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

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Permalink Reply by Bryant Tutas on January 12, 2010 at 7:55am

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.

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Permalink Reply by debbie rumsey on January 12, 2010 at 10:54am

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.

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Permalink Reply by Bryant Tutas on January 13, 2010 at 4:57pm

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.

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Permalink Reply by debbie rumsey on January 13, 2010 at 5:02pm

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.

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Permalink Reply by Jeffrey Smith on January 14, 2010 at 2:17pm

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.

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Permalink Reply by Bryant Tutas on January 14, 2010 at 3:17pm

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.

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Permalink Reply by debbie rumsey on January 14, 2010 at 4:05pm

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.

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Permalink Reply by Jeffrey Smith on January 14, 2010 at 4:22pm

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.

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Permalink Reply by Eric Stevenson on January 30, 2010 at 1:35pm

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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Permalink Reply by debbie rumsey on January 30, 2010 at 1:48pm

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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Permalink Reply by Bryant Tutas on January 30, 2010 at 2:11pm

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?

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Permalink Reply by Bryant Tutas on January 30, 2010 at 2:11pm

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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