BEWARE OF THE "ARMS LENGTH" TRANSACTION AFFIDAVIT

By
Real Estate Services with Law Offices of James M. Bosco & Associates

BE AWARE OF THE "ARMS LENGTH TRANSACTION" AFFIDAVIT

Hello to all! I just wanted to send out a quick note to give a heads up on an issue that you should be aware of.

Be advised that HUD/FHA/VA, Fannie Mae, Freddie Mac & FDIC are now carefully auditing short-sale transactions going forward and are also looking at previous closed short-sale settlements that may have been considered non-arm's length transactions. Agents, brokers, sellers and buyers should be aware of the “Arms Length Transaction” affidavit that many lenders/investors are now requiring all parties to sign. This specific language could be included in the short-sale approval letter itself or may be a totally separate agreement all together (such as in the form of an Affidavit) and can read something to the following effect:

“Whereas, all parties relevant to this transaction are hereby indicating to XYZ Mortgage Corporation that no party to this contract is a family member or business associate or shares a business interest with the mortgagor(s) or mortgagee. It is further stipulated there are no “hidden terms” or “special understandings” between the seller(s), buyer(s) or their agent(s) in order to entice, induce or otherwise defraud the seller’s mortgagee in this transaction. This purchase contract is not assignable. If the purchaser intends on performing a simultaneous closing (aka flip) such a transaction can take place only if the re-conveyance is of equal or lesser value as to the current sales price indicated in this transaction. The Buyer(s) & Seller(s) nor their Agent(s) listed below have any agreements (written or implied) that will allow the Seller(s) to remain in their property as renters or to regain ownership of said property after the successful execution of this short sale transaction.”

This is pretty self explanatory and if these stipulations are non-issues for your particular deal than you should be fine. But (if you have to think twice about this) you need to be very careful and think twice before you sign such a document. You would be surprised on some of the things that people have attempted to pass through our office thinking no one would know or find out. Keep in mind, lenders will not accept a sales contract that shows the contract can be assigned. If the buyer is planning on flipping the property, he or she will have to arrange a double close (or simultaneous closing). There is nothing unethical or wrong about doing the double close as long as it does not violate the parameters stipulated by the short-sale mortgagee.

Just be aware that HUD/FHA/VA, Fannie Mae, Freddie Mac & FDIC do not want to see anyone obviously taking advantage of their financial disadvantage. Lenders and investors will not tolerate "Bail-Out" situations that allows the distressed homeowner to benefit from their loss.

 

All the Best,

James M. Bosco, Esquire

Rick D. Misitano, Senior Paralegal

Law Offices of James M. Bosco

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  1. Jonathan Osman 09/23/2009 01:54 PM
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Anonymous #20
Anonymous
Debi R

Eric,  

Sorry to say, but that's the way I read it as well.  Of course there may be some people who understand this better from a legal standpoint.  Hopefully they will post as well.

That said, I wouldn't give up just yet.  Put on our 'think outside the box' hat and see if there is a legal way to comply and still get what you need.  For example it says you can't 'remain in the property as renters'  Does that mean you can't leave and return?  If you could, then what constitutes leaving and returning?  I'm thinking it might be time to consult a creative attorney.

Whatever you decide, please come back here and post what you learned and what you decided, okay?   I understand the purpose behind the rule is to prevent people from defrauding and profiting from a short sale, but it goes beyond that in many cases.   Best of luck to you... and hang in there!

 

June 10, 2011 05:32 PM
Anonymous #21
Anonymous
Mercy

Would it be legal to buy short sale from my sister in law's husband?  I am also in the process of divorcing her brother from whom I've been separated for 1/2 a year.  Does it make a difference?

June 17, 2011 08:58 PM
Anonymous #22
Anonymous
Chad Deihl

Someone please email me if you have an answer to this question.

I have been a renter for 5 years and finally have decided to try and buy the house. However, 3 years ago when I was just renting a room in the house, 2008, I had claimed the homeowner as a dependent on my tax return because he had lost his business and was no longer making payments to the bank. At the time I was not even considering purchasing the house so the tax benefit was niceto have. Now, 3 years later, my loan application was denied by the underwriters because I claimed him on my return 3 years ago. he moved out and lives nowhere near here for the last 2 years yet I am still being denied even though I am fully qualified.

My question now is, can I go back and legally amend my 2008 tax return to show no dependents and resubmit an offer with a different mortgage company? Or will bank of America automatically deny it again because it was an arms length transaction the 1st time? I have no relation to the owner in anyway - just a renter and I really like the home and have put alot of my own money and hard work into keeping it nice.

If you are a real estate lawyer I would especially like to hear form you. Thank you.

chaddeihl@gmail.com

June 28, 2011 01:25 AM
Anonymous #23
Anonymous
Wayedtan

From a different perspective...I am a Canadian looking to buy property in Florida in anticipation of my retirement 10 years from now.  One of our primary goals after seeing how desperate the situation was,  was to purchase a property now,  and allow the original owner stay for as long as they wanted until we used the property for 6 months of the year, 10 years from now.  If they moved due employment etc,  no problem we would have to look at something else but at least a family would be booted out of thier home.... The rent I was proposing was 50% of market value + utilities. this would be compensation for maintaining the property,  not paying the bills for maintenace over the next 10 years,  but simply someone who would look after the place till we could use the property  and someone to keep me informed of what needed to be done.

Once I finally narrow down the list of properties to one I think would work it would literally be " heres the money" where do I sign,  no lenders or issues there. I have presented this scenario several times to several agents and keep getting different answers.  Maybe its my small time Canadian atitude,  but if I own it,  I can let whomever live it.

 ps to the one post where they said " Short Sale Buyers and Sellers who ignore the Arms Length requirements risk legal consequences - both criminal and civil."  all I can say is those who made Billions and then got bail out money as a reward  for creating this ,  aren't too worried about criminal or civil consquences... why should the rest of be... sorry I digressed

July 25, 2011 10:45 PM
Anonymous #24
Anonymous
LBC_Metro Detroit

I would really like to hear from Eric.. We're buying a house in Vegas, but can't leave Detroit for six months or so.  Seller is trusted, and has taken meticulous care of the house.  We'd like for him to stay for six months.  We intend no fraud, we are clearly intending to live there, but we're at the whim of current employer in Michigan.  (Long story, no details here...)  We really don't want to leave the house vacant for six months.

I don't know a work around for "There is no agreement, whether oral, written or implied between the seller and the Buyer ... which allows the seller to remain in the property as tenants...."  I don't think I dare let the seller stay in the house without some sort of written agreement.

Is there a way to have our cake, and eat it too?

thanks,

LB.

August 07, 2011 12:37 AM
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This blog has been created to help real estate professionals in the Commonwealth of Massachusetts better understand Short-Sales and other Pre- Foreclosure options available to their clients.