Rehabber · Corona, CA · Member since 2009 · 59 posts · 21 votes
Here’s the deal.
I just got my offer accepted at 132,000 on a REO that the seller is Fannie Mae. Inside the Purchase Addendum it states that I can not sell the property for more then 162,000 within 3 months of closing. This property is not livable and needs many repairs. My projection after rehab was to sell for 195,000. I don’t want the seller to dictate after I own a property, on when I can sell or for how much, especially since it is a cash offer. I sometimes can rehab and close escrow in less then 90 days.
Has anyone been able to counter and remove this? The strange thing is I had this property locked up and accepted on a different occasion about 60 days ago and the contract didn’t have those terms in there.
So moving forward will this be the norm for Fannie Mae? I lost another accepted Reo offer that had this in it, and they wouldn’t remove it. If you notice on REO’s they are making it more difficult for investors to buy, by not allowing investors to write up offers until property has been “active†on MLS for X amount of days, and basically giving the first right to purchase to owner occupants. In addition there are closing cost and real estate commission incentives to owner occupant buyers and their agent, but not to investors. This transaction had a 1500.00 real estate bonus for the buyer’s agent but since it is non-owner the 1500.00 bonus won’t be given.
Any input on this would much be appreciated.
Unless my attorney is off-the-mark and unless my interpretation of relatively simple contract language is skewed, I think there is some misinformation in this thread.
1. Bill and Will - why do you say that the deed restriction is unenforceable and/or illegal? According to my attorney, you can enforce any contract restrictions by tying them to the deed; if the buyer chooses not to purchase under the conditions set forth in the contract (and ultimately the deed), so be it, but I've never heard anywhere that the seller is limited to the restrictions that go on the deed. Can either of you please provide some support for this claim?
2. Bill - Why do you say that you can sell for more if you show the cost of materials and improvements? Again, I've talked to a couple attorneys about this, and I've never heard a single one agree with that point. The deed restriction in the FNMA addendum is very specific, and conflicts with your assertion. Again, can you provide some support for your assertion?
3. Will - You say that you can't put the house under contract until day 91. Again, this is in conflict with the deed restriction that has been part of the FNMA addenda that I've seen. It's also in conflict my experience -- I've put several properties that have this deed restriction under contract prior to day 91, and never had any issue. In fact, it was the same closing attorney for the buys and sells, so if there was an issue, I imagine he would have mentioned it. Do you have anything that supports this claim?
For those reading this thread, I would suggest doing your own due diligence.
To help out, attached to this post is an actual page of the FNMA addendum (this is from a contract I'm closing on this afternoon, so I know it's recent) with the deed restriction (see #14).
The wording is very clear about the resale price (this price is 20% above the $31,500 I'm paying for it), and there isn't any ambiguity about when a contract can be signed or whether rehab costs can be rolled in.
Btw, note that the asset manager forgot to check the line that makes this part of the agreement, so this is actually not going to be enforced for this contract.
You have to deal with it its a deed restriction that is put into the deal. The attorney can't waive it the asset manager can't waive it. You will just need to make it part of your deal. You can whole sale the property if you need to get out otherwise you have to wait.
There was another thread about this before. The listing agent makes up the contracts for Fannie. They can choose not to select the Deed Restriction box, but the Asset Manager oftentimes tells them to add it back in.
I have never successfully got one countered out. Even in one example where I bought a property that had 30,000 in code violations I was responsible for.
J Scott has had more luck getting them countered out.
J Scott posted a few ideas a while back on how to avoid this. Maybe Steve can help me find it? Personally, I've never been able to negotiate it away. You mentioned that you already have an accepted offer, so for this property its too late. You'll have to budget in 3mo of holding costs. All the negotiating needs to be done before the offer is accepted.
As to the 90 days, I would seel on a contract, give possession with rent, allow the buyer to move in, have sufficient down in escrow and close after 90 days.
You can sell for more, showing the costs of materials and improvements. What I would do is not what I would advocate someone else doing.
