO) program are not subject to the time restrictions.
However, any subsequent re-sale of such a property must meet the 90-day threshold in order for the mortgage to be eligible as security for FHA insurance.
The Homeownership Centers (HOCs) do not have the authority to waive the regulatory requirements set forth in the final rule.
The restrictions established by the final rule are not intended to apply when a builder is selling a newly built home or is building a home for a homebuyer wishing to use FHA-insured financing.
HUD will more fully address this issue through issuance of the Federal Register notice provided for in § 203.37a(b)(4)(iv) of the final rule.
Date of Property Acquisition Determined by the Appraiser
In addition, mortgage lenders may rely on information provided by the appraiser in compliance with the updated Standard Rule 1-5 of the Uniform Standards of Professional Appraisal Practice (USPAP).
This rule requires appraisers to analyze any prior sales of the subject property that occurred within specific time periods, now set for the previous three years for one-to-four family residential properties.
As a result, the information contained on the Uniform Residential Appraisal Report (URAR) describing the Date, Price and Data for Prior Sales for the subject property and the comparables is to include all transactions that occurred within three years of the date of the appraisal.
Appraisers are responsible for considering and analyzing any prior sales of the property being appraised and the comparables that occurred within three years of the date of the appraisal.
Therefore, provided that the URAR completed by the appraiser shows the most recent sale of the property to have occurred at least one year previously, no additional documentation is required from the mortgage lender.
The mortgage lender remains accountable for verifying that the seller is the owner of record and may rely on information developed by the appraiser for this purpose if provided.
However, if the lender obtains conflicting information before loan settlement, it must resolve the discrepancy and document the file accordingly.
Summary of Property Flipping Regulations In Effect June 2, 2003
Prior Sale Occurred 0-90 Days
91-180 Days
Eligibility for FHA Financing Not Eligible
- Exceptions include relocation agencies and re-sales by employers to employees and sales by HUD of Real Estate Owned. • The HOCs cannot grant exceptions. Eligible provided:
- Re-sale price to FHA mortgagors is less than 100% greater than previous sale or
- If 100% or more greater than previous sale, second appraisal supports value
If you have any questions regarding this Mortgagee Letter, please contact your Homeownership Center (HOC) in Atlanta (888-696-4687), Denver (800-543-9378), Philadelphia (800- 440-8647), or Santa Ana (888-827-5605).
Sincerely, John C. Weicher
Assistant Secretary for Housing-
Federal Housing Commissioner
This rule was specifically designed to prevent “predatory flipping,” defined as reselling a recently acquired property for a considerable profit with an artificially inflated value.
Summary of HUD’s 2003 Anti-Flipping Rule
The regulations established strict timelines and documentation requirements to determine a property’s eligibility for FHA financing.
Here is a breakdown of the rules based on the time a seller has owned the property:
| Time Since Seller Acquired the Property | Eligibility for FHA Financing & Conditions |
| 0 – 90 Days | NOT ELIGIBLE. A property cannot be resold and be eligible for an FHA-insured mortgage if the seller has owned it for 90 days or less. |
| 91 – 180 Days | ELIGIBLE, BUT WITH CONDITIONS. If the resale price is 100% or more (i.e., double) than what the seller paid, the lender must obtain a second independent appraisal to support the new value. The cost of this second appraisal cannot be passed to the homebuyer. |
| 91 Days – 12 Months | ELIGIBLE, BUT HUD RESERVES THE RIGHT TO INVESTIGATE. For any resale within this period where the price is 5% or more above the lowest sale price in the last 12 months, HUD reserves the right to require additional documentation (like another appraisal or an AVM) to validate the value. |
Key Requirements and Exceptions
- Sale by Owner of Record: The property must be purchased from the official owner of record. No assignments of sales contracts are allowed.
- Documentation: The lender must verify and document the seller’s ownership and the history of sales.
- Appraiser’s Role: Appraisers must analyze all prior sales of the property within the previous three years (as per USPAP standards) and report this on the appraisal form.
- Exceptions: The 90-day restriction does not apply to:
- Sales of properties by HUD itself (REO sales).
