BiggerPockets

My partner and I are ready to sign off on a contract. Its a Fannie Mae foreclosure. Its being sold through an agent with a management company.

We just got the contract and article 14 has a deed restrictions. It basically states that the grantee is "prohibited from conveying property to a purchaser for three months from the date of the deed.

Are they basically stating that we have to wait three moths after we close before we can retail the property to our buyer? Has anyone else seen this before.

Thanks.

Ivan

Ivan, I purchased a Fannie May foreclosure about three years ago and it had this same restriction. Jim

I have had some success with getting FM to waive the deed restriction in the past. but recently it seems they are not willing to budge.

You can always request that the restriction be waived, it does not hurt to ask! It really all comes down to how solid the servicing company is and if they will take the time to work on this for you. (It seems that most could care less)

If they stand their ground, we have been able to get a small price reduction for our troubles. (We complain a bit because the agent/bank did not disclose this restriction, and it pops up when you see the bank addendum!) In my opinion, it is a sneaky move that should not be allowed.

Most of the FM properties we have bid on, we did not know that they were FM owned in the first place!

It is very frustrating, but as jbrooks said above, unless you are busting these out as a professional business model, 3 months does go by rather quickly! Just price in a little extra holding time into your expenses to compensate for the issue.

** Can anybody explain how these restrictions help, or what FM intentions are. I have never really received a clear explanation.

I would assume they are to prevent some fraudulent activity that has been experienced in the past with refi cash outs, but the banks have seasoning issues to protect from that now anyway. It seems to me that it keeps property values in an even more depressed state, doing more harm than good to the communities.

Maybe I am missing something?

If you accept the restriction, you will have to live with the restriction.

We just got the contract and article 14 has a deed restrictions. It basically states that the grantee is "prohibited from conveying property to a purchaser for three months from the date of the deed.

If you have blanks in that agreement, I would fill something in, since you can say that you refuse to execute on an agreement that contains blanks. I'd write the word "zero" in the blank in front of the number of months. That should do it IMO.

This restriction also affects loans and many hard money lenders would normally be willing to lend more than Fannie allows. What stops a lender from making a loan for the full amount of the restriction and than advancing another $5,000 or $10,000 under the same note and deed of trust. No one would know until the payoff statement was produced. Has anyone ever even heard of Fannie enforcing this or is this more of a scare tactic. If they did want to enforce it what would they even do?

The "why" you would get if you asked the banks is that they are trying to discourage unethical investors who are looking for a quick buck from buying, doing low-quality renovations and quickly reselling to unsuspecting owner occupants.

That may be true. It's also likely true that the banks don't like the fact that individuals have the opportunity to profit (sometimes greatly) off of their non-performing assets, and they are trying to limit the ability of private citizens gaining on their loss.

Obviously, I would never expect anyone in bank management to admit this.

...and I plan on finding the 'who' in this process who has authority to rethink the logic.

It's less logic and more ego/emotion. I'm quite certain those who make these decisions understand the impact; I'm also quite certain that they have no desire to change the process.