Can tenant purchase condo they are living in through short sale?

My client is renting a condo at a  negative amount so each month he has to put in extra money to cover the mortgage. He was hoping for the market to come back so he could sell in a year or two. Now he lost his job and is moving from NJ to Minnesota for a new job where he will be making half the income. His tenant is interested in purchasing the condo as a short sale.

Would this be considered an arm's length transaction?  Any other potential problems the SS Superstars can foresee?  

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Permalink Reply by James Lockard on June 5, 2011 at 12:32pm

Thank you everyone for your thoughts. Sounds like we should give it a try. 

Now , just need to make sure tenant is qualified for mortgage!  

Permalink Reply by obed montez on June 5, 2011 at 1:20pm
Tthought one,  the banks want the best and highest offer so for that reason you would have to place it in the market " X" amount of days and proper public advertisment so the public could have equal opportunity to place  an offer,  and the tenants offer would have to be the best offer without any minupilation at what offer to write to get it ( Not made aware of what the other offers have come in at) .Thought number two is that the arms length documents I have received from  banks say that there can not be any prior business agreeement. Just thinking out loud  
Permalink Reply by Joshua Jarvis on June 5, 2011 at 1:32pm
Nothing wrong with this at all as long as the would be buyer and seller aren't related. We've had this happen quite a bit.
Permalink Reply by Enrique Vasquez-Plaza on June 5, 2011 at 4:51pm

Hello! Great question!

I had 3 like this, and I have been able to close them.  Lenders: BofA, Indymac and Chase.  No issues on the side of the loan, no issues on the side of the RE.

Good luck!

 

As long as they are tenants and not family related, its fine.

Permalink Reply by AstewartRealtor on June 5, 2011 at 11:33pm

The Arms Length Transactions I have most major lenders using pertain primarily to the seller renting the property back from the buyer or buyer's family.  Disclose, disclose, disclose and ask the lender specifically if a third party tenant can make an offer. I see no conflict there.  *Consult with an Real Estate Attorney- for the legal ramifications- thi sis just opinion based on previous experience and is NOT legal advice.

Permalink Reply by Jason Boykin on June 6, 2011 at 1:11am

Hi there.  I'm selling my rental right now to my tenants and I've gotten approval so far through WF and Chase.  There are no arm's length issues.  I think you're fine.

 

When I told the tenant, I planned to sell it, he showed interest in buying the place.  Since he didn't have a realtor, he used ours also.  The day it went on the market, he put in a full price offer. 


If there were mention of arm's length issues, I could document that I do not know my tenants and I would not benefit from the sale.  I think that's the main issue with arm's length transactions.

 

JasonB

 

Permalink Reply by Kathleen Couch on June 6, 2011 at 3:47am
Those who are citing the business relationship clause, are not remembering that the relationship between a homeowner, and a real estate agent IS a business relationship.  The type of business relationship they are speaking of, is a special deal between the homeowner and other parties, so the homeowner can benefit financially.
Permalink Reply by Jennifer Escobar on June 6, 2011 at 10:20am
Absolutely NO on couple fronts. The lender who your buyer is going to obtain a loan from will probably have an issue because of the Arm's Length Transaction. The short sale bank, depending on who it is, may or may not have an issue just because they probably don't catch it. To save yourself the headache, I would recommend you speak to the buyer's lender and have them give you a straight answer before going through w/ the short sale.
Permalink Reply by Enrique Vasquez-Plaza on June 6, 2011 at 10:36am
I just check my files, and they were actually 4 that I have personally done, and no prob.  What Jennifer Escobar said just make sense.  Check with the lending institution first -in case they may have an issue- and with the short-selling lender as long as you dont show the buyers address is good.
Permalink Reply by Bryan L Dais on June 7, 2011 at 4:45am
I closed one successfully with SLS a few months ago. It will be important for the renters to continue making payments on time even if the homeowner is not making the mortgage payment. That will most likely come into play for the renter to get qualified for the purchase loan.
Permalink Reply by Enrique Vasquez-Plaza on June 7, 2011 at 5:58am

What a great point Bryan!

YEs, I remember the possibility of that issue, thank God, we were fine.  Buyer is gonna have to PROOF 12 month of rental history and if not paying... you are in trouble! 

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