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Updated about 4 years ago, 09/22/2020
Fannie Mae-1 year ownership requirement
Hello Everyone!
I am placing a offer on a Fannie Mae REO, offering a 5 day close and all paying all cash. Has anyone come across the stipulation of investors having to wait 14 days until our offers will be reviewed, while offers that are placed by those who are going to be owner occupied having first dibs (and not having to wait the 14 days)? My realtor stays It states that if I were to submit my offer as an owner-occupy and break the agreement, I would have to pay 'damages' of $5,000. Also, I would not be able to resale for that same 12 month period!? Can they really enforce this? Any experience with this? It surprised me on many levels because I would assume the banks would want to unload their REOs quickly instead of waiting on a homeowner who may have a financing contingency.
It's extremely common and part of the norm now. I've not heard about the 12 month no resale, but owner occupied offers take priority. It's thier way of trying to stabilize the market vs. dumping for deep discounts.
Yes, all the housing agencies (fannie, freddie, FHA/HUD) have owner occupant "first look" periods. I'm sure they view this as consistent with their mission of fostering home ownership.
There is also a standard deed restriction with fannie indicating you can't resell for more than 20% above what you paid for 90 days. Also 90 day title seasoning, meaning that you'll need to be on title for 90 days prior to accepting a contract from a buyer who will be getting conventional financing.
I believe it's safe to say that they can enforce all of this.
Thank you for your replies. I had heard of the deed restriction you mentioned, David, but never come across the 12 month requirement. It just seems absurd to require a compliance for a year and I was trying to imagine how they would legally be able to require this.
I was just reading today about CoreLogic's covenant monitoring services.
Basically they will track any loan applications on the property for one year and notify both lenders.
The new buyer probably won't be able to get a loan on teh property. And odds are (about 80%) that Fannie owns your loan. They could pull the note as having been obtained through fraud (lying about being an owner occupant.)
Not worth the risk!
"Enforce Contractual Holding-Period Clauses
Increasingly, lenders are including holding-period clauses in purchasing contracts to protect against flipping. While such clauses discourage honest investors from buying properties with the intention of flipping, they do not stop fraud perpetrators and are difficult to enforce. Short Sale Monitoring Solution continues monitoring properties sold through short sale, sending immediate alerts when a short sale property is being resold"
http://www.corelogic.com/Products/Short-Sale-Monitoring-Solution.aspx
"REOWatchâ„¢ monitors post-sale activity to help you continually evaluate and optimize pricing strategies and limit flipping. As with Short Sale Monitoring, REOWatch also helps you to enforce contractual holding clauses, analyze REO performance, maximize pricing, reduce losses and blacklist fraud perpetrators."
http://www.corelogic.com/flip/?WT.mc_id=12312010-MREO-EB_mreo_wb_reo_1_101231
Oh wow, thanks for that detailed response, Michael. Guess I'll be playing it really safe then. Thanks for taking the time to respond, everyone. :D
Even as a Realtor that represents far more first time buyers than investors, I have to say that the "First Look Initiative" disgusts me. It is programs like these that are the result of a growing Federal government. Shouldn't the ENTIRE market be allowed to determine the value of a property, not just those only able to buy for personal consumption???
As far as getting around enforcement of it, I suppose if their tracking system is based on loan applications taken on the property, it sounds like using cash for both transactions would be a pretty good solution... not advising anyone to do that though.
I had a similar reaction, Jake. It seems a little too invasive that they can stipulate when I can sell. I would be more understanding on putting a cap on the % that I could resale for, but a whole year of no opportunity to liquidate is crazy. That's a long time! Luckily, the fact that I am waiting the 14 days I am not held to this BUT I risk losing the deal altogether to someone who may fall through on financing. Whatya gonna do.... *sigh*
If it's a property you really like and it goes under contract to an owner-occupant buyer, keep an eye it, because it very well may fall out of escrow.
Hi Mary,
I think you get this, but just a reminder that the 1-year ownership requirement is *only* if you claim to be an owner-occupant. This is FNMA's way of ensuring that investors can't claim to be owner occupants and then immediately resell.
Though I agree with everyone above that these are ridiculous rules...
Go check it out while it is still in "first look" status, and get your offer amount worked out so that you have your offer presented the first day beyond the "first look" period (usually that is 2 weeks).
Thanks everyone for the replies and all good points. My offer is already in and ready for the 1st day, which is a week from now. I'll let you know the outcome!
The bank ended up accepting an owner occupant offer a day before investors were allowed in. On to the next...
I have an update on this particular property and then 2 separate questions. Thanks for your help!
1)The owner occupant offer was withdrawn because of the results of the inspection. It failed because of dry rot but she was not informed on the extent of the damage. My understanding with typical sellers is that they are required to disclose known defects if an inspection uncovers such items. Is this not the case with REOs?
2) Secondly, I am at the point of considering re-offering on this property. Luckily, their is a built in inspection so regardless of what I find, I have an out, BUT what is the worst possible scenario with dry rot? I am in the Northwest so it is damp but this house is not in a flood area. The home was built in 1930. It has a concrete foundation. I did notice on my first walk through some water near toilet but the flooring was not particularly soft.
