Can You Fix-n-Flip a Fannie Mae Homepath Property?

[Wendell De Guzman]

I have a question for you smart ones of Biggerpockets.

Fannie Mae has this program called Homepath.

They're selling CHEAP but the main issue is they impose a DEED RESTRICTION so much so that you are NOT ALLOWED to sell the house within 12 months of purchase. 

One solution we have around this issue is RENT TO OWN - buy the house, fix it and then sell it rent to own. It will take 12-18 months for the title to transfer since the tenant/buyer will take about that time for him or her to qualify for a mortgage.

However, today, I encountered a Homepath house that is ideal for FIX-N-FLIP. My sweet spot for rent to own in my market is the ARV range of $150K to $250K. Above $250K, I get less tenant/buyers but more buyers. The house I am looking at right now has an ARV of $450K but I can get it cheap - only $250K (it needs about $20K repairs).

I know and have heard of selling the LLC but this really does not work for end buyers who need a traditional mortgage.

I am stumped.

Any creative work around this deed restriction of Fannie Mae Homepath?

Thanks in advance BP Nation!

[Joshua D.]

@Wendell De Guzman

I know you are like a million times smarter than me but... Why not just hold it for the 12 months.  if there is 150k+ in equity after rehab, it would be worth it to hold and resell. Especially for a "Mr. Money Bags"like yourself :) 

Its seems a bit shady to try to skirt around the intent of the rules. Don't you think?

Just my thoughts

[Greg H.]

@Wendell De Guzman

The deed restriction for investor purchases is only 90 days where you cannot sell the property for more than 120% of the purchase price during that period.  The 1 year restriction is for owner occupants only

[J Scott]

What Greg said above...

Also note that there will be a preliminary period during which only owner occupants can bid.   If it doesn't sell during that period, it opens to Investors. 

[Wendell De Guzman]

Originally posted by @Joshua D.:

@Wendell De Guzman

I know you are like a million times smarter than me but... Why not just hold it for the 12 months.  if there is 150k+ in equity after rehab, it would be worth it to hold and resell. Especially for a "Mr. Money Bags"like yourself :) 

Its seems a bit shady to try to skirt around the intent of the rules. Don't you think?

Just my thoughts

 No  - not shady. Just wondering if people have figured a creative and legal workaround. Also, holding for 12 months just to wait for a buyer (and not getting paid any return on that money) is not good for my investors' money.

[Wendell De Guzman]

Originally posted by @Greg H.:

@Wendell De Guzman

The deed restriction for investor purchases is only 90 days where you cannot sell the property for more than 120% of the purchase price during that period.  The 1 year restriction is for owner occupants only

 Greg, thanks. I know the 120% of purchase price restriction is for 90 days. I didn't realize the 1 year restriction is good for owner occupants only. My attorney did not mention this. If this is not a restriction for investors like us then that's awesome.

[Julia Dugger]

Wendell, the issue becomes how and when you place the offer:

- if you place an offer during the FirstLook period (typically the first 20 days a property is actively listed) and identify yourself as an owner occupant, you will be required to sign a binding document that asserts that you will live in the property as an owner occ for at least 12 months. If you misrepresent your intent, you're liable for a $10K penalty and Fannie Mae will pursue judgment on these

- if you place an offer after the First Look period and identify yourself as an investor (or an owner occ, for that matter) then you're bound by the deed restriction will prohibits you from selling within 90 days for more than 120% of purchase price. After 90 days, you're free to sell at whatever price you can get.

[J Scott]

Originally posted by @Julia Dugger:

- if you place an offer after the First Look period and identify yourself as an investor (or an owner occ, for that matter) then you're bound by the deed restriction will prohibits you from selling within 90 days for more than 120% of purchase price. After 90 days, you're free to sell at whatever price you can get.

Sell OR encumber for more than 120% of the purchase price.  In other words, you can't get a loan for purchase and rehab over 120% of the purchase price where the house is collateralized.

[Nnabuenyi Anigbogu]

@Wendell De Guzman stated. You cannot sell or encumber the property for more than 120% of the purchase for 90 days.  Since my flip is going to take about 4 months i figured it is worth it. If i finish it in less time i can still market it but i can't sell till those 3 months are over.

Also from the hard money side we had to be creative because the PP + rehab was over the 120%. What we did was set it up as two loans. The first loan was for the PP and a chunk of the rehab. The second loan will be in 3 months and will be a refinance where they give me the rest of the rehab money. That way the property is never encumbered over Fannies limits.

[Dominik Gajor]

Originally posted by @J Scott:

What Greg said above...

Also note that there will be a preliminary period during which only owner occupants can bid.   If it doesn't sell during that period, it opens to Investors. 

1. How long is that preliminary period for owner occupants to place their bids before investors can jump in?

[Nik S.]

@Wendell De Guzman

I bought a homeopath Fannie Mae property 90 days ago. 

As I was rehabbing it, I marketed it with my agent (her word of mouth to her potential buyers). She showed potential buyers while I was doing the Reno.

The agent found buyers & I basically got "under contract" on the 91st day, hence the 90 day deed restriction.

[Wayne Brooks]

To Be clear: the fannie resale 90 day restriction, is 90 days until Deed transfer, to the buyer, not purchase contract date. The restriction when selling to a FHA buyer, regardless of the property, is 90 days from your purchase/closing, until Execution of the FHA buyer's purchase contract.

[J Scott]

Originally posted by @Wayne Brooks:

To Be clear: the fannie resale 90 day restriction, is 90 days until Deed transfer, to the buyer, not purchase contract date. The restriction when selling to a FHA buyer, regardless of the property, is 90 days from your purchase/closing, until Execution of the FHA buyer's purchase contract.

 Exactly.  You can close on the resale on Day 91...

[Dave Cyril]

If you haven't closed yet, just do an addendum to the purchase contracts that eliminates all deed restrictions on the buyer and allows you to sell it without restriction at any time after closing. As long as the asset manager signs it, you're all set. They may only be willing to reduce the deed restriction to 30 days, or perhaps not at all. But it doesn't hurt to ask, and if they really want to sell it, they'll agree to it.

[Michael Valerio]

You guys seem to have summarized it best. Can't sell for more than 120% for 90 days. I've wholesaled quite a bit of Fannie maes over the years... Things to keep in mind, 30-45 days to rehab, 30-45 days to market... Easily 60 days to close now with TRID... Puts you well outside of the 90 day period. If you get an acceptable offer before the 90 day period, just get a contract and make a provision that it will be rewritten on the day of the 90 day restriction's end. I've done it more than once and never had an issue.

If it's a good flip, get you're offer in before someone else does! Assuming there isn't a first look initiative in effect at the moment.

[Account Closed]

@Wendell De Guzman closed on a Homepath home at end of November. Can also confirm that the resale restriction was only at 120% for 90 days.