FHA and flipped houses

[anala]

What is the name of your state (only U.S. law)? California
My Mother purchased a property outright in 1976. She first lived in it, then for the last 30 years has kept it as a rental. Her estate planning attorney placed this and another rental in an FLP for her in 2001. She is unmarried and I am her only daughter and heir. Several months back she decided to sell this rental property. We consulted with her estate planning attorney to see if she needed to take the property out of the FLP before selling it. He said no and that she would sign all documents with her name as the general partner. She has all the decision making rights in the FLP. I am only on as a limited partner with 1%. The property sold quickly. The young couple is doing an FHA loan. 2 weeks ago, escrow brought my Mother and I in to sign the papers for the sale. The escrow officer insisted that I had to sign a grant deed to my Mother for the 1% of the partnership I had in the FLP per the loan company. Now just last week at the 11th plus hour, the underwriter for the loan said it could not go through because it was now considered a "flipped house" because of me signing the grant deed. The house was not sold. No money exchanged hands. Our realtor said the very people that are now claiming it as a flip were the ones who insisted on the grant deed being signed to sell it. The President of the mortgage brokerage went to HUD directly and they came back the same day with a ruling that the house is now considered a flip due to the documents we signed at escrow.
Who is at fault:
escrow officer
underwrited
mortgage broker
our estate planning attorney
And what do we do?
They are now trying to see what other loans could be worked out. This is potentially a huge mess. Capital gains laws could be changed that may not be in my Mothers favor before the sale is final. If my 82 year old Mother dies before it is final, I don't even know how the property is currently considered being held-owned. If the house values drop significantly before something can be worked out for the buyers, there are consequeces for us too.
The mortgage broker is now asking my Mother to hold 30% of the house for 91 days from the close of escrow and they could do a conventional loan and then the young couple buying it could re-fi after 91 days from the close to an FHA and my Mother could receive the rest of the money. That would put part in this tax year and part in next tax year after a new more pro capital gains administration is in office.
HELP!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[FlyingRon]

Originally Posted by anala

The escrow officer insisted that I had to sign a grant deed to my Mother for the 1% of the partnership I had in the FLP per the loan company.

Something is very screwy here. First there's no reason why the partnership (with both your signatures) couldn't sell the house. Further I don't understand "deed" here if you're giving up the partnership. That wouldn't be the proper way of giving up your interest. Something more is happening here than you are conveying to us.

And what do we do?

Grab every bit of paper and take it to a competent real estate attorney.

Capital gains laws could be changed that may not be in my Mothers favor before the sale is final.

I wouldn't worry about that (if you're talking federally). We're lame duck at this point so nobody is acting on Obama's threats to raise the capital gains rates yet.

If my 82 year old Mother dies before it is final, I don't even know how the property is currently considered being held-owned.

We don't either. But it doesn't much matter if your mother dies or not.

The mortgage broker is now asking my Mother to hold 30% of the house for 91 days from the close of escrow and they could do a conventional loan and then the young couple buying it could re-fi after 91 days from the close to an FHA and my Mother could receive the rest of the money.

NO!!!!! Do not trust that the REFI woiuld happen. Just waiting 90 days won't make them necessarily eligilbe for two reasons. First the 90 days is the time between the sale and resale not between the sale and the obtaining of the FHA loan. Second even after the 90 days, it takes additional hoopjumping (appraisals and other justifications) to finance a sale up to the a year from the previous.