Lis Pendens On Fannie Mae property?

Question

I submitted a bid on a Fannie Mae property on Monday.  It just came off the OO period and there were 5 investor offers.  I overshot the listing price by $5,000 because the numbers still work out to slightly better than 2%.

Great little house in a B- Neighborhood.

Selling agent called to inform me that Fannie Mae was going to counter my offer with a few terms.

My offer was all cash.

They asked to extend the closing to 30 days instead of 15 that I offered.

They asked for $3,600 in earnest money instead of the 1000 I offered.  Over 10%

Last bit the agent mentioned was that the property was subject to a list pendens?

The PO was a local builder who had 3 homes in the immediate area.  According to the LA the PO filed some bogus claim trying to delay the foreclosure process.  He explained how all 3 of the properties were affected by the lis pendens?

The LA did say the the seller would pay the closing cost and also furnish a owners title insurance policy.?????

I'm unfamiliar with a Lis Pendens.  According to google it's a notice of a pending lawsuit.

How do I go about clearing the title?

& Does the owners title insurance policy actually protect me if the PO were to win a judgement by some odd chance???

I know this is some technical stuff that needs to be discussed with my attorney.  Just looking for basic input before meeting with him tomorrow.

Ibrahim Hughes · Answer

Congrats!

While specializing in vacant and abandoned homes I do a lot of research including my own title searches.  The one thing you learn in this business is to verify everything and accept no rumor as fact.  I've had neighbors tell me that there were such and such mortgages on the property, family members (not the owners) tell me about alleged back taxes and judgments, allegations from other investors about bogus laws, all hearsay. In the end I do the research and come up with facts that usually refute it all.

Realtors, like many so-called professionals. sometimes like to throw out a bunch of bs just to make themselves sound intelligent.  Others simply want to present themselves as being more knowledgeable about something than they actually are.

Verify it all in writing or it's just a rumor, imo.

Ed L. · Answer

Just a update:

Fannie Mae is going to pay the closing cost and title policy so they get to pick to use their designated closer.

During my inspection period I had my closing attorney go ahead and run title and review.  Came back clean !

Sure enough the LA confirms a few days later that the title was clear.

I'm not sure where the LA got the incorrect info?  Kinda strange imo...  I almost walked when the LA told me there was going to be a lis pendens on the deed...........

Set to close this coming Wednesday!

Geri Johnson · Answer

Make sure that your offer ans contract clearly states free and clear title and you give yourself a contingency period to review the title report.
Had a colleague suffer through a lis pendens on a property purchased at auction. Lis Pendens got recorded one hour before Trustee Deed. Case dragged for one year and judge wouldn't let bona fide purchaser evict until case got thrown out.

Ed L. · Answer

Thanks for the advice.  I still have not received anyting from Fannie Mae.  I'm hoping they are planning on clearing up the lis pendens prior to closing and that would explain the request for additional closing time.

Will keep the post updated as things progress.

Bill Gulley · Answer

Ask your attorney about having the action cleared on that property and any proceeds to the builder going to escrow until the suit is completed. The other attorney would likely have cash in escrow than a lien on a property if he wins. You can ask your title company about working that out. But certainly don't close without it being resolved. :)

Andy Chu · Answer

Fannie Mae typically will not convey the title over without a free and clear title. More than likely, the escrow will be extended for a while. In the meantime, request a copy of the Lis pendens from the title company. See who the parties are what are they claiming.

The title company doesn't want to take on the liability of the Lis pendens and will oftentimes try to wrap around it. If this is the case, then do not close because you are not getting free and clear title.

Brian Burke · Answer

You should have an attorney review the lawsuit and advise you on how the allegations in the case would effect you.  It might be that there is a Lis Pendens now but the title company will clear it prior to closing.  Or, it might be that the title company is going to list the Lis Pendens as an exception to the title policy and the defense of the suit will become your problem.  Don't take a risk on this one, have it thoroughly reviewed by counsel so you can make an educated decision.

As an example, I have one of these right now, and it's been almost two years and over $30K in legal fees and we don't even have a trial date yet.  We'll still make money on it but as it turns out its a bigger distraction than I really need right now.