Covenant Deed from Fannie Mae?

Question

I just received the title work for a cottage I'm purchasing owned by Fannie Mae.  The cottage is located in Northern Michigan.  The Schedule B-1 requirements include this clause:

7.  Covenant Deed from recited owner to recited purchaser.

Ok - expected a warranty deed so I had to Google covenant deed.  I learned this type of deed is one of the 3 types that exist in Michigan.  What I've learned I did not like!  Who would?  The PA gives me 5 days to object, which I have no problem doing.  Wondering what other more experienced Fannie Mae buyers would recommend.

In particular this information I googled has me somewhat concerned:

http://www.milawyers.net/60.question

Especially the part about the survey.  Thought about including a seller paid survey included in the offer but agent said they don't pay for anything.  So I walked the property lines as best I could with a measuring wheel.  It's good size - 1.67 acres, I'm 99% sure there were no encroachments.

The B-II Requirements includes a clause:  "Any encroachment, encumbrance, violation or adverse circumstance affecting the Title including discrepancies, conflicts in boundary lines, shortage in area, or any other facts that would be disclosed by an accurate and complete land survey of the land, and are not shown in the Public Records."

Will FM bend and offer a warranty deed?  Will they in fact pay for a survey?  I'm not opposed paying for it (the place is a huge bargain).

Any thoughts or suggestions are much appreciated.

Wayne Brooks · Answer

As @Chris Martin Mentioned, most REO's are transferred by some type of non warranties deed.....not a concern as long as you get title insurance.  The most frequent issue we have with seller/REO title policies though is here they don't search for non recorded liens...recent code violations, utilities, etc. and those exceptions are in the B exceptions.  Surveys are almost always paid for by the buyer, if requested, and you should.

Dan Madden · Answer

Thanks Wayne for that insight.  Prompted me to email the local zoning administrator and call the local building department.  Both were very helpful and indicated no violations, no fines, all taxes were current.

Emailed my realtor this morning to schedule the closing for tomorrow or Wednesday if possible.

So looks like were going to own our first investment property with a house on it.  Woohoo!

Thanks all for your input!

Wayne Brooks · Answer

@Dan Madden Every jurisdiction is different, hence the need for local title co.s.  Here, when a city/county issues a code violation, it is not recorded, just communicated to owner address.  The daily fines start accruing during this period.  If not corrected//paid, at some point they record a lien, in the public records.  When doing a FULL title search, the title co. has to send a request for a lien search (unrecorded) to the appropriate city/county agency.  Cost about $30, takes a couple of weeks.  These are the searches that the REO title co.s don't do.  And yes, they do stay attached to the property, so the new owner gets stuck with it.  Not sure how your local governments work there though.

Dan Madden · Answer

Thanks Chris - I agree!  I did get a survey quote of $475.00 but there's really nothing to worry about in my case.  We're probably going to build a 3 car plus attached RV garage with an upstairs 1 BR apartment.  We'll save the survey until then.

Dan Madden · Answer

Yes my B-ll Exceptions included such language.  When we looked at the place the electricity was still connected.  Makes me wonder if we'll be on the hook after closing for a big electric and/or gas bill?

Looks like it's on me to verify utilities & call the local building department and assessor's office.  Not sure how I'd investigate any unfiled liens, but it would seem to me if it was unfiled how would they have any success going after a subsequent owner?

Chris Martin · Answer

There are scenarios where even with all 'ultra safe' precautions in place you can get bit. $#!t happens. The 'B' exceptions... code violations... prior owner (pre-REO)... unrecorded... when the municipality says as owner we had to pay for some prior owner's violation, we learned the limitations of insurance. We decided that we could fight city hall (and lose) or just pay the $700 +/- fine. One other comment, we do not regularly get a survey done for the type of property we have bought since filed managers do on-site inspections prior to closing (similar to what you do) and save for one time there was little evidence of easement encroachment, etc., that would raise a flag for our use of the acquisition as long term rentals.

Dan Madden · Answer

Thanks for the response.   I do have a phone appointment with an attorney on Monday morning mainly just for reassurance.  The other information I referenced was just found online and seemed incomplete.

I guess one of the primary things I'm concerned about is when it comes to sell that I can offer a Warranty Deed to the next buyer.

Fannie Mae does pay (I'm told by the realtor) for the title insurance.  Have quotes in hand for property insurance.   Also going to go ahead and have the property surveyed just to be ultra safe.  We were planning on getting that done next spring anyway.

Chris Martin · Answer

FM transfers non-warrantee deeds in other states as well. It's not an issue. The attorney firm you linked to... well their job is to protect you and that's why they say what they say. If you think the place is worth it, pay for the survey. I would recommend getting title and hazard insurance as well. All these "costs" will most likely be required if you involve a lender.

Covenant Deed from Fannie Mae?

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