I would tell them what the regs were and tell them to remove it. If they did not, I would file a les pendis and sue in small calims court for the loss of income. Yes, I knpow who they are. It's the property mgt bunch. Might check what was mentioned above too. The last REO I bought they tried to pull unconventional tactics and I used the same tactoic mentioned, Lenders Services backed down! Banks and lenders will mess with you if you allow it, standing toe to toe is sometimes necessary, or just walk away. Depends what it is.....good luck, now to go check out that reference given above...
to be honest, the 90 days is just a part of doing business with fannie mae..if you want to be a cowboy and try to get it taken off, good luck. 90 days isn't really the end of the world anyways.. it will take a month or so to do the rehab probably, a month if you're lucky to find a buyer, and a month for their bank to close the deal..bam 90 days over.
Thanks for all input. As 90 days doesn't seem long, it is just another adversity to face in case I can sell and flip earlier. I have flipped enough to have skin, but I can say the market is softer to sell today then so in the last 18 months. So I want to have as many issues eliminated as possible. Also if this was an exceptional deal, with minimal work, I wouldn't sweat it.
to be honest, the 90 days is just a part of doing business with fannie mae..if you want to be a cowboy and try to get it taken off, good luck. 90 days isn't really the end of the world anyways.. it will take a month or so to do the rehab probably, a month if you're lucky to find a buyer, and a month for their bank to close the deal..bam 90 days over.
Most of this is true, but if you read teh fine print, you can not go into contract until the 91 day, so the escrow period can not start until day 91 in most cases. There are ways around this a bit as well.
All these deed restrictions are illegal and if you wanted to fight it, you could. They are not enforceable in a court of law. That stated, FM does not have to accept yoru offer either, so you just have to roll with the punches at times.
Unless my attorney is off-the-mark and unless my interpretation of relatively simple contract language is skewed, I think there is some misinformation in this thread.
1. Bill and Will - why do you say that the deed restriction is unenforceable and/or illegal? According to my attorney, you can enforce any contract restrictions by tying them to the deed; if the buyer chooses not to purchase under the conditions set forth in the contract (and ultimately the deed), so be it, but I've never heard anywhere that the seller is limited to the restrictions that go on the deed. Can either of you please provide some support for this claim?
2. Bill - Why do you say that you can sell for more if you show the cost of materials and improvements? Again, I've talked to a couple attorneys about this, and I've never heard a single one agree with that point. The deed restriction in the FNMA addendum is very specific, and conflicts with your assertion. Again, can you provide some support for your assertion?
3. Will - You say that you can't put the house under contract until day 91. Again, this is in conflict with the deed restriction that has been part of the FNMA addenda that I've seen. It's also in conflict my experience -- I've put several properties that have this deed restriction under contract prior to day 91, and never had any issue. In fact, it was the same closing attorney for the buys and sells, so if there was an issue, I imagine he would have mentioned it. Do you have anything that supports this claim?
For those reading this thread, I would suggest doing your own due diligence.
To help out, attached to this post is an actual page of the FNMA addendum (this is from a contract I'm closing on this afternoon, so I know it's recent) with the deed restriction (see #14).
The wording is very clear about the resale price (this price is 20% above the $31,500 I'm paying for it), and there isn't any ambiguity about when a contract can be signed or whether rehab costs can be rolled in.
Btw, note that the asset manager forgot to check the line that makes this part of the agreement, so this is actually not going to be enforced for this contract.
as far as my attorney told me, I'm fine to list and go under contract whenever I want...my restriction says I can't transfer the deed within 90 days--says nothin about going under contract, lease option, etc. peculiarly, it also says i can't refinance within 90 days for over a certain amount
Unless my attorney is off-the-mark and unless my interpretation of relatively simple contract language is skewed, I think there is some misinformation in this thread.
1. Bill and Will - why do you say that the deed restriction is unenforceable and/or illegal? According to my attorney, you can enforce any contract restrictions by tying them to the deed; if the buyer chooses not to purchase under the conditions set forth in the contract (and ultimately the deed), so be it, but I've never heard anywhere that the seller is limited to the restrictions that go on the deed. Can either of you please provide some support for this claim?
2. Bill - Why do you say that you can sell for more if you show the cost of materials and improvements? Again, I've talked to a couple attorneys about this, and I've never heard a single one agree with that point. The deed restriction in the FNMA addendum is very specific, and conflicts with your assertion. Again, can you provide some support for your assertion?
