WHAT THE HECK? Fannie Mae being shady?

[Courtney M.]

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? 

[Account Closed]

@Courtney M.

You should blame your agent.  Apparently... they helped you make a non "standard" offer.  They should have known that a "standard" offer would be required.

I am sure the listing said what the requirements were going in.

There is also absolutely no chance your offer will ever be presented to anyone that has the authority not to require the addendum.

[Jake Thomas]

You are at their mercy. If this is HUD/Homepath/Homesteps you have no choice and any standard PA you might have sign doesn't mean anything to them. It's their way or no way.

Do your inspections now before you sign and deposit your EMD. When investors make offers on REO's they expect the people buying know what they are doing (unlike retail buyers) and won't back out. Just went through one of these and this is all normal. If you don't buy it the next investor will. Obviously don't sign anything you are not comfortable with but nothing you said shocks me about buying an REO.

[Russell Brazil]

If you do not like the terms, then dont buy the property. REO's typically require an as/is addendum.

[Courtney M.]

We have SPECIFICALLY gone back and forth with the bank and the listing agent about the earnest money. The sale is AS IS, in that I know they WONT be making any repairs, and I don't expect that. But I DO want the chance to back out if I find out the foundation is crumbling. And they've agreed to that. We've countered with FM several times, and they've agreed to all of this, and then friday night at 5pm the listing agent sent over the addendum and said - "oh by the way - sign this too"

[David Dachtera]

@Courtney M.,

REOs are "where is, as is", meaning you can take what you get or you don't take it.

By buying from the lender you are, in effect, saying, "Sure! I'll take your mess off your hands! No problem!"

Now, you want to come back and say, "..., unless I take a closer look and get cold feet."

So, no - ain't gonna fly.

David J Dachtera

"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict

[Courtney M.]

But they agreed to it......I did not sign the inspection waiver, and they were ok with that. 

[Courtney M.]

SO ok with it that they told me to get the utilities are ON for my inspections - which I've done. 

It's not like they didn't agreed to these terms.....

[Courtney M.]

@Jake Thomas - they will not allow me to do my inspections until I've signed the addendum - i've asked. 

[Courtney M.]

@David Dachtera I understand that it's as-is and that they won't be making repairs. But my agent told me that I can still get my EMD back after inspections if I find out the foundation is crumbling or something. Why even allow me to do inspections if not?

[Joe Splitrock]

@Courtney M. you keep saying they agreed, does that mean they signed a purchase contract agreeing to your terms? I didn't think they used standard real estate forms. Usually you have to conform to their rules and in exchange you get a low price on a distressed property. As-is doesn't mean you can back out, it means you accept the property as-is. It sounds like your agent is unexperienced with these types of purchases.

[Courtney M.]

@Joe Splitrock We sent an offer. They sent a counter - which was just an email of changed terms, like closing date and increase in earnest money. This went back and forth a couple of times, and EMD was discussed.

We all agreed. And then THEY sent us what they'd like us to sign. One of which IS a standard REPA with everything that we had discussed, with their added changes etc, and THEN this addendum which we hadn't seen before and had not even been discussed. But some of the articles in the addendum contradict the REPA that THEY sent to us to sign. Both documents are coming from the listing agent, but are in contradiction to each other.

[Russell Brazil]

@Courtney M. it is entirely possible that you do not understand the addendum. I dont say that to be mean.....but the amount of times I need to explain to someone what the verbiage in a contract means is sometimes dumbfounding. Sometimes even lawyers, who do not work as real estate lawyers can misinterpret real estate contracts. This has happened to me at least 3 times. (We have the most lawyers per capita here, by far) Often times as well there will be, what appears to a laymen, contradictory statements in a real estate sales contract...and even beyond that much of what is states may mean something to a laymen, but something completely different to a real estate professional,lawyer or the courts. If your agent is a good agent, and he says you will be bale to back out of the contract, it is likely that is the case...however I obviously dont know your agent or their experience level. But there is also the fact that there is a different standard in the market place for an investor versus an owner occupant. We have some REO's here that do not allow any inspections, and others that will, but obviously require it as/is. There is also different rules depending on if it is an owner occupant or investor, which is why Fannie and Freddie have first look periods for owner occupants.

But the fact of the matter is if you want to proceed with the property, then you have to sign the addendum....or you are perfectly free to walk away now. The market place is what it is. There isnt much good in being upset about it, just realize that buying an REO might not be for you. And that is fine, it just means buying a property from a regular seller.

[Courtney M.]

When I say "they agreed", I mean THEY sent ME the final REPA - so if there were terms in there that they weren't going to be ok with - one would think they'd have stricken those during our back and forth countering. But they didn't, and it was in fact expressly discussed. 

[Jassem A.]

