Update: 3/4/2009: The National Foreclosure Prevention and Neighborhood Stabilization Task Force (operated by the National Housing Conference) confirmed on a recent conference call that “all over the country [NSP] deals are not happening because when they get to the closing, lenders won’t sign [the PTAF] certification.” Another problem is that there seems to be some on the task force that think the NSP recipients (e.g., local governments) should just accept the risk for the lenders’ probable failure to follow the law — instead of demanding lenders comply with the simple requirement that lenders honor the leases or give bonafide tenants 90 days notice if the leases have expired. In other words, some on the task force forget that it is the lenders actions that destabilized the communities and the financial health of the country in the first place, and some seem to want to allow these same lenders, Fannie Mae included, to ignore yet another law – this one designed to protect tenants. Sickening.
Fannie claims to have addressed the NSP certification issue for some recipients (not Texas as mentioned in the original post below) by hedging the language of the certification:
Fannie Mae has established a due diligence process that attempts to identify any bona fide tenant (“Bona Fide Tenant”), as that term is defined under the Protecting Tenants at Foreclosure Act of 2009 (“the Act”), that occupies a property acquired by Fannie Mae through foreclosure on or after the date of the Act. Upon information and belief, any Bona Fide Tenant protected by the Act, occupying the Property after the date of the Act, received all notices required pursuant to the Act. Upon information and belief, Seller states that the Property was vacant at the time Buyer and Seller entered into negotiations for purchase of the property Upon information and belief, Fannie Mae became initial successor in interest to the Property after a foreclosure sale on __________________ (foreclosure sale date). Upon information and belief, Seller states that the Property was vacant as of ________ (Initial OSR Date).
The language above is hardly a certification, and even Texas recognizes it as stated below. “Upon information and belief” means little. Upon information and belief Fannie tries to follow the law. Fannie will not let borrowers certify income on information and belief — and they shouldn’t. Fannie and the other lenders need to follow the law, and document it in each case. If they cannot do that for a particular house they bought at a foreclosure sale, shame on them, but they also don’t have to try to sell it into the NSP program. There are foreclosures happening everyday, well enough to use all the NSP funds in a month. If lenders documented compliance with PTAF starting now for a particular house, there would be plenty for the NSP recipients. To water down the PTAF certification requirement for NSP funding is simply unconscionable.
——Original Posting——
The Neighborhood Stabilization Program (NSP) was established to stabilize communities that have suffered from foreclosures and abandonment. See description here. NSP authorizes recipients (states, nonprofits and others) to acquire foreclosed properties and then resell them to qualified buyers. Recipients target certain areas that have concentrations of foreclosures in order to stabilize the rest of the neighborhood using NSP funding.
One requirement of NSP is the seller of the foreclosed property (often a lender) must certify it has complied with the Protecting Tenants at Foreclosure Act (PTAF). HUD Guidance here. Description of PTAF here – essentially the law requires owners of foreclosed properties to honor leases of bonafide tenants (or give at least 90 days notice to vacate if the lease is expired). If the seller refuses to certify compliance with PTAF, the recipient can still acquire the property for the program but they must attempt to determine whether PTAF was complied with. Only if the recipient believes PTAF was complied with AND ASSUMES THE LIABILITY IF IT IS WRONG, can the recipient can acquire the property using NSP funds. HUD Guidance here.
Recipients such as the state of Texas have focused acquiring properties from Fannie Mae since it is the largest lender in the world and undoubtedly has one of the largest portfolios of foreclosed property. It is also worth mentioning again that Fannie Mae is under the control of the federal government at present.
Not surprisingly, Fannie Mae refuses to certify it complies with the Protecting Tenants at Foreclosure Act (PTAF). See statement of Texas agency below. Again, Fannie Mae refuses to sign a document saying it has complied with the law, a document required for participation in the federal Neighborhood Specialization Program (NSP).
I say not surprisingly because Fannie Mae’s system to evict the occupants of the properties it forecloses on is flawed and they know it. While they blame their lawyers and realtors for mistakes and take no responsibility for them (story here), they refuse to design a system that would prevent violations of PTAF. Thus, they know they violate PTAF in some cases and refuse to certify compliance because they have no idea whether they have complied or not. (I guess it would be worse if they certify something they know to be false. Talk to Westchester County New York about false certifications, story here.) So rather than design a better system that works and sign the certification, they hope states like Texas take the risk itself, or move on to another lender.
The failure of holders of REO to fully certify compliance with PTAF is the largest current obstacle to obligating NSP dollars. Fannie Mae and FHA foreclosed homes are the most important to our subrecipients as they are the most prolific. We developed a Texas NSP Purchase Addendum to be used on all applicable transactions to ensure that [PTAF] requirements were met. Fannie Mae refuses to certify, but has at least maintained a dialogue with us. Despite our repeated attempts to decipher exactly what in the Addendum is so objectionable, we still haven’t precisely identified the problem; we believe the principal issue to be PTAF. Fannie tells us that they are PTAF compliant because they are doing all they can. They claim they have established a due diligence process to identify any bona fide tenants. However, we think that their process falls short.
Michael Lyttle, Texas Department of Housing and Community Affairs, February 26, 2010.
And what is the effect of lenders like Fannie Mae refusing to certify compliance with PTAF? Texas reports that the PTAF certification is hands down the number one problem with implementation of the program — a program designed to get eligible families into affordable homes, while stabilizing neighborhoods. [And it is not just a Texas issue, see update above of 3/4/2010.] So while Fannie Mae sits on its hands and lets its henchman push tenant families out of their homes illegally, it smartly refuses to certify compliance and shove the liability to others interested in stabilizing their communities.
I am sure explanations are coming my way soon. In fairness to Fannie Mae I contacted them about this issue a week ago. Fannie explained that they have documents they are willing to sign for recipients that have worked (I have not seen these documents as yet). It appears Texas merely wants Fannie to follow the law as written, which should be something the federal government agrees with.
Filed under: National Foreclosure News, Texas