3. Will - You say that you can't put the house under contract until day 91. Again, this is in conflict with the deed restriction that has been part of the FNMA addenda that I've seen. It's also in conflict my experience -- I've put several properties that have this deed restriction under contract prior to day 91, and never had any issue. In fact, it was the same closing attorney for the buys and sells, so if there was an issue, I imagine he would have mentioned it. Do you have anything that supports this claim?
For those reading this thread, I would suggest doing your own due diligence.
To help out, attached to this post is an actual page of the FNMA addendum (this is from a contract I'm closing on this afternoon, so I know it's recent) with the deed restriction (see #14).
The wording is very clear about the resale price (this price is 20% above the $31,500 I'm paying for it), and there isn't any ambiguity about when a contract can be signed or whether rehab costs can be rolled in.
Btw, note that the asset manager forgot to check the line that makes this part of the agreement, so this is actually not going to be enforced for this contract.
YES I CAN, look it up in FANNIE MAE and HUD sites. With some common sence instead of asking me evey time I say something to "back it up". I don't have freaking reference materials on my desk, as you might. But obviously you are reading a contract and not the regulation, which stipulates that costs of improvements are included! Much of what I say comes from experience and having been there and doing that. Reading REGULATIONS AND STATUTES, not some Realtor magazine. Common sence, ask your'e attorney if he passed the Bar, I buy a house for 60 K, it's a piece of trash, I put a 160K in the place, regulations allow reasonable profits, I think it's up to 20%, that means 60K plus what I put in, is 220K plus 44K sale price about 264K, if they don't like it tell them they can see me in court! Thankyou.
In some states, such deed restrictions are not enforceable, check with your state concerning deed restrictions, some are only allowed for certain types of deeds. Not only that, restricting profit of future owners in a deed is laughable. Thier reasoning is to ensure that a crime is not committed in the future, laughable, you should not walk down the sidewalk because you could cross the street from there and jaywalk, breaking a law! Check HUD tranbsactions with flipping. Fannie Mae is not a law or regulation making entity, they are a conduit for the secondary mortgage market. If you want to take thier (Fannie Mae Mtg managers) word for it and whimp out every time some jerk at Fannie Mae, opens thier mouth like some God, go right ahead, swallow it hook line and sinker! Bet you dollars to doughnuts that if I get a contract agreed to with a price and they come back as a counter with a bunch of crap, agreeing to the price but with these conditions, that I'll have it removed by the time of closing or I'll hang that property up for months on thier dime! I did it last October! They caved! Maybe alot of newer investors are getting kids out of law school because they work cheap, maybe some use the Board of Realtors attorney (very conservative minds) but I suggest you get the meanest, smartest, winningest attorney in your area, maybe with political capital, someone who chews on raw meat for breakfast and loves to win....and pay them, they are worth the difference. Maybe in your area Jason, you can have a deed restriction for only closing on rainy days or if the tempature is over 60 degrees, but not in most palces and not where I am.
At the very least, a sale that violated that covenant would cloud title insurance to the extent of that amount, it will not prevent the property from being sold and closed. Attorneys can close it.
By now, you should know that I am not the average "go along to get along" kind of guy. If someone, anyone, is messing around and screwing someone over, I'm the first guy in line to try and jam'em, just on principle.
Maybe someone could show me a case where Fannie Mae enforced this deed restriction and tell me what they did after a property was sold in violation of thier wishes ....can you do that? Did they take the property from the new owner? DId they fine the seller (Oooops, fannie mae doesn't have the power to do that). Did they take someone to court and win the profit made on the deal together with the costs of improvements? What's the recourse here, what happened?
2. Bill - Why do you say that you can sell for more if you show the cost of materials and improvements?
Much of what I say comes from experience and having been there and doing that. Reading REGULATIONS AND STATUTES, not some Realtor magazine.
Bill -
This is the third or fourth time in the past couple months where I asked you to provide support for something you've claimed and you've come back with, "It's in the regulations, go look it up."
Then, when I tell you I can't find any such regulation (or that what I can find is in no way clearly supporting your claim), you just stop responding. I'm not saying you're wrong, I'm just saying that my attorney has given me different information.
