Extension of FHA “Flipper” Rule Good News For Buyers & Sellers Alike

While the FHA declared its waiver on insuring mortgages on properties owned by the seller for less than 90 days a temporary measure to help the foreclosure-plagued U.S. housing market, it has continually extended this waiver since 2010.  This indicates the strategy has been successful in promoting quick turnovers of such properties from small-time “flippers” who renovate and sell them.  While restrictions are in place to prevent predatory flipping practices, this extension gives many home-buyers more options and the short-term sellers the security of knowing that their properties will not be vacant for longer than the duration of the renovation process.  The waiver has been extended through the year 2013, at which point the FHA will have to reconsider the decision.

Condo Association’s Negligent Construction Claim Not Barred By Economic Loss Rule

A recent Appeals Court ruling held that the economic loss doctrine had been misapplied to a condominium association’s negligent construction claim, improperly reducing its recovery for defective window frames and a leaking roof.  The ruling was significant because the Court recognized that the common areas and privately owned units of the condominium were separate properties, such that defective construction in the common areas could result in consequential loss to a private unit, damages for which would not be barred by the economic loss doctrine.

In Wyman, et. al v. Ayer Properties, the Appeals Court held that as damage had occurred to the privately owned units and interior window sashes, “consequential physical damages to separate property satisfied the requirement of the rule for a concomitant harm beyond the damage to the original product or structure furnished by the defendant.”

The Court additionally found that the economic loss doctrine may have been applicable to allegedly deteriorating masonry that had not resulted in any damage to a separate property interest and thus lacked the requisite consequential loss.  However, the Court found that leaving condo trustees without a remedy for the negligent design or construction of the masonry was contrary to the purpose of the economic loss doctrine, the application of which normally leaves the claimant with contract or warranty claims. Since these alternative theories would be inapplicable to condo trustees, the Court concluded that the trustees should have been awarded damages for the deteriorating masonry as well.