Does Fannie Mae buy already-foreclosed houses?

[Stephen Tashi]

According to the web https://www.investopedia.com/articl...nnie-mae-what-it-does-and-how-it-operates.asp the (USA) Federal National Mortgage association purchases mortgages. In looking at histories of homes in online county government records and newspapers, one sees properties foreclosed and then deeded to mortgage companies. Then one sees the mortgage company deed the property to Fannie Mae in return for "for valuable consideration".

I understand Fannie Mae taking poession of a property if it owns the mortgage on it. But does Fannie Mae also buy foreclosed properties? Or is this deeding of a property from a mortgage company to Fannie Mae due to the existence of two different liens on the property?

 

[Andrew Mason]

I expect that it is because Fannie Mae has guaranteed the mortgage. When, as guarantor, it pays the foreclosing mortgagee, it is subrogated to the rights of the mortgagee and takes the property.

 

[Stephen Tashi]

I expect that it is because Fannie Mae has guaranteed the mortgage

How does a mortage guarantee work in practice?

For example:
Company H issues a mortage for X dollars on property P.
Fannie Mae guarantees it.
The owner of property P fails to make payments.
Company H forecloses the property and property P is auctioned. The winning bidder pays Y dollars for it.

If the winning bidder is citizen C and If Y < X then I suppose Fannie Mae pays Company H the amount X-Y.

What happens if company H decides to enter the auction and is the winning bidder? Does Fannie Mae pay company H the amount X-Y and take possession of the property?

 

[BWV]

Fannie does not actually take possession, the mortgage servicer does. My Fannie mortgage, for example, is currently serviced by Wells Fargo to whom I send the payments. If I stopped paying they would foreclose, sell the house and the proceeds would go to the pool with FNMA making up the difference. Remember that the guarantee by FNMA is on the securitized mortgage backed securities issued against a pool of mortgages. The guarantee is to these bond holders, which reduces the interest rates paid by borrowers as the purchasers of these securities do not have to underwrite the credit risk in the price they are willing to pay for the bonds.

 

[Andrew Mason]

How does a mortage guarantee work in practice?

For example:
Company H issues a mortage for X dollars on property P.
Fannie Mae guarantees it.
The owner of property P fails to make payments.
Company H forecloses the property and property P is auctioned. The winning bidder pays Y dollars for it.

Foreclosure extinguishes the debt so if there is a foreclosure there is no deficiency. A mortgagee usually has options other than foreclosure. It usually has a power of sale which entitles it to sell the property rather than foreclose. It can then pursue the mortgagor for any resulting deficiency. However, the mortgagee can insist on a reserve bid and that bid may not be met, in which case the foreclosure may result. The guarantor will have a say in this.

In any case, the guarantor can pay the debt and take the security in the property before foreclosure or take title to the property if foreclosure has occurred. It all depends on the terms of the mortgage and guarantee.

 

[Stephen Tashi]

However, the mortgagee can insist on a reserve bid and that bid may not be met, in which case the foreclosure may result.

Let me see if I understand the terminoloy. The "mortgagee" is the institution lending to the "mortagaor". What's the definition of "foreclosure"? What I see online is a document called "Notice Of Sale On Forclosure" that announces a "special master" will auction the property in question on a certain date. So if the property is sold at that auction, it (or the mortgagor) is technically not "foreclosed"? Forclosure only happens if the mortgagee takes possession of the propery because there is no winning bid at the auction?

 

[Andrew Mason]

Let me see if I understand the terminoloy. The "mortgagee" is the institution lending to the "mortagaor". What's the definition of "foreclosure"?

Historically a mortgage transferred title to the mortgagee as security for the debt but the mortgagor always had the right to redeem the property by paying the debt (called the "equity of redemption") even if the mortgage debt was in arrears. In order to put an end to the equity of redemption, the mortgagee had to obtain an order from the court foreclosing the mortgagor's right of redemption. The initial order (called an "order nisi") would give the mortgagor a certain period to redeem the property, failing which the mortgagee could obtain a final order for foreclosure, effectively giving it ownership of the property.

What I see online is a document called "Notice Of Sale On Forclosure" that announces a "special master" will auction the property in question on a certain date. So if the property is sold at that auction, it (or the mortgagor) is technically not "foreclosed"? Forclosure only happens if the mortgagee takes possession of the propery because there is no winning bid at the auction?

Different jurisdictions have different laws and procedures. Generally, the mortgagee has to initiate a court process to realize on the security and this is often done by starting an action for foreclosure in which it may also request a sale of the property and judgment against the mortagor for any deficiency. In some jurisdictions the mortgagee cannot pursue the mortgagor for a deficiency. In that case there will be a foreclosure with no sale and no deficiency. The mortgagor or a second mortgagee may request a sale if the property is likely worth more than the first mortgage debt.

 

[Stephen Tashi]

Fannie does not actually take possession, the mortgage servicer does.

I've seen documents that deed properties to Fannie Mae, so they do take possession in some cases.

 

[Stephen Tashi]

Different jurisdictions have different laws and procedures.

I'm trying to undestand the technical definition of "Foreclosure". For example, when the zillow website calls a property "pre-forclosed", I find (In my locality) a public notice of a suit who object is "to forclose". Next I usually see an announcement that court has ordered a special master to auction the property. When I see this "Notice of Sale on Forclosure", has the property been "foreclosed"? Or is the property not "forclosed" until it is deeded to someone other than the mortgagor?

 

[BWV]

I've seen documents that deed properties to Fannie Mae, so they do take possession in some cases.

The servicer conducts the foreclosure proceedings in Fannie Mae’s name but the agency itself does not participate

https://www.fanniemae.com/content/guide/servicing/e/3.2/09.html

 

[Andrew Mason]

I'm trying to undestand the technical definition of "Foreclosure". For example, when the zillow website calls a property "pre-forclosed", I find (In my locality) a public notice of a suit who object is "to forclose". Next I usually see an announcement that court has ordered a special master to auction the property. When I see this "Notice of Sale on Forclosure", has the property been "foreclosed"? Or is the property not "forclosed" until it is deeded to someone other than the mortgagor?

There is no foreclosure (in the normal sense of foreclosure) if the property is sold under a judicial sale order. If the sale resulted in a deficiency and if the law allows for the mortgagee to obtain judgment for the deficiency against the debtor, the mortgage debt is not extinguished but the debtor may no longer redeem the property. In some jurisdictions that may be called "foreclosure". If the property is sold for more than the debt, the debt is paid and the mortgagor gets the excess. Again not foreclosure in the normal sense but some may refer to it as foreclosure.

 

[Stephen Tashi]

The servicer conducts the foreclosure proceedings in Fannie Mae’s name but the agency itself does not participate

https://www.fanniemae.com/content/guide/servicing/e/3.2/09.html

Nevertheless, Fannie Mae can end up owning the property: