Tricky Clause in Fannie Mae Foreclosure
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As I have said before, I have sold many, many REO properties in the last 12 months. Every single one of these deals requires that my customers sign a bank addendum once the offer is accepted. It is the bank’s way to get all their legal language into the transaction to protect themselves. (If you think about it, a bank is selling foreclosed properties in probably all 50 states; it would be impossible for them to be fluent in each state’s real estate laws and customs)-this addendum helps them normalize all their REO transactions.
Last week, I was reviewing a bank addendum on a North Minneapolis property that my customer had just purchased. While most of these addendum read like they were written by the same attorney (despite being from different banks), I came across the following clause (sorry for the poor quality):
The clause prohibits you from buying the property with Rehab Financing, selling it within 3 months, transferring it to another party within 3 months, or refinancing it within 3 months. Wow. Many of my customers are using rehab financing to buy the property, rehab it, and then refinance into a permanent loan at 75% LTV. This clause prevents that.
Never seeing this type of clause before, I quickly called the listing agent. She informed me that this is standard language on all Fannie Mae Foreclosure properties. I was stunned. I was amazed that after all the REO properties I had sold, I had never seen this before. The listing agent also informed me that we can’t remove or change the clause. If my customers didn’t like it, they would have to simply cancel the purchase agreement and find another property.
I guess the moral of the story is to read all the docs in an REO transaction, even if they look the same as the other 50 that you have seen!
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Scott Ficek is a Minnesota Real Estate Agent with RE/MAX Advantage Plus in Minneapolis and helps new and seasoned investors buy and own Investment Property. He owns and manages almost 30 investment property units from single family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or receive his blog via your RSS Feed or in your Email.
This is a great post Scott. It really goes to show the importance of the real estate agent and the client reading each and every contract and the provisions therein. Especially the purchase agreements for these bank owned listings here in the Twin Cites. Thanks again.
Cash works, too!
Scott- That addendum was already on a Fannie Mae PA for a property my wife and I purchased in April this year. It did not bother us because we plan to keep the property several years. However, it does show that Fannie Mae has it in for investors. Fannie/Freddie policies usually have a political angle.
BTW-The resale clause would be tough to get around. But it is only 3 months. To get around the refi clause-I would think an additional finance addendum could work.