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Updated over 8 years ago, 04/22/2016
WHAT THE HECK? Fannie Mae being shady?
Hey guys! I am in the process of getting an REO under contract through Fannie Mae, and LAST MINUTE they sent me this bogus Real Estate Purchase Addendum that TOTALLY negates the terms in our agreed upon offer.....
My agent is telling me its "standard" - but I am refusing to sign unless it can be modified in a way that doesn't contradict VERY IMPORTANT TERMS in our agreement. Basically they now want me to forfeit my earnest money after inspection if I don't like the condition of the house. But that ISN'T what we agreed upon. And verbally they are like "oh ya, well this is just a form, of course you'll get your earnest money back if you don't like the inspection" but thats NOT what the addendum says, and I care little for "taking someones word"....
My agent is telling me that they just "won't" change the addendum and I have to sign if I want the house. My attorney says don't sign unless they make his suggested modifications. I'm being told that this is just the way REO's are.....is that true? They all agree to one set of terms and then sneak in a new addendum last minute? At 5pm on a FRIDAY none the less when they want it returned Monday AM.....And of course they increased the earnest money to 10% instead of 3%....
"The purchaser waives the right to avoid the sale based on the condition of the property" are the exact words that are giving me pause in signing that addendum. Despite the fact that the offer gives clear instructions on 10 day due diligence yada yada. And of course the addendum supersedes the contract/offer.
Any one know whats up?
All the Fannie Mae addenda I've signed allow for the inspection and return of EMD if you provide written notice. I never ask for inspections in any offer. There's usually a clause like this:
EFFECT OF ADDENDUM: THIS ADDENDUM AMENDS AND SUPPLEMENTS THE CONTRACT AND, IF APPLICABLE, ESCROW INSTRUCTIONS. IN THE EVENT THERE IS ANY CONFLICT BETWEEN THIS ADDENDUM AND THE CONTRACT OR ESCROW INSTRUCTIONS OR NOTICE OR OTHER DOCUMENTS ATTACHED AND MADE A PART OF THE AGREEMENT, THE TERMS OF THIS ADDENDUM TAKE PRECEDENCE AND SHALL PREVAIL EXCEPT AS OTHERWISE PROVIDED BY LAW.
I'm new to this so pros correct me if I'm wrong. It seems as if the first sentence is stating the "as/is" part of the agreement. Once you've had your inspector come in and say it's ok that's it! While the second half is letting you know, if within 5 days of closing, your inspector says it's a no, you have to submit a written cancellation to get your EMD. You may want to see if your agent can contact them to clarify that.
@Courtney M. Next time you're looking at REOs, bring an inspector with you (or a contractor, or get to the point where you feel comfortable knowing if a house is about to fall down or not.) This will not be a "real" inspection - but these don't matter one whit in REO sales anyway. It might cost you some money, or just some lunches if it's a friend, but if you do it together you'll learn a lot too - which might be more important.
All you can do is ask. Submit the offer with the change request and see what they say.
If you actually took the weeks - or even months - it would take to analyze every single closing document in detail relative to the other documents in the package - not to mention the possibly hundreds of thousands of dollars it would cost in consulting and legal fees, I'm sure you would find more contradictions than in a Month Python skit.
In the end, if the lender is a bank, that NPA represents 7 to 10 times its value in money they must keep in reserve and can't lend out. Banks only make money when they charge fees or make loans for interest. They don't care if the closing documents were written by Mickey Mouse, J.D., as long as THEY are protected. They need that NPA off their books. Period.
My opinion is you're putting to much focus on issues which, in the end, account for naught or insignificantly little. If it's a good deal, your goal should be to get the property - what ever that takes.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
Of all this feed back, @Wayne Brooks seems to be the only voice of reason.
"As-is" and "no contingencies" are very different things. "As-is" means the seller won't warrant or repair the property. In fact, most properties are sold "as is" and this should be nothing to get worked up about. It seems most people here are addressing this issue which does not seem to be what you are asking about.
A no contingency clause is a different story. And despite the very odd language waiving the right to avoid the sale based on the condition of the property, there is nothing here that implies that you do not have a due diligence contingency. In agreements where the earnest money is non-refundable, this is usually very clear. Moreover, the language allows you to cancel for reasons other than the condition of the property, no? This is not legal advice, but I would think that backing out because you cannot afford the repairs, for example, would be a tough argument for the bank to make to enforce this clause as "on account of the condition of the property".
