Any luck with the bank agreeing to let the owners of short sale rent back from new owners?

I have a short sale that has been approved by the 1st, however, the owner wants to become the tenant and the NEW owner to be wants to rent to the sellers. The banks "Arm's Length Affidavit" specifically asks if there is any implied or written agreements for the owner to rent back. I will not sign it as I know it has been implied, however, can I strike the verbage that agrees to a rent back and have all parties initial and send back to the bank without the bank wanting to start the process over? Anyone heard of the bank agreeing to rent backs as long as there is no collusion, fraud or deceit involved? I'd be interested in your thoughts!

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Debbie, The lenders will not allow this. The sellers need to just move. They do this to stop family and friends from purchasing the property and just letting the former owner continue living in the house. It goes back to "You pay you stay....you don't you don't" The lender will not make an exception.
Thank you Bryant. I understand the banks position due to fraud, however, when it is in the best interest of all parties it is hard to see the purpose. Then again, it is a bank we are dealing with! Both parties have decided to part ways at COE to make it an acceptable arm's length transaction for the banks.
I agree. BUT how are the banks supposed to know? It would create havoc and delays while they tried to figure out of the transaction is arms length or not.
That is true that there is no way to prove to the bank that the sellers and buyers don't have a relationship outside the transaction and that is why my clients decided it is best to NOT rent back to the sellers. I don't want to create anymore delays at this point. thank you Bryant!

Bryant Tutas said:
I agree. BUT how are the banks supposed to know? It would create havoc and delays while they tried to figure out of the transaction is arms length or not.
Once the deal is closed, it's none of the bank's business what the new owners do with the property. I've had 2 shortsale deals where the seller has stayed and rented back his place from the new buyers.
Jeffrey, Are you and the parties involved just ignoring the "arms length transaction" form that you MUST sign? If you are signing it you are agreeing that this will not happen. If you are not signing it the lender won't close. Signing it and ignoring it is fraud. So what's up?


Now of course this may not be the case with all lenders.
That was the wording I received also and at the time there was an "implied" agreement that I was aware of so I refused to sign as well as advised my clients it was not in their best interest to sign due to fraud. It is just as easy to find new renters in my buyer's case so we have moved on.
Hi Brian,
I've only encountered the arms length with tenancy thing with wells fargo. I have other lenders that dealt with regaining ownership but that wasn't a problem signing that.
So is it that most banks just won't allow this, or is it actually illegal? If you find a bank that doesn't make you sign the "arms length affidavit", are we safe to sell it to an investor who rents it back to the original owner?
In a "normal" sale we are not asked to sign an "arm's length" affidavit, however, banks in a short sale are requiring the seller's, buyer's AND agent's to sign and in some cases NOTARIZE an arm's length affidavit that states that there is no business arrangements written or implied to rent back to the seller. If you sign this and you know of this arrangement then it is bank fraud.

Eric Stevenson said:
So is it that most banks just won't allow this, or is it actually illegal? If you find a bank that doesn't make you sign the "arms length affidavit", are we safe to sell it to an investor who rents it back to the original owner?
Eric. It is not illegal. Frankly I can't see that the bank would be able to do much about it anyway. BUT, as a REALTOR(R), it would be unethical of me to sign this agreement knowing full well that the buyer and seller have no intention of honoring it. I'd have an issue with it.

Eric Stevenson said:
So is it that most banks just won't allow this, or is it actually illegal? If you find a bank that doesn't make you sign the "arms length affidavit", are we safe to sell it to an investor who rents it back to the original owner?
I completely agree it is fraud if you sign knowing it won;t be honored.

debbie rumsey said:
In a "normal" sale we are not asked to sign an "arm's length" affidavit, however, banks in a short sale are requiring the seller's, buyer's AND agent's to sign and in some cases NOTARIZE an arm's length affidavit that states that there is no business arrangements written or implied to rent back to the seller. If you sign this and you know of this arrangement then it is bank fraud.

Eric Stevenson said:
So is it that most banks just won't allow this, or is it actually illegal? If you find a bank that doesn't make you sign the "arms length affidavit", are we safe to sell it to an investor who rents it back to the original owner?

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