I have a contract with Fannie Mae to purchase a REO home.  Cash offer, only contingency is right to inspect.

Scheduled to close in March, 2012.  One day prior to closing, their incompetent title agent found a title defect, we canceled the contract, they pull the property off the market.

4 Months later they cleared the title defect, we were notified and we get back into contract with them.

Since I already did a full inspection back in March, I opted to just do a walk through this time to make sure no new problems.  Since March they had power off water off and they had to turn the utilities back on for me to do the walk through.  Obviously no one has been inside the property.

I walked in and saw termite droppings and wings - NEW.  I also saw a wall by the kitchen that warped badly and obviously something were leaking.  The wall felt wet to the touch.  Noticed outside light was hanging loose and some seams around the window.  Back in March it was the dry season, it has rained non-stop since May, rain got inside the walls, no air conditioning...

I ordered a termite inspection and a mold test.  Termite inspection of course came back with "EVIDENCE OF LIVE TERMITES" and mold test revealed a high concentration of Stachybotrys, the toxic black mold in the air indoor at 150,000 spores per cubic meters.

I got quotes from the mold remediation companies ranging from 5000 to 10000 to clear the mold, and that does not include repairing whatever that is to be torn out - which might include some kitchen cabinets against that wall.

I sent the report to my agent, who sent it to the LA.  I asked to either give me a credit for remediation on my own, or have Fannie Mae pay for remediation.  Listing agent said "we can't sell a home with black mold, EPA doesn't allow that...blah blah blah, can you send me the mold test report?".  Then a day later LA told my agent after he had a conversation with the asset manager at FM, that "we have a back up contract so if your buyer does not want it, we can cancel the contract, we are not going to do anything." and "we don't need to see your mold test results please do not forward it".

So obviously, Fannie Mae is taking the position that's in their REO clause "seller has no warranty or any knowledge with regards to conditions of the property blah blah blah" and they are just going to pretend this is not an issue and continue to sell that home?

Can they just ignore a health hazard like this and not even disclose it to the next buyer?  I find this hard to believe a federal entity would do this.  I also wonder if this is a general "policy" of theirs or up to the discretion of the individual asset manager?

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Yes they can refuse to do repairs. You could adjust your offer accordingly and see if they will accept it. Just as with any other contract once a request is made to change the terms and conditions you now have a new offer.

Either party can accept, reject or counter.

Be glad you found these issues before closing on the property.

Agree with Bryant.  FNMAE can be out of touch.  Their prices on their REO's generally come in high here in Palm Springs, CA and we all just sit around and wait for them to reduce them since they won't look at a reasonable FMV offer until they do.  Short Sales same mentality.  Good luck.

This is an example of a case that should be disputed through the Fannie Mae Short Sale Assistance Desk.  There may be tremendous loss of communication between the Servicer and Fannie Mae.  The Listing Realtor should have access to FNMA SSAD and file a report.  FNMA's response time is usually within 48 hours and I have always had a positive experience.

If the LISTING AGENT has knowledge of any defects it must be disclosed.

Actually, in Florida residential sales the licensee must as a matter of Florida's licensing statute disclose any known material facts that would affect the value of the property.  Furthermore, the Seller must all disclose any known material facts that would affect the value of the property as per the Florida Supreme Court's decision in Johnson vs. Davis; regardless of any addendum and/or contractual provision to the contrary. 

Stephen, I understand what you are saying.  However, the Fannie Mae REO addendum clearly states that if there are any contradiction between the contract and the FNMA addendum the addendum governs, my RE attorney who reviewed the contract advised me that the REO addendum basically made the FAR/BAR contract totally useless.


As a matter of fact about 5 months ago when we first entered into contract with them, I didn't realize at the time FNMA addendum stated the inspection period is within 10 days from "acknowledgement date".  I incorrectly assumed on FNMA's addendum the "acknowledgement date" was the same as FAR/BAR "Effective Date" which is when all parties signed.  Not so, FNMA's acknowledgement date started when they verbally countered, so while we were going back and forth on price negotiation the clock was ticking, by the time we had a signed contract we were on day 8 from the acknowledgement date but day 1 of the effective date, we were told by the FNMA listing agent we had 2 days left on the inspection contingency and we had to rush rush rush to meet that deadline.



But at the end of the day, the fact that the listing agent told us they don't want to see the inspection reports seem to suggest they would not disclose.

The FNMA Addendum would revise the FAR/BAR Contract but it does not shield FNMA and/or their representatives (a/k/a Listing Broker) from liability if you can demonstrate that FNMA had knowledge of anything that would materially affect the value of the property.  Please keep in mind that not all states require full disclosure; Florida does when relating to residential sales transactions.

I believe he is talking about a Fannie REO property.  Have you used Help Desk for their REO?  Never thought of trying that

I'd move on and count my blessings I found out about the mold before closing escrow. REO banks/asset managers hide behind their REO addenda saying they know nothing about the property so can't disclose anything about it, and yet they have a listing agent who knows, and most likely either an interior BPO or an appraisal that lists repairs needed. Hence their comment not to send the mold report - if they don't have it they don't "know" about it so don't have to disclose it. I say bull.

I was on the buyers side of  FNMA on a home that had mold issues.  FNMA would not acknowledge any mold issues and would not look at our mold inspection.  They called it "discoloration" and refused to look at anything we sent them because "their broker and their property preservation people" as well as "their appraiser" did not note any mold in any inspection.  Nevermind the fact that we had a licensed mold inspector due an air quality test....

FNMA and their listing agent knew we had them backed into a corner but would NEVER admit to their being mold in the property, we then forced their hand into reducing the sales price so that the buyer could remediate the mold.  

FNMA is a joke, their policies and contract addenda as well as their "homepath" website is a joke.  I fired them a few years ago as an REO broker and have not looked back, don't care to ever show their properties either.

In my case it was not just mold, it's Stachybotrys, the toxic black mold!  This is the mold everyone is scared of.


They didn't want to acknowledge it, they didn't care.  I feel sorry for whoever holding the backup contract and walk into this blind.

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