FNMA Won't Secure Loans On Foreclosed Properties Still In Redemption Period

On May 27th, FNMA released a new guideline that will make it a bit harder for people to purchase foreclosed properties.  The new rule states that FNMA will not buy or accept a loan on a foreclosed home that is still in its "redemption period," the length of which is specified by each particular state.  For example, the redemption period in California is 12 MONTHS LONG.  Wow.

WHAT DOES THIS MEAN?

Long story short, certain states have laws on the books that provide tenants with a "redemption period" that starts after a foreclosure or tax sale has occurred.  During this time period the tenant or owner can reclaim title/ownership to the property if they pay all the amounts they owe.  This new rule mandates that the house cannot be sold to FNMA during this time period.  How are they doing this?  Well, FNMA is declaring houses that are still in the redemption period to be specified as having "unacceptable title defects."

Furthermore, any loan with an unacceptable title defect is deemed ineligible for delivery or sale to FNMA until after the redemption period has officially expired.  Whew.

FYI, loans are still ineligible for delivery to FNMA if you purchase additional insurance or a redemption bond. Nice try, though.

WHAT ABOUT TEXAS AND DFW?

Luckily, (for our sake) Texas doesn't have an officially mandated redemption period we have to follow.  This means that FNMA will still buy and deliver loans that were recently foreclosed here.  That being said, if you are planning on relocating from the Metroplex to out of state (and looking to purchase a foreclosure) it would be worth researching how long exactly the redemption period is for where you're moving.  CLICK HERE for a list of each State and its applicable laws regarding foreclosure.

HOW DO I GET AROUND THIS NEW LAW?

The best way to bypass this requirement is to get a home loan with either FHA, VA or even Freddie Mac, for as of now they haven't adopted any new guidelines regarding the redemption period.  This could change though, so we will keep you posted if we hear anything.

In the meantime, if you have questions about the foreclosure process, or even just getting pre-approved for a home loan, don't hesitate to CONTACT US and we will get back to you as soon as possible.