- The Washington Times - Wednesday, August 18, 2010


Fannie Mae has been inserting a highly restrictive clause into all of its contracts with residential real estate investors. The clause restricts the buyer’s ability to sell the property. If a buyer intends to resell the property within 90 days of acquiring it from Fannie Mae - which is typically what most investors do - this deed restriction would not allow a sale for more than 20 percent of what was paid for it.

In other words, if you intend to get a rehabilitation loan for 20 percent more than the purchase price of the property, the title cannot be fully insured. And if the title cannot be fully insured, the lender will not fund the loan amount necessary to complete the project. Most of the houses we in the real estate business buy from Fannie Mae are in poor, unlivable condition, requiring many improvements.

Meanwhile, the 20 percent restriction on “profit” would not even cover taxes and closing costs, not to mention rehabilitation costs. A real-life example: We purchased a condominium for $42,500, and Fannie Mae forced upon us a restriction saying if we resell the house within 90 days, we can do so for just $51,000. That means our “profit” would be $8,500. At the same time, we have to pay a monthly homeowners association fee of $450, $2,000 in annual taxes, a rehabilitation cost of at least $12,000 and various other closing costs and broker fees of about $4,000. Thus, we would need to spend $16,000 in addition to the purchase price in order to derive a “profit” of $8,500. That does not make any sense, but that’s Fannie Mae’s policy.

We urge the government to put a stop to this counterproductive practice, either by removing the restriction or by shortening it to 15 days.


Alexandria, Va.

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