Although it's just a guess, the bank doesn't want to entertain offers with the buyer think they can renegotiate after under contract by showing the seller all the things wrong with the property. Certainly a problematic way of saying it, I agree.
In any case, your agent is holding the earnest money, right? Make sure they agree (in writing, if you like) to release the earnest money back to you if you cancel before the inspection deadline. This shouldn't be a problem because the contract does allow for it.
Good luck.
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@William Hochstedler Buyer agent brokers don't hold the EM on Fannie deals. Even if they did, they have to follow state laws for EM releases, which usually require releases from both parties. It still amazes me that a buyer's agent didn't know there were additional bank addendums on an REO, particularly Fannie since it's well known, and available if you just look.
Originally posted by @Courtney M.:
I understand this isn't acceptance, but its the document the bank needs FOR acceptance, and it is in and of itself contradictory. @Fay Chen - no loan contingency, its a cash offer.
Wow. I am shocked that so many of you sign these deals when they are glaringly contradictory.
My agent has given me 4 options: Sign it and hope for the best, don't sign it and walk away, submit my offer with an attorneys letter requesting the changes, or ask for more time to see the property again and take my contractor.
As someone who has been at this as a broker/investor for 25+ years and has bought several FNMA properties, if you want the property you are going to sign the addendum. There are 3 or 4 direct contradictions between my Texas real estate contract and the FNMA addendum. Guess what? They don't care as it is their way or the highway. Why do experienced investors sign the addendum ? Because we want the property
With FNMA you get a 10 day inspection period(You cant even waive it if you wanted to) However, that 10 days starts when they accept your bid and before the contract is even signed. If my recollection is correct, the addendum states that the listing agent will turn the utilities on. The reality is that most listing agents will not do it
We can all yell, scream and threaten but the system is the system. If the deal is good enough, you are going to have to hold your nose and sign to get the deal closed
Thank you @William Hochstedler
I just went through this on a Fannie REO in Chicago. The addendum supersedes the contract, I think it says that somewhere in the addendum.
In my case, the contract had a 10 day inspection contingency period, the addendum had 5. So 5 it is. But there was still a contingency period in there.
A lot of these replies seem to be confused as to what you're asking for - you're asking for an inspection contingency period, not for them to make any repairs or price reductions. Right?
This is what I do on all REO's - get an accepted offer, send your EMD, inspect within the contingency period, back out if the repairs will be too much, get your EMD back. It's pretty standard.
The only properties I see that don't allow any inspection contingency are on auction sites. I'm surprised there isn't a standard 5 day contingency in a CA Fannie REO. But then again it's a Fannie REO.
If I were you, I would send them back the addendum with your attorney letter insisting on a 5 day contingency period. If they truly won't give you any contingency, then walk away.
In IL, there is also a standard 5 day attorney review contingency period, but I don't think this exists in CA.
Good luck!
Hi @Blake F.. You are correct. Just so everyone knows - I signed the addendum and sent it back, so we will see.
The issue I was having was not that they aren't giving me an inspection contingency - THEY ARE. But there is also confusing wording in the exact same addendum - Item 17J, which someone else on this thread was able to point out even though I didn't mention it. So at least SOMEONE else was able to pinpoint the inconsistency. Basically my addendum gives me 10 days for due diligence, but also says (and i'm paraphrasing) "the purchaser waives the right to avoid the sale based on the condition of the home". I take issue with that ONE sentence in their supposedly very standard addendum, as I find it to be in complete contradiction to having an inspection contingency. That was my only issue.
Would be nice if Fannie Mae paid a decent attorney to write a decent addendum LOL.
@Courtney M. First, try to remain calm and level headed. At the end of the day, this is just a house. Second, without seeing the whole of each addendum that you're referring to, it's pretty hard for any of us here to give much advice that's different from what you've gotten.
It sounds to me like you're buying a Homepath house (Fannie Mae) but there's somehow a document in addition to their standard REPA? Generally, the FNMA REPA is clear that it supersedes all other contracts related to the sale of that particular house.
