Tuesday, August 13, 2013

Fannie Mae's Undisclosed Problems

In a previous post, I described my own encounter with the heavy-handed and self-defeating procedures utilized by Fannie Mae to unload its REO/foreclosed properties.  I quoted the following provision from the contract addendum that Fannie Mae asks all purchasers to sign:
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.
I made the following comment:
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.
This week, I had another encounter with Fannie Mae that might demonstrates the willful blindness I mentioned.

I had an interest in this house, which recently appeared on the County Sheriff's sale list:
1337 SE Cherokee
A review of the court records revealed that Bank of America (successor to Countrywide Home Loans Servicing, LP) filed the foreclosure action in September of 2011, alleging an indebtedness in the amount of $112,194 on a loan of $125,800.  (The house has been vacant since that time.)  Judgment was obtained in December of 2011, the property was appraised at $130,000, and it was sold at sheriff's sale.  Then the plaintiff's attorneys realized that they goofed by not attaching the endorsed note to the Petition, so they asked that their own judgment be vacated so that they could start over.

A new judgment was entered in August of 2012, but the plaintiff's attorneys bungled that one as well, so they once again had to start over.

A third execution and order of sale issued in December of 2012, and a sale was scheduled for February 19, 2013.  This time, the house was appraised at $146,000.  There is no explanation for why the appraised value went up by $16,000 in two years.  During that time, it suffered water damage, was broken into, and, based upon the items I saw on the floor when I peeked through the window, might have been used as a meth cook site.  I doubt that the meth chef made $16,000 in improvements to the interior.  

I was interested in bidding on the property, so in an attempt to gather all of the information I could, I tracked the mortgagor down and mailed her a letter, asking her to disclose what she knew about the physical condition of the property.  I was overwhelmed by her emailed response:

I had put in a koi pond in the back which was apparently vandalized a couple of months after we left.  I don't know if vandals ever broke into the inside of the house.

The roof on the back of the house (south corner) was damaged after a nasty windstorm.  The fascia board was almost completely torn off because the power to house was (brilliantly) attached to that instead of a more sturdy structure.  This exposed an opening that I imagine now may have a few critters seeking refuge... not to mention weather having access.

The kitchen has new appliances... Stainless steel side by side, oven with glass top and dishwasher.  The dishwasher apparently had a leak and may have damaged the floor beneath the vinyl tiles.

NONE of the windows downstairs will open (bought it that way).. Never got to fixing them because of the $10,000 quote.  The basement will be your biggest issue.

When there is a moderate rain, or snow melt, the basement floods.  There is a working sump pump, but (again brilliantly) it was attached to a garden hose outside... so when the temperature freezes... so does the hose... the sump pump will turn on, but not be able to evacuate any of the water due to ice in the hose.  There is a sink above the pump that goes to a regular drain, so you would have to bail out the pump into the sink.

When you have moderate to heavy rain or snow melt, water comes up through cracks in the floor, and squirts out of the walls like a water fountain.  My guess is the only way to solve the water issue in the basement is via French drains, but again... I couldn't afford to have them installed.

There are two HVAC units... one for upstairs one for downstairs.  I replaced the upstairs one a couple of years after I moved in.  The downstairs one died just before I left.  It was old... very old.

The wiring in the house is tricky.  Since I had a home based business, I had one room in the house completely re-wired to protect my computers, faxes, printers, copiers, etc.  The bedroom next to the downstairs bath is what I refer to as the 'safe room'.  It's the only one with decent electrical.

When in the basement, if you look up you will see the ceramic tubes with wire wrapped around them (old school wiring).  Whether that's active or not, or runs through the rest of the house or not, I can't really say.  There is a panel downstairs that the electrician worked with, and he didn't seem overly concerned.

I ran power out the garage because I had a lot of wood working equipment and had several outlets placed throughout the garage to accommodate them.

I also had power run from the garage out to where the pond is/was. It has it's own breaker in the garage.

The front facing window in the office/bedroom has a storm window.  The month that I left the house there was a huge storm.  The window filled with water then poured into the office.  I ended up drilling holes in the sill to help drain the water to the outside of the house because I couldn't get the storm window off.  It helped a lot, but the window would still leak into the room during a heavy storm.

In short, the house has everything but a poltergeist.  This was useful information.  I substantially adjusted my own  valuation of the property downward, but was still determined to attend the sale.

At the sale, the bank's attorney made a bid of approximately $99,000, which was more than I wanted to pay for a house that has alternating founts of storm water and bolts of electricity shooting out of the walls, so the bank got it, at which point it handed it off to Fannie Mae and exited the stage.

Eleven days ago, a For Sale sign appeared in the yard.  As with the other house I blogged about, Re/Max is the listing copany, but all offers must be made on-line, using Fannie Mae's Homepath website.  Here's the Homepath page for this particular property, offering it for sale at $121,900.  

If you view the photos and read through all the information on the webpage, you will not find any indication of the problems detailed in the email I received from the previous owner.  That's not surprising, since Fannie Mae never "lived there," and had no reason to seek out the previous owner for information.  

This is where the addendum language comes in.  It states that Fannie Mae has not seen the property and is exempt from disclosure laws.  Isn't it odd that they feel the need to announce that they are exempt?  If they have not seen the property and can honestly say they are not aware of any problems, why isn't that enough?  No "exemption" is necessary.

Maybe it is because there have been reports of Fannie Mae being informed of problems, whereupon they become deaf and dumb.  Consider this first-person account of Fannie Mae disclosure practices in California:
I used to work with a small team of REO listing agents and we had a Fannie Mae account. The asset managers expressly forbid us from sending them any reports or inspections on the properties. Even worse, they expressly forbid us from accepting or even looking at any inspections or reports done by buyers during an escrow. Their advice to us was that if a buyer’s agent emailed over an inspection report, delete it. 
Yes, the asset managers actually told us to delete files.
But such a thing wouldn't happen in Oklahoma, would it?  I emailed Re/MAX the list of horrors reproduced above, explaining that I received the list from the previous owner.  I asked whether any of those problems had been corrected.  Here is the reply I received:
Thank you for your interest in the property. The only repairs that are being done to our knowledge are some electrical and the only appliance that remains in home is a dishwasher. 
Okay, so they have chosen not to fix the leaky basement and other problems.  That's fine, but now that they are on notice of the problems, they must disclose them to all potential buyers.  60 O.S. 833 reads as follows:
A. A seller of property located in this state shall deliver, or cause to be delivered, to the purchaser of such property one of the following:
1. A written property disclaimer statement on a form established by rule by the Oklahoma Real Estate Commission which states that the seller:
a. has never occupied the property and makes no disclosures concerning the condition of the property, and
b. has no actual knowledge of any defect.
The Realtor also has a disclosure obligation per 60 O.S. 836(C):
A real estate licensee has the duty to disclose to the purchaser any defects in the property actually known to the licensee which are not included in the disclosure statement or any amendment.
Will Fannie Mae meet their disclosure obligations, or will they rely upon their self-proclaimed "exemption"?  If you are interested in 1337 SE Cherokee, I urge you to ask about known problems.  Let me know what you are told.  

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