The risks and challenges of flipping a house

On Behalf of | Jan 27, 2022 | Firm News

House flipping can transform an outdated home into a modern living space and give the home a new life. However, there are risks associated with these projects that are helpful to understand.

Legal risks

A house flipper may not be aware that he or she may face mortgage and title issues. The Federal Housing Administration (FHA) provides mortgage insurance on loans offered by approved lenders. The FHA has what is known as an anti-flipping rule, meaning that the mortgage borrower cannot resell the home for 90 days.

Mortgage loan and home equity fraud may also be more prevalent in the home flipping business, so it’s important to ensure that the transaction is completed with reputable lenders.

It’s also very helpful to have title insurance since sometimes with a flipped home several parties can be involved and it can be difficult to know who owns the property. Title insurance will ensure that the title is clear.

Challenges

There are also some challenges for real estate professionals who sell flipped homes. Because cosmetic fixes can cover up structural or other major issues, it’s important for buyers to have a home inspection to ensure the home is up to code. Homes that are flipped may take longer to sell if the inspection identifies large issues that need to be corrected.

Also, real estate professionals may need to spend more time evaluating the market for a flipped home and determining a selling price, especially if other homes in the neighborhood have not been similarly updated.

If a real estate professional or a design professional has questions about legal requirements for home flipping, an experienced attorney can help.