House Flipping: Four Legal Areas to Beware
Do you make – or plan to make money using a house flipping business model? If so, here are a few of the legal aspects of the house flipping business model to look out for in Florida.
FHA Restrictions
Many homes that fall into the category of “flippable” may be located in areas dominated by FHA loan buyers. FHA loans require strict 90-day wait periods between the property purchase date and the sale covered by the FHA mortgage. Furthermore, sales made within 6 months of the purchase date require strict adherence to a process that requires a second appraiser. Finally, in rare cases, FHA lenders require justifying any increases above 5% of the original value if a sale happens within a year of purchase.
If you flip houses and expect an FHA loan to be used by your next buyer then you should retain an experienced real estate lawyer to ensure you are complaint.
Title Issues
Old homes in relative disrepair may have clouds on the titles either from previous owners. One of the pitfalls that happens during the haste of a “house flip” is that the buyer looking to flip the house acts too hastily in accepting a title without doing a thorough title search on the property. Without a title search and title insurance, there is a real risk that some cloud from the properties past will surface when the buyer attempts to resell the house.
Zoning and Code Compliance Issues
In Florida you must declare a property’s zoning and code violations to potential sellers. Likely places where code violations may exist are stairways, air conditioning systems, plumbing, backyard docks and electrical wiring. All code violations must be known and declared to the new buyer in order to avoid the possibility of being liable for fines and charges facing that buyer in the future. Hiring an experienced Real Estate lawyer before you buy can help you to identify whether you are inheriting zoning and coding violations that could stand in the way of your plans to quickly flip the house.
If you flip houses and expect an FHA loan to be used by your next buyer then you should retain an experienced real estate lawyer to ensure you are complaint.
Property Tax Issues
When you buy a house matters in Florida. Property tax notices are received in August of each year and are ad valorem, meaning they are based on the value of the property. Purchasing a house right before property tax season could mean that you will be liable for property tax. This could potentially eat away at the profits of your house. If the property is purchased safely after property tax season, upgraded and then fails to be sold quickly enough, then it is possible that you will cross into tax season and become liable for property taxes.
In this case, you can reduce your tax liability by making an appeal to your county within 28 days of the receipt of your TRIM notice (as the ad valorem tax documents are called. Simply, upload your TRIM notice here and South Florida Law will contact you if you have a case to make an appeal.
Flipping houses can be very profitable but the legal pitfalls are many. To make sure that you stay compliant reach out to the Real Estate lawyers at South Florida Law PLLC today on (954) 900-8885. You can also click here to reach out via our contact form.