So, the Fannie Mae HomePath online offer system requires that your selling agent submit both a signed REPA and state contract with your initial offer -- the system won't let it submit without both documents. This is done to prevent this precise situation -- buyers should always be aware of the language in the FM REPA and that it is completely non-negotiable. Is it possible that your agent signed the document on your behalf and didn't tell you?
@Julia Dugger. The offer was not submitted online. It was submitted through the listing agent.
Originally posted by @Courtney M.:
@Julia Dugger. The offer was not submitted online. It was submitted through the listing agent.
If your agent didn't submit the offer through the HP Online Offer system, the deal may bust out anyway -- make 100% certain with your agent that they submitted an electronic offer. Here's the information -- https://www.homepath.com/make-an-offer.html?at=hb
I don't believe that's the only way to make an offer. There is a listing agent for this property.
Originally posted by @Courtney M.:
I don't believe that's the only way to make an offer. There is a listing agent for this property.
You are correct, there is a listing agent for the property, however, all offers MUST be placed through the online offer system. The listing agents should always instruct selling agents to place offers this way -- you'll see that requirement listed on every HomePath property (see the "Make an Offer" button on all listed properties). As part of that offer process, your agent MUST upload the REPA - that's intended to ensure the buyer has seen and signed the REPA before they get involved in the transaction and run into exactly the concern you raised in this thread.
Are you talking about the 12 page addendum, or a custom addendum made just for you?
If it's the regular addendum, it has an inspection contingency allowing the return of your deposit.
If it is a custom addendum, it can be very risky and you may want to hold your ground. It might not be 'just the way it is', but it might be the way they decided to make it for you because they want to play hardball.
@Courtney M. Every Fannie Mae foreclosure I have ever put an offer in for one of my clients ha required me to submit a Fannie Mae purchase addendum along with the standard state CT purchase and sale contract.
So the fact that Fannie Mae wants you to sign the addendum is not abnormal at all. What I do not understand is how your offer was even considered and accepted without your agent submitting the necessary contracts with your original offer.
Just to echo what others have said, if you are not OK with some of the language in the Fannie Mae addendum then don't sign it and don't buy the property. If you don't someone else will, that is the mentality the banks have with these REOs. You might not like that, but this is something your agent should have prepped you for.
- Michael Noto
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@@Julia Dugger Not all Fannie offers go in online. I did one a few months ago, directed to submit to listing agent, never did anything online.
Any option other than #1 allows REO to continue to accept offers on the house. IOW, you do not have an accepted offer unless you sign the addendum.
Originally posted by @Fay Chen:
Do you still have the loan contingency? Usually lenders won't issue any mortgage on a property that's about to fall down. So if the house has a sever foundation issue, you may not be able to get a loan, which could be your way out. Maybe that's your agents plan...
In the past, I have brought my contractor with me to check out properties. So I could make offers with no inspection contingency. That's what I had to do to pick up good deals. If I had more cash, I'd waive the loan contingency too. Unfortunately, that's what it takes in a hot market. If it's a matter of principle, go with your gut feeling. I'm personally more interested in what the bank will do if you don't sign the waiver. Maybe we've all given in too fast because we didn't know we could fight back.
Bringing the inspector with, brilliant. I need to become good friends with a good inspector in Chicago.
Thank you for posting about this as a new agent that wants to work with investors this is good to know about without having my clients experience it.
It sounds like you're buying a HECM house (that's what Fannie Mae calls properties that are the result of a reverse mortgage foreclosure). Those are not handled through HomePath. We've listed a few of them where I am. Of course, we also make the buyer's agent send us a signed Fannie Mae RE Addendum with the offer, which Fannie Mae does require (although they do not check for it). I usually include a copy of it in MLS attachments. It sounds like the listing agent is not doing their job. Definitely cuts down on confusion, although I agree that the Addendum could use some updating. You'll also notice that every page has to be initialed, even the signature page.
Thanks @Eric Peterson - I think you are right. The good news is that inspections went well. Just waiting on the electricians final word - but I'll keep you guys posted!
In my experience, investors have the right to walk away after inspection but forfeit earnest money whereas owner occupants, if requested properly, can get earnest money back. It's just part of the deal when Uncle Sam sees investors "profitting" from the poor old tax payers of this country.