Flipping houses can look pretty easy and glamorous on TV, but it can be a pretty legally complicated procedure in real life. It seems so easy… buy a fixer-upper for next to nothing, do a few renovations, slap on a new coat of paint, and BAM… Make a huge profit! The whole goal of fixing and flipping a house is to make a profit. And getting involved in legal trouble is a surefire way to destroy the profits from flipping a house.
There can be some pretty sticky situations that pop up when it comes to house flipping. Here are just a few examples of things you need to look out for.
FHA Reselling Restrictions
Many FHA-lenders requires mortgage borrowers to wait a minimum of 90 days before selling the property. This policy is designed to protect buyers from predatory flippers who try to take advantage of potential homeowners within the FHA mortgage program. If you’re using an FHA-insured loan to buy your house, you may be unable to resell the home within 90 days. You may also be prohibited from going through with a resell that exceeds 100 percent of the initial price within a 91-180 day period of the initial purchase. Additional documentation from the FHA may be required in validating the property’s increase in value.
Mortgage Loan Fraud
Many fixers and flippers can’t afford to initially buy a home with cash. This means there will typically be banks and other lenders involved in the process of providing adequate financing to purchase the home. This may mean the flipper taking out a mortgage to initially purchase the home, along with the next buyer acquiring a mortgage loan as well. This convoluted process creates an environment that’s ripe for mortgage loan fraud.
It can be difficult to navigate who actually owns the home you’re looking to flip. Acquiring appropriate insurance is vital for any flipper who wants to avoid potential legal trouble. Here are just a few examples of potential title defects that may affect the property you’re purchasing.
Forged deeds and mortgages
Misinterpretation of wills and deeds
Mistakes in recording of legal documents
Errors in tax records
Deeds by persons of unsound mind
Other concerns may include building permits, issues with contractors, and much more. At Borders and Borders, we’ve seen our fair share of issues on either side of the equation. Fixing and flipping a house can involve some pretty intricate legal issues. Contact us today to partner with a team that can guide you along the way.