Fannie Mae Won't let me Flip for 90 Days

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Fannie Mae Won't let me Flip for 90 Days

Tony Salazar
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.

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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y

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.

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    16y
    Originally posted by Steve L.:
    Nationwide, if your lawyer says it is "not enforceable in a court of law" how do we go about getting it off?
    I don't know of any exact way to get it removed other than arguing ths point, but often to no aveil. I only stated that I was infomed that after the fact, it would not be enforceable by the bank.
    Originally posted by J Scott:
    Will -

    First, I'd really love for you to be correct about this.

    Me too! To be acurate, we hope the ATTORNEY who told me this was acurate. Yes, by an attorney. I will ask to see if I can get any legal clarifications. How about our right to profit in a free enterprise? :lol:
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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    16y
    Originally posted by nationwidepi:


    How about our right to profit in a free enterprise? :lol:


    There's no law that says you're not allowed to limit or give up your right to profit! If you and I enter into an otherwise valid and enforceable contract that limits your ability to profit on a specific deal, that contract is still valid and enforceable.

    Yes, there are laws in some states about not depriving you of your livelihood (some corporate non-compete agreements are unenforceable fir this reason), but putting this restriction on a single property that you're not being forced to purchase hardly does that.

    Come to think of it, this is really no different than signing a lease that doesn't allow you to sublet. Sure, you're not allowed to profit off that contract, but it's certainly still a valid and enforeceable contract term.

    The other thing to remember (the thing that Bill obviously couldn't comprehend), is that the restriction only lasts for a limited time, so your ability to profit is not being taken away, just restricted. Though I don't know if that plays into the legal aspect of it or not.

    Anyway, neither of us is an attorney, and again, I'd love for you to be correct... :)

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  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    16y

    J,

    Reach down and turn your humor button back on, I was just making a joke buddy!

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  • Edward Alvarez
    Involved In Real Estate · Los Angeles, CA · Member since 2008 · 89 posts · 15 votes
    16y

    Ladies and Gents,

    These restrictions are nothing but rules that lenders place or play by. This is not the LAW, nor are you obligated to sign and accept the contract. Your best bet is trying to negotiate the clause out of the contract prior to purchase and if they say no then its your choice to pass or play... Thats it. If indeed you play by their rules and you sign said contract, now you have a binding contract witch they can take to court if something comes up...

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  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    16y
    Originally posted by nationwidepi:
    J,

    Reach down and turn your humor button back on, I was just making a joke buddy!


    Sorry Will... :)

    After listening to Bill talk about this for several posts (using that same argument!), I thought you might be serious...

    Was fairly certain you had more common sense, but just needed the reminder... :)

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  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    16y
    Originally posted by Edward Alvarez:
    Your best bet is trying to negotiate the clause out of the contract prior to purchase and if they say no then its your choice to pass or play...


    I don't remember if I already wrote this in this thread or not (and don't feel like going back to look), but in my experience, here's how it will work with this clause in my experience (and just my experience, so don't argue with me :):

    - About 1/3 of the time the asset manager won't check the line that includes this clause (either forgets or chooses not to, not really sure);

    - About 1/3 of the time the line will be checked and the clause can be negotiated out. It helps if you have some negotiating leverage (no other offers, long time on market, etc);

    - About 1/3 of the time the line will be checked and the asset manager will refuse to budge on removing it.

    Again, just my experience from buying a lot of these properties...

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    16y
    Originally posted by NationwidePI:
    Me too! To be acurate, we hope the ATTORNEY who told me this was acurate.
    I can't remember which attorney it was that gave me this tidbit of info so I may have to just ask a few of mine and see.
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