Since this is clearly an important issue to those here on this forum, if you know the regulation that supports your claim, why don't you share it with us?
I've already given up trying to get you to support the last few times you've pulled this "there are regulations but I'm not gonna tell you what they are" response...so I'm not really confident you'll do anything different here...but I thought I'd try...
...ask your'e attorney if he passed the Bar.
I asked him, and he said yes.
He asked me to ask you the same question.
Have you passed the bar?
Again, I'm not saying that you don't know more about real estate law than the teams of lawyers that FNMA employs, but I'd be more convinced if you could prove to me that they are breaking the law by including this deed restriction.
Jason, I apologize and stand corrected. I was mixing up the old FHA 90 day rule with the FNMA restriction. My bad.
For this I stand by with the information and legal advice I have received here in CA (not sure about your states) It is unforceable because nobody can tell another owner what they can or cant do with their property. Example: I own 1st street and I sell to you for $100. I put into the deed a restriction that states you can not drive on this street between the hours of 9AM and 5 PM. This is a restriction that I have yet to hear that has been enforced in a court of law. If you have evidence to the contrary, please provide, I can't find any.
It is unforceable because nobody can tell another owner what they can or cant do with their property.
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If you have evidence to the contrary, please provide, I can't find any.
Will - I almost always agree with you, but you're off base on this one...
It's not true that an owner can't be told what they can and can't do with their property (anyone who lives in an HOA community will tell you that).
There are literally millions of examples of deed restrictions in effect and enforced every single day in this country...
Commercial developers routinely attach deed restrictions (often called "restrictive covenants") to property to restrict the use of the property. For example, if they're religious and they never want a liquor store occupying the property. The covenant "runs with the land," not the owner, and will restrict the use of the property for as long as the property stands, regardless of who owns it and what they might want to do with the property.
And in residential PUDs, this is often how homeowner associations enforce their covenants (though not always). HOAs can use restrictive covenants on deeds to give them the authority to place liens against homeowners who don't pay dues, who don't follow the HOA rules, etc.
By the way, you can add a deed restriction to your house anytime you want. Perhaps you want the house to always be painted green? Or perhaps you don't want to allow anyone to ever build a second story on the house. Just add a deed restriction. As long as you're around to enforce it (or have someone to do it as your proxy), the courts will support you. Don't believe me? Go ask any real estate attorney...
What makes you think that the deed restrictions currently on millions of properties around the country -- both commercial and residential -- are unenforceable?
Btw, I just did a quick Google search and I can't find a single instance of anyone even arguing that deed restrictions in-and-of themselves are illegal or unenforceable, except in specific circumstances when they promote illegal activity (like segregation).
I'm with J Scott on this one. I myself closed this afternoon on a FNMA property, same exact deed restriction as J Scott posted (different numbers of course).
The deed restriction as far as I can tell seems to be straightforward, I would be interested to know any regulation that would alter the allowable sales price based on improvements. That could be some valuable information.
On Will's comment:
" It is unforceable because nobody can tell another owner what they can or cant do with their property"
CCR's, mineral rights, air space rights, easements, these are all effectively someone else telling another owner what they can or can't do with their property. These are often enforced so I don't see why the FNMA deed restriction would be different.
HOWEVER, I would very much like to be proved wrong on that one. 90 days is an unreasonable restriction in my book, I'm all for flipping houses faster!
Now, honestly, I read the regulations and what Fannie Mae, Freddie Mac and what HUD was trying to impose with the seasoning requirements and then the deed restrictions became thier answer to curb possible fraud. A blatant violation of free trade, price fixing and fair trade issues, and Fannie Mae is not a regulatory authority, they can only make guidleines for members, originators, sellers and buyers of mortgages acting within the scope of thier conduit activities. They don't make laws! They have no more legal right to make a deed restriction at or after a sale than you do. And the way it done is also questionable. They have no teeth at all in the public arena! Lending violations for the public come under HUD, so check there as well.
People just let entities like banks and Fannie or Freddie get away with things, it becomes customary by public acceptance, not from a legal right to do so. The more they do it, the more they will have the right to do it. I have not heard of any court upholding such a restriction, yet, have you?
While my hat is off to your attorney for passing the Bar, and you know I'm not an attorney, nor do I give legal advice in any matter, but I will give my opinion.
