Wednesday, July 24, 2013

"Patience is required . . . "

About this time last year, Fannie Mae started bragging about all the money they were making.  One might wonder why the U. S. government acted to bail out Fannie Mae in 2008, disbursing over $116 billion in taxpayer dollars.  I recently got a clue from my own Fannie Mae encounter.

A house that is across the street and two doors down from my own had been vacant for some time, so I did some poking around and learned that it was in foreclosure.  CitiCorp started the foreclosure proceeding in February of 2011, with the filing of a petition.  Attached to the petition is a copy of the note, showing that $84,000 was borrowed against this house.  THAT IS CRAZY.  We are talking about a simple 2-bedroom house that doesn't even have central heat and air.

The property owners were successfully served with summonses and failed to answer, so CitiCorp was able to get a quick default judgment.  Still, it wasn't until January of the following year that the property went to sheriff's sale.  It was then appraised at $55,800 (the same property that served as collateral for a loan of $84,000).  CitiCorp was the high bidder at the auction, acquiring the property for $37,200.

Oh, but there was a problem.  CitiCorp discovered that CitiMortgage, its own sister company, held a superior mortgage lien against the property in the amount of $38,500.  Oops!  The sheriff's sale had to be vacated and the foreclosure was dismissed.  (Did you pause and notice that a house with an appraised value of $55,800 was serving as collateral for loans totaling in excess of $122,000?  CitiCorp did not pause.)

In October of 2012, a new foreclosure action was filed, this time by CitiMortgage.  It named CitiBank, successor to CitiCorp, as a defendant.  Essentially, CitiMortgage sued itself.  Again, a default judgment was obtained and the property went to sheriff's sale.  This time, it was appraised at $45,800.  There is no apparent explanation for the $10,000 drop in appraised value.  (Don't these dumb appraisers know that this is a $122,000 house, according to the lenders?!!) Still, this is high, based upon my own knowledge of my neighborhood and Bartlesville real estate prices.

I attended the sheriff's sale, hopeful that I could acquire the property and use it as a rental.  Bidding against the attorney for CitiMortgage, I bid as high as $39,000, but the bank's attorney kept going, acquiring the property for $40,000.

The sale was confirmed on May 13, 2013, more than two years after the initial foreclosure filing, at which point the bank orally assigned the property to Fannie Mae.  The sheriff's deed was then issued to Fannie Mae.  You see, both of those undercollaterized loans were held by Fannie Mae, with CitiCorp/CitiMortgage merely acting as proxy/servicer of the loans.

Last week, Fannie Mae listed the property for sale through Re/MAX with an asking price of $25,500.  

This is where another pause is warranted, maybe even some head scratching.  Is this not the same property that was just appraised at $45,800?  Is it the same property that served as collateral for $122,000 in loans?  More importantly, isn't it the same property that I tried to buy for $39,000?  Yes, it is.  So why would a bank forego an offer of $39,000, only to turn around and list the same property for sale through a Realtor (who will receive a commission) at $25,500?

The short answer is that a bank would not do that.  But here, Fannie Mae is in the equation.  My guess is that the bank is made whole by Fannie Mae, regardless of how much it brings at sheriff's sale, so the bank does not care.  It might as well bid up the price all the way to the judgment amount, then kick it over to Fannie Mae.  The loss is then the problem of Fannie Mae and Fannie Mae's shareholders, or it would be if not for the federal bailout.  

I saw this same scenario play out once before, but involving much bigger dollars.  It made such an impression on me that I created a simple one-page website that tells the story.  You can find it here.  Apparently, little has changed.

Okay, whatever . . . maybe the taxpayers' loss can be my gain.  I decided to submit an offer on the house.  Per Fannie Mae's rules, only an owner-occupant may submit offers during the first 15 days of the listing of a REO property.  After that, "investors" are free to make offers.  Yesterday was the first day that investors could submit offers, so my own Realtor punched in the data to submit my offer online.  (Fannie Mae requires that all offers by submitted online, using their dedicated website.)  