- Sales by employers or relocation agencies to transferred employees.
- Builders selling newly constructed homes.
Important Note Regarding Your Question about 2025
The document you provided is from 2003. While these core rules are still in effect, HUD and the FHA have since made adjustments.
For the most current rules in 2025, you should be aware that:
- The 90-Day “No-Flip” Rule is Still Active: The fundamental prohibition against insuring mortgages on properties sold within 90 days of acquisition remains.
- The 91-180 Day Rule Has Been Modified: In 2010, FHA temporarily waived the rule requiring a second appraisal for properties resold between 91 and 180 days (this waiver was related to stabilizing the housing market). This waiver has been extended multiple times.
- The “FHA Anti-Flipping Waiver”: As of recent years, FHA has maintained a waiver that allows investors who meet specific conditions to resell a property to an FHA buyer after 90 days without an automatic second appraisal, even if the price has increased significantly. However, they must still meet all other requirements, and the appraised value must support the sales price.
To get the official, up-to-date information for 2025, you should:
- Check the official HUD.gov or FHA.gov websites.
- Search for the most recent “Mortgagee Letter” on property flipping.
- Consult directly with a qualified mortgage lender or FHA-approved attorney who has access to the latest guidelines.
HUD.gov or FHA.gov websites. Search for the most recent “Mortgagee Letter” on property flipping.
Current Status: The FHA Waiver on Anti-Flipping Regulations is Active
As of my latest update, the most significant and current information is that the temporary waiver of the FHA anti-flipping rule has been extended and is in effect. This waiver modifies the strict rules from the 2003 document you provided.
The core 90-day rule remains, but the more restrictive rules for properties sold between 91 and 180 days have been waived to facilitate the sale of renovated properties to FHA buyers.
Official Source: Mortgagee Letter 2022-14
The key document governing this policy is Mortgagee Letter 2022-14, issued on October 14, 2022, titled “Extension of Temporary Waiver of Regulatory Provision Related to Property Flipping.”
Here is a direct link to the official document:
Summary of the Active Waiver (Effective October 14, 2022, through October 31, 2024):
- The 90-Day Rule STILL APPLIES: FHA will not insure a mortgage on a property that is being resold within 90 days of the seller’s acquisition date. This initial “cooling-off” period is still enforced to deter the most egregious flips.
- The 91- to 180-Day Rule is WAIVED: The requirement for a second appraisal and additional documentation for properties resold between 91 and 180 days after acquisition is temporarily waived. This means:
- A property can be sold to an FHA buyer on day 91.
- There is no longer an automatic requirement for a second appraisal, even if the sales price is significantly higher than the seller’s purchase price.
- This waiver is designed to increase the availability of homes for FHA borrowers, particularly those that have been recently renovated.
- Lender and Appraiser Due Diligence is CRITICAL: While the waiver is in place, the responsibility to ensure the property’s value and condition falls heavily on the lender and appraiser. The Mortgagee Letter emphasizes that lenders must:
- Carefully underwrite the mortgage.
- Ensure the appraisal accurately reflects the property’s market value.
- Be alert to any potential predatory practices or inflated values.
- The Waiver is Temporary: This waiver is currently set to expire on October 31, 2024. It has been extended several times since initially being issued during the housing crisis, and it is possible it could be extended again. You must check for updates as this date approaches.
How to Find the Most Recent Information
To ensure you have the very latest information beyond the October 2024 expiration date, follow these steps:
- Go to the Official HUD Portal for Mortgagee Letters:
- Use the Search Function:
- On that page, use the search bar and enter keywords like “property flipping,” “waiver,” or “ML 2024” to find any letters issued after 2022.
- Check for National Policy Changes:
- You can also check the main FHA Single Family Housing policy page for any general announcements: https://www.hud.gov/program_offices/housing/sfh
In summary, for 2024, the rule is: FHA financing is not allowed if the seller has owned the property for 90 days or less. For properties owned between 91 and 180 days, the previous restrictions are waived, allowing these transactions to proceed with standard appraisal and underwriting. Always verify with a mortgage professional, as they have direct access to the most current HUD manuals and policy updates.
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