I don't think they are going to take your EMD if your decide to back out and if you are scared they will then give them a smaller EMD.

[Courtney M.]

@Russell Brazil - I had an attorney who works in real estate law look at it. He agreed that they sent me two contradictory documents. If they WANT the terms that are in the addendum, they can't have contradictory terms in the REPA they sent me. 

[Courtney M.]

@Jassem A. - They required an increase of 10%. Which is no small amount to sneeze at in Los Angeles. I WANT the house - but I sure as **** wasn't going to get up in that attic myself when I was expressly told by both agents that I could do inspections. 

[Jassem A.]

@Courtney M.

California is expensive for sure.  If the roof is shot then you can usually tell without having to go in the attic.

[Courtney M.]

@Jassem A., @Russell Brazil, @Joe Splitrock, @David Dachtera

@Jake Thomas, @Account Closed

Ok guys. Here are TWO statements within the SAME addendum. If someone knows, please explain to me how these are not contradictory.

"The purchaser waives the following: any right to avoid this sale or reduce the price or hold the seller responsible for damages on account of the condition of the property"

AND THEN

"within 5 calendar days of receipt of any inspection report prepared by or for the purchaser...the purchaser will provide written notice to the seller....if the seller elects not to repair the property, the purchaser may cancel this agreement and receive all earnest money deposited"

Are these NOT contradictory? They are in the same addendum....

[Wayne Brooks]

@Courtney M. Obviously this "REO Addendum which overrides the purchase agreement" is new to you. It's not new to the rest of us, and is standard on EVERY REO that is sold. Your agent is ignorant on REO properties if they didn't know this. I'll grant that I don't remember that "can not avoid the sale due to condition", and it is a little odd. The "seller won't reduce the price or do repairs" is typical. You WILL get your EM back as long as you do your inspections and cancelation on time, as per the addendum. To be clear, they did not "accept" your contract first. Understand that what you consider a "counter" is not actually a "counter offer" that you can accept....it is simply the terms they will accept, if you offer them. Again, your agent should have explained this to you.

[Jassem A.]

I think it means you cannot avoid the sale for reasons other than the inspection. If the agent for the bank says they won't take your EMD then they probably won't cash the check until after you have the inspection done.

[Joe Splitrock]

Originally posted by @Courtney M.:

@Jassem A., @Russell Brazil, @Joe Splitrock, @David Dachtera

@Jake Thomas, @Account Closed

Ok guys. Here are TWO statements within the SAME addendum. If someone knows, please explain to me how these are not contradictory.

"The purchaser waives the following: any right to avoid this sale or reduce the price or hold the seller responsible for damages on account of the condition of the property"

AND THEN

"within 5 calendar days of receipt of any inspection report prepared by or for the purchaser...the purchaser will provide written notice to the seller....if the seller elects not to repair the property, the purchaser may cancel this agreement and receive all earnest money deposited"

Are these NOT contradictory? They are in the same addendum....

These quotes are not in context, so it is hard to say for sure. It almost appears like the first one was typed in after a ":" so was entered free-form, where the other appears to be standard text. Either way I am not a lawyer.

I guess you really have two choices, either accept them at their word that you can get your money back or walk away. It seems unlikely they will change the wording. Do what you feel comfortable with. You are the one that has to live with the decision, not all the random people on Bigger Pockets that are giving you advice without having all the facts.

[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.

[David Dachtera]

@Wayne Brooks,

Perhaps it might be more accurate to say that her attorney should have explained it - it's not the agent's job to interpret contracts, that's the attorney's job.

@Courtney M.,

If you find the conflicting terms confusing, ask your attorney to explain "severability" to you.

If you can while still getting your earnest money back, back out now if you are not willing to accept the property "where is, as is".

Buying REOs means you take what you get, and whatever you get, you deal with it. Same with sheriff sales and other foreclosure auctions. 

If you're not prepared to do that, you need to "play at table where the stakes are lower".

David J Dachtera

"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict

[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. 

[Jeff Copeland]

I've sold numerous Fannie Mae properties as a buyer's agent, and all Fannie Mae offers require two documents:

1. Your standard state contract for an as-is purchase, and 

2. The standard Fannie Mae Real Estate Purchase Addendum (available for review on the Fannie Mae website at https://www.homepath.com/make-an-offer.html), which alters and takes precedence over your state contract.

If your agent didn't submit the executed REPA with your initial offer, I'm surprised it was even considered/accepted.

While I admit, paragraph 17.J seems to conflict somewhat, paragraph 5.a of the document clearly outlines your 10-day inspection contingency, and five-day grace period following completion of the inspections.

The REPA is a standard form, and in my experience, there is no negotiating with FNMA on the form. Take it or leave it, they don't care, and they will promptly move on to the next offer or re-list the property if you don't comply with their terms and conditions.

Good luck!