But then Fannie Mae's Realtor informed us that Fannie Mae has come up with a new requirement. All potential buyers must sign and initial a 4-page "disclosure" that overrides much of the standard language found in any purchase and sale contract.  The provisions of this disclosure are so absurd, that I have to quote them.
1) REALTORS AND BUYERS: unlike traditional transactions, an REO/Foreclosure Seller [that's Fannie Mae] may CANCEL the CONTRACT at any time, for any reason.  _______ buyer initials.
Should I ask that I as the buyer also be given the ability to cancel for any reason at any time?  My guess is that they will tell me that some "traditions" are worth keeping and some are not.
3) . . . Patience is required to purchase an REO/Foreclosed property.  ______ buyer initials.
Are they asking me to stipulate that I have patience, or that I understand that I will need patience?  Should I also be patient in expecting Fannie Mae to pay back all of those bailout funds that they received?
4) REALTORS: Please make Buyer aware that after they [sic] have reached an agreement with the REO Seller, there will be additional addenda that will need to be signed.  In some cases this addenda will not be available for several days after the agreement is reached.  Patience is required, this [sic] is the normal process for REO companies.  _____ buyer initials.
I really don't know what this means, but it reads as though I must promise to agree to future changes to the agreement.  Those future changes are not known, but I need to be patient.
6) BUYER acknowledges that they [sic] understand Seller has never occupied, seen or personally inspected the property, and is exempt from traditional property condition disclosures.  ______ buyer initials.
Darn it, there went another one of those "traditions."  I don't think it is quite that easy, however.  State disclosure laws still obligate the owner to disclose what he knows, even if he never lived at the property.  It is possible that Fannie Mae could receive an inspection report from a potential buyer, which would then need to be disclosed to future buyers.  I've read elsewhere that Fannie Mae attempts to avoid this problem by remaining willfully blind.  They refuse to accept any inspection reports because they do not want to be obligated to disclose anything.
12) BUYER agrees to pay a $50.00 - or other amount required by Seller - per diem, in the event Seller agrees to Buyer's written request for a contract extension.  This per diem will be charged for each day through and including the new closing date specified in the written extension. ____ buyer initials.
Oh, but what if it is Fannie May who wants to extend the closing date?  Well, then patience is required.
This one is handwritten in block letters.  If this disclosure statement really must be signed in every REO foreclosure sale, I would suggest that Fannie Mae go all out and type the whole thing.
14) . . . It will be at the sole discretion of the Seller to turn on utilities for Inspections, on a case by case basis.
Maybe my case would be one of the lucky ones!
15) BUYER should also be aware that certain deed restrictions will be placed on the property to prevent the re-sale of that property within a short period of time, usually 60 to 90 days, this [sic] is determined by the Seller.  This practice by the Seller is to prevent flipping.  This applies to owner-occupants as well as investors.  ______ buyer initials.
I would call this the envy clause.  Fannie Mae invites investors to make offers, so Fannie Mae wants them to invest, but just not make a profit.  Profits are wicked.  So sign now, Mr. Investor, and you'll be informed later of precisely how long you must sit on your investment.  It will be "determined by the Seller."
. . . BUYERS and REALTORS: Please note: [sic] most foreclosure companies use title companies in Tulsa or Oklahoma City.  If you desire to close in Bartlesville, there will be a courtesy closing fee, which is approximately $225.00. 
Maybe you'll be driving an hour to the closing, or maybe two and a half hours.  If you don't like guessing, then cough up some "courtesy."

The final provision, also handwritten, gives notice that the Buyer will be responsible for paying the title report fee and the abstracting fee.  "Traditionally a seller's cost."

They might as well add a provision that says, "Don't even think about buying one of our properties, or we'll make you sorry."

Is there any wonder why Fannie Mae is so slow to move its inventory?  Fannie Mae is a collector -- it collects foreclosed properties, and it collects taxpayer dollars.

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