Attorneys do not generally study real estate, finance or banking since it is a specialty that is acquired after they become a lawyer. I respect all attorneys for thier accomplishments, but they are not right by default, Attorneys have called me for advice in real estate/finance and banking matters. I have mentored several in my area. So if anyone thinks that you always get the right answer just because it's from an attorney, better realize we are all human and make mistakes....last time I heard, professional liabilty insurance for attorneys was not cheap, yet they are rarely sued in my area..
Back to the regulations, I read them, I'm very good at reading and retaining regulations and statutes. I would have to spend considerable time to find it again, more time than having to type all this. You should be able to start from the beginning of those regulations and read through them carefully and I guarantee you, you should find them. Better yet, call a lender who does alot of mortgages, a good broker, they will probably be able to tell you that improvements are included, what should also be common sence. Do you really think that you're only allowed to make XX dollars in a flip and pay for all the improvements out of that "allowed" sale price? Do you really? Does that make since to you? How would they ever sell a trashed property????? What if there were more than twenty per cent of the sale price in damages????? Maybe you shouldn't have mentioned your contract as your basis for your opinion, shows they put one over on you.
Deed restrictions are a matter of staute state to state, Like I ask you Jason, show me what happens when you sell for more. Will provided a good example.
Maybe some other flippers will jump in, this has been brought up on BP before, where I made the same comment, and others were aware of it as well.
They have no more legal right to make a deed restriction at or after a sale than you do.
The deed restriction is agreed to by both parties as part of the contract for sale.
So, you're now saying that I -- as a property owner -- don't have a legal right to impose a deed restriction as part of a legal contract for sale of real property?
Seriously, are you just making stuff up as you go along?
While my hat is off to your attorney for passing the Bar, and you know I'm not an attorney, nor do I give legal advice in any matter, but I will give my opinion. Attorneys do not generally study real estate...
I'll pass your congratulations on to my attorney...I'm sure it will brighten his day.
Btw, my real estate attorney specializes in real estate law and real estate contracts (hence why he's a "real estate attorney").
Would you say that the people on this forum are better off getting their legal advice from you (someone who admittedly doesn't give legal advice) or from someone who specializes in giving that type advice?
And given that you're not an attorney (and therefore certainly not a real estate attorney), would you agree that the real estate attorneys who write the FNMA contracts may know more about real estate law than you do?
Back to the regulations, I read them, I'm very good at reading and retaining regulations and statutes.
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You should be able to start from the beginning of those regulations and read through them carefully and I guarantee you, you should find them.
THERE IT IS!
As I predicted in my last post, once again you come back with, "I know the statutes but I'm not going to tell you what they are...find it for yourself..."
With that argument, you can make pretty much anything up!
Better yet, call a lender who does alot of mortgages, a good broker, they will probably be able to tell you that improvements are included, what should also be common sence.
Funny, the mortgage broker I asked originally about this looked at the verbiage in the restriction and basically said, "Seems pretty clear to me...you can't sell for more than the number in the deed restriction."
My real estate attorney agreed. As did my closing attorney.
And again, I'll take their LEGAL ADVICE over your OPINIONS any day.
Do you really think that you're only allowed to make XX dollars in a flip and pay for all the improvements out of that "allowed" sale price?
Yes.
Yes.
Yes.
I buy these types of properties all the time. And you know what I do? I wait 90 days to sell. After 90 days, I can sell for as much as I want and make as much profit as I can possible make.
Deed restrictions are a matter of staute state to state, Like I ask you Jason, show me what happens when you sell for more. Will provided a good example.
Go back and read my response to Will. There are millions of deed restrictions (restrictive covenants) in place in every jurisdiction in this country.
There is plenty of precedent for what happens when you violate a deed restriction...you should go find a real attorney and ask him about it...
I think some people are getting confused between the 90 day Fannie Mae deed restriction and the Fannie Mae anti-flipping rule that used to be in place and some lenders still enforce.
Do you really think that you're only allowed to make XX dollars in a flip and pay for all the improvements out of that "allowed" sale price? Do you really? Does that make since to you? How would they ever sell a trashed property????? What if there were more than twenty per cent of the sale price in damages?????
