Wednesday, August 14, 2013

Fannie Mae (update)

In yesterday's post, I asserted that Fannie Mae lacks the authority to exempt itself from state disclosure laws. After doing additional research, I now conclude . . . that I was right.

A federal district court judge in Pennsylvania recently ruled that Fannie Mae is exempt from state and county transfer taxes.  The judge's opinion can be read here.  That makes four out of five federal decisions that have gone Fannie's way on that issue.  The judge based his ruling on a federal statute, 12 U.S.C. § 1723a(c)(2), which specifically exempts Fannie from transfer taxes.

But there is no similar statute granting to Fannie an exemption from disclosure laws.  It would be surprising to have Congress act to enable Fannie to drop hidden time bombs on unsuspecting buyers, after all.  Fannie is not exempt from disclosure requirements under state law, whether those requirements be for hidden defects, presence of lead paint, underground septic tanks, or anything else.  Furthermore, there is no prohibition in the Fannie Mae charter against issuing disclosure statements as some lenders have asserted in the past.

Therefore, Fannie Mae is being misleading, at best, when it includes this language in the addendum that it demands be signed by every purchaser of an REO property:
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. 
Fannie Mae might take the position that this claim is self-executing, meaning that regardless of whether there is a statutory basis for an exemption, Fannie Mae becomes exempt once a purchaser signs the addendum acknowledging the existence of the exemption.  I believe this argument too would fail.  No one, not even a quasi-government entity, can contract away its obligation to obey the law.


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