When a higher-priced mortgage loan needs two appraisals

The HPML flip rule is designed to add an independent valuation check when a home is resold quickly at a substantially higher price. It does not require two appraisals for every home purchase or every resale. First identify the covered loan and property, then calculate the seller's holding period and resale-price increase.

Confirm the loan and property are covered

The rule applies to a higher-priced mortgage loan financing acquisition of the consumer's principal dwelling, subject to the regulation's exemptions and exclusions. The creditor must obtain the required appraisal or appraisals before consummation. Do not assume the requirement applies to every second home, investment property or mortgage that is not an HPML under Regulation Z.

Apply the two resale windows

The thresholds are strict: a price exactly 10% or 20% above the seller's acquisition price does not exceed the stated threshold. The timing is based on the seller's legal acquisition of title and the consumer's signed agreement to acquire the property, as explained in the CFPB's official interpretation.

The creditor obtains and pays for the appraisals

The creditor must obtain two written appraisals from different appraisers before consummation. An appraisal prepared for the seller's earlier purchase does not count as one of the required appraisals. The creditor may not charge the consumer for the additional appraisal required by the flip rule. Each appraisal must meet the regulation's applicable independence and valuation requirements.

Verify the prior price and date

The creditor must exercise reasonable diligence to determine the seller's acquisition price and when the seller acquired the property. Relevant records can include a title search, written appraisal, sales contract or other reliable evidence. If available information conflicts or is incomplete, the creditor cannot simply assume the rule does not apply; the regulation describes how to proceed when the required history cannot be demonstrated.

Check the exceptions

Regulation Z lists exceptions, including certain transactions where the seller acquired the property through specified circumstances such as inheritance, court-ordered transfer, foreclosure or a government acquisition, as well as other defined cases. The exact exception and conditions matter. A property being described casually as a “flip” does not automatically decide whether two appraisals are required.

Exam sequence

1. Determine whether the loan is a covered HPML for a principal-dwelling purchase.
2. Find the seller's legal acquisition date and price, then the consumer's signed purchase agreement date and price.
3. Apply the 90-day/10% or 91-to-180-day/20% test.
4. Check the transaction-specific exceptions and other regulatory exclusions.
5. If the rule applies, require two written appraisals before closing and do not pass the extra appraisal cost to the consumer.

Key takeaway

The second-appraisal rule needs both a covered HPML and a rapid, sufficiently large resale-price increase. The creditor obtains two appraisals and pays the added appraisal cost.

The two-appraisal rule targets rapid resales

A creditor may need a second appraisal for certain higher-priced mortgage loans used to finance a property’s purchase when the seller acquired the property in the preceding 90 days and the price has increased beyond the applicable threshold. A separate threshold applies when the seller acquired the property 91 to 180 days before the buyer’s contract and the price increase exceeds the higher percentage specified by Regulation Z. The second appraisal must be independent and address the relevant transaction; the rule is not a general requirement for every HPML.

Confirm that the transaction is within scope

Start by confirming the loan is an HPML covered by the rule and is financing the borrower’s purchase of the property. Then identify the seller’s acquisition date, the date of the purchaser’s contract, the prior acquisition price, and the current sale price. The relevant comparison is the seller’s recent acquisition and resale, not an unrelated earlier sale or an automated valuation. If the seller acquired the property more than 180 days earlier, this particular flip rule generally does not apply, although other appraisal requirements may.

Calculate the price increase

Compute the increase as a percentage of the seller’s acquisition price: (current sale price minus prior acquisition price) divided by prior acquisition price. For example, if the seller paid $200,000 and resells for $250,000 within 90 days, the increase is $50,000 divided by $200,000, or 25 percent. Compare that figure with the threshold for the applicable time window. Do not compute the increase as a percentage of the new price.

Purpose and exceptions

The rule is intended to address certain rapid-resale transactions with unusually large price increases that can signal inflated value or fraud. Regulation Z contains exemptions, including for specified transactions and sellers, and the creditor must document an applicable exemption. The existence of an appraisal waiver or a first appraisal does not itself establish that a second appraisal is unnecessary when the rule applies. The required second appraisal is generally at no cost to the consumer under the rule.

Exam strategy

Separate the HPML determination from the flip test. The usual sequence is: covered HPML, purchase transaction, seller’s holding period, price increase percentage, threshold, then exemption. A rapid resale alone is not enough; nor is a high price increase outside the defined period. Keep all dates and prices visible in the calculation to avoid swapping the 90-day and 91-to-180-day thresholds.