Foreclosure in Lawrenceville>Question Details

Hakuma, Home Buyer in Cumming, GA

Is it standard practice for Fannie Mae to ask 10% earnest money?

Asked by Hakuma, Cumming, GA Sat Oct 16, 2010

I recently bid and got accepted by Fannie Mae in a all cash offer, but in the counter offer, the asset manager asked for $24,000 earnest money which is almost 10%. Is it standard practice to penalize cash buyers? What is the
reason behind this? I really don't want to put down so much in earnest money because the addendum is so
one sided and I stand to lose my earnest money if for some reason the house does not go to closing, even if it is
not the buyer's fault. Any idea why this is happening to me?

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14
I am in the same situation. They have 14,000 earnest money from me and now are trying to penalize me each day I don't close even though the close date (set by FM) is not for two weeks. Why are we all getting screwed here?
0 votes Thank Flag Link Thu Jun 5, 2014
That is why the open market is better than the Fannie Market.
You are open to negotiations and not restrictions.
0 votes Thank Flag Link Tue Oct 19, 2010
I wish to thank everyone for their helpful response and suggestion. I like to thank Hank in particular for the support and advice. I most likely will not go ahead, given the required large earnest money, the particular addendum which greatly limits buyers' contractual rights under the Georgia Purchase and Sale Agreement, and the potential legal fees/difficulties to try to get the earnest money back should something go wrong, I feel the risks outweigh the rewards.

Besides, I don't really have to pay by cash; with 20% down or so and my credit is good, I can always get a mortgage should I go for another deal from Fannie Mae.

Also, there seems to be plenty of foreclosures in Atlanta that do not disfavor cash buyers. This is a buyer's market, there seems to be enough fish in the sea, and I can live without this property.
Again, I appreciate all your helpful advice.
0 votes Thank Flag Link Tue Oct 19, 2010
I would proceed with caution.

Extend your closing date so you don't have any unexpected issues. I would think that 10% EM deposit would buy you extra time to close. 60 days is what I would stipulate with that kind of money on the line.

You can always close earlier than the contract date specified.
0 votes Thank Flag Link Mon Oct 18, 2010
I would strongly caution you to ride the closing office - many of them are notorious for last minute nonsense and despite lengthy closing dates, they still get delayed.

Read the fine print as well concerning the per diem penalty if closing is delayed - typically on you.

Hank
0 votes Thank Flag Link Mon Oct 18, 2010
Joanna,

Thanks to the response. I don't know if you have the pleasure of reading Fannie Mae's unbelievably one sided addendum, if you did, I think you will agree with my concern. I am aware that this is a foreclosure, and by buying a foreclosure, I am willing to buy it as is and is willing to abide with their addendum. However, in item 2b of the addendum, it said, "If the closing does not occur by the Expiration Date, or in any extension, the Agreement is automatically terminated and the Seller may RETAIN any earnest money deposit as liquidated damages." There is no mention about who causes the closing not be happen, it could well be the seller that fails to close and I still stand to lose my earnest money. If it is only the $2000 that I originally offer, then yes, I will take that risk. But, we are talking about $24,000, which to me, is a lot of money. It has nothing to do with how serious I am to buy the house. And why is it that someone who takes out a loan does not need to show his/her seriousness by putting down 10%?
0 votes Thank Flag Link Mon Oct 18, 2010
The bank and the asset managers set the terms not the agents. Do the agents possibly make recommendations based on the market - of course. They are the eyes and ears for the the bank. Some buyers would easily walk away from a low down payment. I agree that if you have the cash the downpayment should not be a problem. This is like the bank saying how serious are you? Also the recommendation of seeking legal advice is a very good one if you have concerns about the addendums.

In Florida, we have an inspection period and the buyer can walk away for any reason within a specified period of time. Get with your agent and ask them to explain in detail your obligations, timelines and "outs" if you will. Then it is decision time on your part.
0 votes Thank Flag Link Sun Oct 17, 2010
Mack - I wonder, just wonder, if the agents working the FNMA deals and FNMA themselves don't know what's going on? Nah, couldn't be the case - I know doing appraisals for them and trying to contact many of these knucklehead agents goes sooooooo smoothly I can't imagine issues or conflicting requirements!

Hank
0 votes Thank Flag Link Sun Oct 17, 2010
This has been the practice on each Fannie Mae property that I have sold that was an all cash transaction.
0 votes Thank Flag Link Sun Oct 17, 2010
That's crap. I have done several FNMA - mid 100's to over 600's and not had anything, ever, near 10% EM. I have one out now for 180K and we dropped 1K in EM.

Hopefully you have an agent - and if you do they need to be spoken to because they're not covering your back. If you don't have an agent and are going into this unrepresented....I guess good luck!
Web Reference: http://www.hrmiller.com
0 votes Thank Flag Link Sat Oct 16, 2010
Hi, Hakuma. It is negotiable like anything in real estate. You can counteroffer what you feel is fair earnest money, that and your proof of funds should be enough. However, be prepared if they counteroffer... again. It helps if you're prepared to walk away from the deal. As mentioned before, there are plenty of properties to choose from. Hope this helps, and best of luck!
0 votes Thank Flag Link Sat Oct 16, 2010
Its a sign of the times Hakuma. Its not necessarily fair, but REO's rarely concern themselves with being fair. You can refuse to pay this trust deposit and let your offer stand. let them know its a "deal breaker". If the REO company won't relent, then just walk away. Plenty of more "fish in the sea". Keep in mind, your next REO transaction may require the same thing though.
0 votes Thank Flag Link Sat Oct 16, 2010
Well, I don't think it is fair to cash buyers. If I had gone and get a loan, I would only need maybe $2000, which is
what I had in my cash offer. I had given them proof of funding which I think is enough to prove that I have the funds. Isn't that better than someone who got loan approval but may or may not eventually get the loan? I always thought that even if cash buyers are not treated better than buyers with loan, they should be treated as equal.
0 votes Thank Flag Link Sat Oct 16, 2010
Not just you Hakuma. 10% down earnest money is becoming more commonplace on foreclosures. Not everyone is asking for it, but I'm seeing it more and more on cash offers. You couldn't make that offer unless you actually had the cash, so this is the banks way of making sure you are a 'serious buyer' and not just tying up properties with a $500 check.

Yes, those addendums are very one sided. I would HIGHLY recommend you run the addendum by your counsel and make sure you aren't agreeing to things that would not be in your best interest. Some REO companies are willing to make small adjustments to their contracts. Don't be afraid to ask!! Good Luck!
0 votes Thank Flag Link Sat Oct 16, 2010
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