Holy crap.
I just reread your post Bill, and based on what you've written here, it's clear that you don't even understand what the FNMA restriction says!
Based on what you've written you clearly think the 20% profit resale restriction lasts forever, and not just 90 days!!!
Which certainly explains why you can't understand how anyone would buy these properties (and you'd be right if that was actually the case, which it's not).
You've been furiously arguing the legally of something you haven't even read.
And the saddest part is that I've been wasting my time arguing with you as if you knew what you were talking about.
This restriction is in place to eliminate fraud and I would venture to say it does a good job of that.
Some people have a business model of a thin margin and lining up a next day closing without doing any work. It might hurt that business model, but not mine.
Like J Scott, I sell mostly FHA... escrow takes 30-45 days typically. Repairs typically take at least 30 days. So between repair time, marketing time and escrow we wouldn't be able to record the deed and sell the property in less than 90 days very easily anyways.
I understand what you are saying J and agree, but perhaps I was not clear. I was only referring to the deed restriction of not being able to sell for more than 20%, not HOA's, PUD's etc. Certainly there are legal deed restrictions both in residential and commercial. I don't argue that, your post was accuarte and had great examples.
I was only re-stating what I was told by a RE attorney in regards to the specific deed restriction of resale price must be no more than 20%. I was told thta type of restriction is not enforcebale in a court of law. I was told that they get away with it but they had "no legal ground to stand on". If that information was incorrect, I would like to see the proof. Perhaps my example of not being able to drive on the street during certain hours was a poor one, but I was attempting to refer ONLY to the deed restriction in this topic.
Originally posted by Steve L:
This restriction is in place to eliminate fraud and I would venture to say it does a good job of that.
Some people have a business model of a thin margin and lining up a next day closing without doing any work. It might hurt that business model, but not mine.
Perhaps, but I believe it is put in place to "protect" their control of profits. Banks (even though they are the ones who f'ed up in the first place) now target us investors as the bad guys and don't want us making money on their mistakes. Does this really help reduce fraudulent transactions? I say no, but that is my opinion.
All it does is hinder investors and hurt the economy. The longer it takes to get through the foreclosure mess, the longer this recession will last. If they want to reduce fraud, they should have interior systems in place to complete proper due diligence. Many of the fraudulent transactions are those that happen with simultaneous closings and back to back closings and most of them are inside 20%, so I will continue to argue that this deed restriction does nothing to prevent fraud, again, my opinion.
This restriction is in place to eliminate fraud and I would venture to say it does a good job of that.
Some people have a business model of a thin margin and lining up a next day closing without doing any work. It might hurt that business model, but not mine.
Perhaps, but I believe it is put in place to "protect" their control of profits. Banks (even though they are the ones who f'ed up in the first place) now target us investors as the bad guys and don't want us making money on their mistakes. Does this really help reduce fraudulent transactions? I say no, but that is my opinion.
All it does is hinder investors and hurt the economy. The longer it takes to get through the foreclosure mess, the longer this recession will last. If they want to reduce fraud, they should have interior systems in place to complete proper due diligence. Many of the fraudulent transactions are those that happen with simultaneous closings and back to back closings and most of them are inside 20%, so I will continue to argue that this deed restriction does nothing to prevent fraud, again, my opinion.
I agree with Will on that one. 90 days is a hinderance to us as investors fixing up junk properties, bringing retail buyers, creating a market to which banks can loan, and raising neighborhood values with higher sales. Who benefits from us not being able to do that quicker and more often? Not us, not retail buyers, it's the banks.
I hope Will is right about the deed restriction being unenforceable. And I hope someone will challenge this in court to render it a non-issue in the future.
First, I'd really love for you to be correct about this. Have you been told this by an attorney? If so, can he explain to you why specifically he believes this is the case?
You asked for proof that the deed restriction was enforceable. My only proof is that unless specifically deemed illegal (for example, a deed restriction that violates someone's civil rights), ALL deed restrictions are legal.
For this particular deed restriction to be unenforceable, someone would have to prove that a law is being broken by enforcing it.
I don't believe that FNMA is breaking any law by enforcing this particular restriction, and unless someone can find one, there's no reason to believe it's unenforceable.