Can I sell my short sale to a relative?
Can I sell my short sale to a business partner?
What is an Arms-Length Transaction?
The simple answer to the first two questions is no. In the early days of short sales there were many cases of fraud and homeowners and mortgage companies alike were being taken advantage of. In an attempt to mitigate these issues mortgage companies decided to create limitations on who can be involved in these transactions.
A common example of this practice would be a homeowner who is $100,000 underwater and could buy the same house for much less than they owe now. This homeowner would default on their mortgage and go through a short sale. In turn it would be sold to a relative, friend or business partner who would in turn sell it or rent it back to the homeowner putting the loss back on the mortgage company without any true hardship.
Some lenders go as far as to say a buyer cannot be related to the buyer agent. This requirement is debatable as if the buyer agent and buyer are of no relation or have any side arrangements with the seller what is the big deal?
In addition to a transaction having to be "arms-length" there are other nuances and guidelines that must be met making it imperative you work with an experienced team like us to make sure your short sale is a successful one.
Below is sample language from what is called the "Short Sale Affidavit" that is required on Fannie Mae short sales. This language is fairly typical of the documents that are signed during the closing process of a short sale transaction.
(a) The sale of the Property is an "arm's length" transaction, between Seller(s) and Buyer(s) who are unrelated and unaffiliated by family, marriage, or commercial enterprise;
(b) There are no agreements, understandings or contracts between the Seller(s) and Buyer(s) that the Seller(s) will remain in the Property as tenants or later obtain title or ownership of the Property, except that the Sellers(s) are permitted to remain as tenants in the Property for a short term, as is common and customary in the market but no longer than ninety (90) days, in order to facilitate relocation;
(c) Neither the Sellers(s) nor the Buyer(s) will receive any funds or commissions from the sale of the Property except that the Seller(s) may receive a payment if it is offered by the Servicer, approved by the Investor and, if the payment is made at closing of the short sale of the Property, reflected on the HUD-1 Settlement Statement;
(d) The Seller’s Listing Agent has presented all offers for the purchase of the Property to the Borrower and no offers have been held, concealed or delayed due to action or inaction by any Agent.
(e) There are no agreements, understandings or contracts relating to the current sale or subsequent sale of the Property that have not been disclosed to the Servicer;
(f) All amounts to be paid to any person or entity, including holders of other liens on the Property, in connection with the short sale have been disclosed to and approved by the Servicer and will be reflected on the HUD-1 Settlement Statement;
(g) Each signatory understands, agrees and intends that the Servicer and the Investor are relying upon the statements made in this Affidavit as consideration for the reduction of the payoff amount of the Mortgage and agreement to the sale of the Property;
(h) A signatory who makes a negligent or intentional misrepresentation agrees to indemnify the Servicer and the Investor for any and all loss resulting from the misrepresentation including, but not limited to, repayment of the amount of the reduced payoff of the Mortgage;
(i) This Affidavit and all representations, warranties and statements made herein will survive the closing of the short sale transaction; and
(j) Each signatory understands that a misrepresentation may subject the person making the misrepresentation to civil and/or criminal liability.
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