Devil’s in the Details

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Recently, I was involved in the purchase of a home from Fannie Mae. Many of you are aware that they typically place resale restrictions on houses that they sell. This house was under those very restrictions.

We bought the home from a wholesaler who had purchased it from FNMA. They promptly told us about the resale constraints and provided us with a copy of the Special Warranty Deed stating the specifics of the restrictions. FNMA would not permit the home to be resold for greater than 20% of FNMA’s sales price for a period of 3 months. The restriction stays with the land and not the initial Grantee (Buyer).

This is important because a wholesaler’s sole purpose is to flip properties as fast as possible for as much as possible. In this instance, they were restricted by FNMA’s resale restrictions. Moreover, if the wholesaler sells the home within the 3 month period, the new buyer is subject to the same restraints. Of course, the wholesaler captured all 20% markup when they sold it to us. So, we NEED to know how the deed restrictions will impact us and how soon we can sell it for more than the 20% markup.

Here’s were it got tricky.

According to the restrictions on the Special Warranty Deed, the constraints on conveyance of the property commence when the deed is executed. For example, if the deed that conveys the property from FNMA to the wholesale buyer was executed by FNMA on January 1, then, per the wording of the deed, the restrictions are lifted 3 months after January 1, or around April 1 of the same year.

What happens if the deed is not recorded for two months after it has been executed?

Executed May 2012

Recorded August 2012

I immediately thought, the date the deed is recorded is irrelevant since the Special Warranty Deeds was pretty explicit. Keep in mind, I’ve not studied nor do I practice law. In reality, the wording is open to interpretation. In fact, the title company’s underwriter will make the decision on when the restrictions expire.

This is important to us, the retail seller. If we purchase it, make it ready and find a seller 3 months after the deed’s execution date, then we should be fine. In this case, the deed was recorded several months after the deed was executed. We asked two different title companies if they would insure it based on the execution date or the recording date (the difference ends up being a significant difference in time).

Title company 1 said they wouldn’t insure it until 3 months after the RECORDING date. That puts the house resale time in to November.

Title company 2 said they wouldn’t insure it until 3 months after the EXECUTION date. That means the house is able to be resold without price restrictions in August of the same year.

We purchased the home Early September, and will have it ready for resale by the end of the month, we chose title company 2 to handle escrow. This allows us an extra month or two of market time simply by “interviewing” title companies before we need to use one.

-Chris Tubbs, Broker