Fannie Mae Purchase Contracts – Deed Restrictions

The purchase contract that Fannie Mae requires buyers to use when purchasing their properties contains a clause in which the buyer agrees to receive a deed containing deed restrictions.  The deed restrictions can effectively prevent how the real estate investor is able to finance his or her rehabs.  The deed restrictions prevent buyers from selling the property for greater than 120% of the original purchase price for a period of 3 months from the date of their purchase.   Furthermore, it prevents the buyer from mortgaging the subject property in the principal amount of greater than 120% of the purchase price for a period of 3 months from the date of their purchase.

So, if you intend to complete the rehab quickly and re-sell the subject property, then this deed restriction would not allow a sale for more than For Sale - Deed Restrictions20% above what you paid for it within the first 3 months.   If you intend to get a rehab loan for 20% more than the purchase price of the property, the title cannot be fully insured, and the rehab lender will not fund the loan amount necessary to complete the project.

However, many real estate agents are unaware that you can request this clause to be amended or removed.   The seller may not accept the changes, and they are solely allowed to make this decision.   Yet, we have seen this done successfully in most circumstances and Fannie Mae seems to be more accommodating than perhaps the agents are aware.   Negotiating away this deed restriction is easier done on the front end of the contract talks rather than springing it on the asset manager down the road, especially if there were originally multiple offers, as is the case lately.  It requires patience, strong negotiation skills, and persistence, but if the project is a good one, it is well worth the effort.   As they say, the answer is no, unless you ask!

Have you experienced these restrictions before? If so, how did you handle them?