I am considering offering 50K on this property that is tax asses at 125K. Current comps are about $100K. I like to buy properties at 65% ARV. This particular one, I would rent out and wait for appreciation (5 yrs). I believe I can rent for at least $750. All other repairs are pretty basic from what I can tell ($3-5K including updating some appliances-I do all the menial stuff like painting, tile, etc). That being the case, I would be reserving around 10k for potential dry rot-can it be even worse? Would love to hear your experiences!
1. I've never seen an REO that has come with a property disclosure or any information about the condition of the property. In fact, you'll almost certainly be asked to sign an addendum to the contract that says the seller knows nothing about the property, it's sold "as is", it may contain mold, it's your responsibility to do inspections, blah, blah, blah.
So, long story short, don't expect to get ANY information about the property from the seller or the listing agent.
2. Where is the rot you are talking about? Is it on the exterior? For example, the siding, trim, soffit, fascia, sills, etc? Or is it on the interior?
Rot on the exterior is pretty common, and a decent siding company and/or carpenter can generally repair the damage pretty cheaply and easily (so long as the framing isn't damaged).
Rot on the interior is a bit more of a concern. It would require that water or at least moisture was coming inside, and until you determined (and repaired) the source of the moisture, you'd likely have additional ongoing damage.
If you can give me information about where the rot is occurring, perhaps someone here can give some more detailed advice...
REOs are typically exempt from seller's disclosure (as are estate property's that have been inherited), since the seller never occupied the property - the reasoning is they would be "unaware" of any issues the property has.
The addendum will usually include "no disclosure", "as is, where is", and all kinds of CYA stuff that the banks use.
As to dry rot, you would have to get the place inspected to see if it is minor or not.
Thanks Steve and J Scott. That confirms what I've learned on my end about the banks.
As far as the dry rot, I am not sure to what extent. I will let you know once I have it checked out.
Thank you both for your advice!
The most recent addendum requires buyer to pay $10,000 in damages. Buyer also agrees to pay all sellers attorney fees and costs to enforce it's rights.
Has anyone heard of this being enforced?
Sounds like the social engineering morons are still running Fannie Mae. Haven't we learned from the housing bubble that not everyone should own a home.
Originally posted by Tim B:
Has anyone heard of this being enforced?
Sounds like the social engineering morons are still running Fannie Mae. Haven't we learned from the housing bubble that not everyone should own a home.
Sounds to me like they want REAL buyers, who are willing to put their MONEY where their mouth is. Not only should everyone not own a home - everyone shouldn't be making offers to buy one either.
I recently have lost deals to investors who claim to be "owner occupants". When I see what the closing price is, (quite lower than my offers) red flags seem to be everywhere. The same agent is representing these guys on each transaction, knowing the false representation. I haven't seen any enforcement of the 10k fine yet, but will be on the lookout.
Matty -
How do you know they are claiming to be owner occupants? Without seeing their contract, I'm not sure how you'd be able to find out this information?
Well the listing agent informs me an owner occupant offer has been accepted. Then literally the day after closing the property is in full-on renovation mode. This one guy in particular is rehabbing, (actually "flipping" is more appropriate) properties, within 3 weeks of closing and a realtor sign is in the front yard. And these properties should be torn down in my GC's opinion.
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As to the one year issue for owner occupied loans, this is not new at all. VA I believe was the first to implement this in the 80s. It applies to all government and conventional laons as would be seen as a representation on any loan.
Loans have me monitored for years as well, through independent services, loan audits and examinations.
If you take an OO loan and then have a significant occuarance in your position or life, you can not be held to such issues. Say someone's father passes away and you have to move to take care of your mother.....no problem. You lose your job and can't make the payments....no problem. Such issues are considered to be acceptable lending risks.
If any lender, guarantor,clouds title, then provide the reason sale is required and ask for a release. If it is not given, sue their pants off, as they would then be liable for inflicting the loss. Such issues have long standing as lender's liability issues.
If allowed by state law, prepayment penalties can be enforced, but these are not pre payment requirements in secondary market loans.
If you are obtaining the loan with the intent to conduct business, then watch out.
As to agreeing to 10K in damages, if it was a property I was going to buy and a great deal, it probably won't bother me. OTH, let's say I was hit by a Mack truck, incapacitated to the extent I could not perform, I would point that out and clarify what constitutes default beyond just failure to close.
IMO, banks and institutional sellers will continue to push the limits to manipulate buyers. Depending on the property, everything is negotiable. Frankly, a few months of a boycott by investors to such terms in major areas would get their attention I'm sure. Let'm eat it for awhile, it will likely still be there!
Does anyone know if there is a way around it if you moved very far away? I bought a homepath in VA with full intentions of a live in flip but received a lucrative job offer on the west coast and would like to liquidate (likely at a profit as-is) or is the rule still applicable in that scenario? TIA to anyone who may have experience with this