The Veridian Blog

Ron is looking to purchase a house from a seller who bought the property only a month ago through a foreclosure sale.  The foreclosure price was $250,000 and the seller is now listing the property for sale at $575,000.  What problems may Ron face with finding adequate financing?

Wholesale lenders today make every effort to completely disassociate themselves from anything having to do with the subprime world of yesteryear.  One example is a situation like Ron’s where a foreclosure results in an immediate and substantial gain to an opportunistic "flipper".  There’s nothing wrong or illegal with it, in theory, the issue that lenders have to deal with in the secondary market is having to explain such large increases in sales price over such short time frames.  Even if they could, they won’t because on its face, it can’t be explained - it is anything but an arm’s length transaction due to the sheer increase in price.  As a result, lenders have developed “anti-flipping” policies to curb such practices by implementing seasoning requirements lasting from 90 days to 6 months.

Ron thus has to wait it out and hope someone else doesn’t plop down the $575,000 in cash, or find a B-paper lender (a whole other story) if he is really desperate to buy the property.

As far as we know, there is no minimum amount that would constitute a “flip”, but any increase over a period of a month will certainly be scrutinized.  They would expect some improvements to be done to the property to support the increased value.