BiggerPockets

Closing on one today with the exact same issue. It is going go be a rental and not a flip. Paid $20,000, restriction will not allow me to finance more than $24,000 on it within 3 months. Bank is giving me $24,000 loan now, I will pay rest of repairs myself and then they will refinance me in 3 months and I will get all my money back.

This was on a deal back in March. I've got it leased right now, selling when ever my tenant wants to buy.. until then I'm cash flowing $675 per month. When he buys I'll make around $22k (not including my cashflow on rent).

I was asking this for my next deals going forward. I'm looking at 7 homes tomorrow to rehab / sell, but 2 are Fannie mae owned. They might get an X from my list before I even check it out...

Yes, I was going to provide jobs with that $30,000. Sad isn't it. The Gov lends to the banks, and puts restrctions on the banks to lend to the businesses.

Danny

Thats total lending amount, so my hard money lender could only lend up to 120% of the contract price.

$65,000
x 1.20
---------
$78,000 total

$78,000 - $65,000 (purchase price) = $13,000 for rehab

Its the same as saying 20% over contract price.

Danny

Thats a good question. I do not know the legalities of it all just yet. I assume if its a private loan you are not subject to this clause. I'm really not sure. Wish an RE attorney could chime in.

Danny

In theory, to Danny, they would be 1 and the same... if I know you can only sell the property for X * 120%... I wouldn't loan you more than 1.2X cause you wouldn't be able to pay me back without bringing money to the table...

I don't buy it. Can you provide the link that says you can't borrow more than 120% of the contract price? Is this a deed restriction? I'm not a lawyer but a deed resriction isn't a deed of trust restriction. I can't imagine that they can enforce such a restriction... unless it is GSE money (via Fannie Mae loan, etc.), in which case they can do whatever they like.

yes, it's resell or encumbrance. Here's the language:

"Grantee herein shall be prohibited from conveying captioned property to a bona-fide purchaser for value for a sales price of greater than 120% of the purchase price for a period of 3 months from the date of this deed.

Grantee shall also be prohibited from encumbering subject property with a security interest in the principal amount of greater than 120% of the purchase price for a period of 3 months from the date of this deed.

These restrictions shall run with the land and are not personal to grantee. This restriction shall terminate immediately upon conveyance at any foreclosure sale related to a mortgage or deed of trust."

Found this as a workaround:

"Set up an agreement with your rehab lender in which they agree to modify your loan once the 90 days expires. This will allow you to increase the loan amount since title insurance can be modified to reflect the higher loan amount after 90 days. Just keep in mind that you will incur additional closing and recording costs."

I'll eat my words. I bought one FNMA property in 2011 and I didn't look close enough. Yes, the wording includes "...encumbering subject property with a security interest in the principal amount of greater than $34,158..." just like David said.

This wording was not in a deed from Fannie Mae dated 3/11/2011, whereas my deed was 5/27/2011.

If you absolutely want a work-around for the 90/120% FNMA REO Clause (#14 I think):
Use an LLC to purchase the FNMA home.
Then just sell the LLC - whenever you want to - in that 90 day period.

Using an LLC provides additional layers of protection and, perhaps most importantly, the property runs with the LLC, so that clause #14 is not compromised.

I highly recommend including a disclosure, for YOUR buyer to sign, that clearly outlines that the property may NOT be sold, out of that LLC, for the remaining period of the original 90 days/buyer cannot borrow more than 120% of the original purchase price from FNMA for the remainder of that 90 day period.

The LLC ? You can sell it for whatever value you and the buyer agree.
Your buyer will be able to sell it, out of that LLC, at the conclusion of that, original, 90 day period.

Now - the above info is my opinion.
I am not an attorney.
I recommend you consult a real estate attorney for the finer details before you make my solution yours ; )