"arms length" convenants and their impact on a short sale

I need to have some of you experts weigh in;

I have a home...it must be short-sold.

My wife and I are going through a divorce

She was "quit claimed" off the property, but our state is a "community asset" state.

She wants to have someone she knows buy the house...have her stay in the home, and then rent it back to her. It would allow the kids to stay in the house and not be disrupted by a move.

If there is a way I could sell the house under these guidelines, and not get into trouble, I would do it, however....

From everything I have seen and am being told by my real estate agent, and other local real estate professionals, they would not participate in a sale of this nature...they all say it violates the "arms length"

regulations. They say it could "unwind" the sale or even result in charges of mortgage fraud.

She is not on title or loan. What should I do?

Thanks for any advice you can forward.

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Comment by DEAN MOILANEN on June 4, 2010 at 5:58pm
Thank you all for your comments. In this case I am being asked to sign an "arms length" affadavit, which spells out there can be no rental agreements in place between the the buyer and seller, implied or otherwise. Even though my wife is not on the title, Nevada's community property laws would entitle her to half the proceeds, (if there were any....hah), and accordingly, this property is still viewed as a "community property" in this short-sale. I have been advised by my real estate person, (who has handled three other of my rental short sales), the risks are too great if he were to be involved in an arrangement which resulted in a mis-representation of the arms-length affadavit. I do see the logic, but I have heard enough conflicting information for me be conflicted by this. As much as I would like to make things less disruptive for my wife and kids. the very real chance running afoul of the banks/law seems to rule out any chance of the type of arrangement my wife proposed. I am hearing about the banks having a six year-window to investigate short sale irregularities, and some the consequences are scary.
Comment by Laurie Clark on June 4, 2010 at 1:40pm
If anyone could by a short sale then someone with a mortgage debt of say 450k sells his home to a relative or close friend for 340k, he rents it back to the seller thus letting him live there and then a day comes where he can get financing and buys the home for 340k. I say that the bank just got screwed out of 100k.
If it all disclosed up front and the lender says yes then I suppose that elevates future consequences.
I know this is a touchy subject. Especially investors in RE that feel like they are helping the home owner and making some money. That is just my two cents for what it is worth.
Comment by Jeff Payne on June 4, 2010 at 2:50am
I agree that this is a tough situation. It may come down to the lender in this case, not all lenders require the parties to sign an arms length transaction affidavit. As long as the home is sold for FMV, wouldn't that constitute an arms length transaction? Just playing devils advocate
Comment by Laurie Clark on May 28, 2010 at 2:02pm
What about a loan modification to save the home so she can stay there? There is no equity in the home as a short sale. Is she not on the loan? I would explore all your avenues. A loan mod will not hurt your credit like a short sale, just as a short sale does not hurt it as bad as a foreclosure. Could that be an option to consider?
Comment by Laurie Clark on May 28, 2010 at 1:58pm
No no and no way. I had a seller that wanted his investor buddy to by his short sale and then rent it back to him. It opens up a door that would make it possible for the seller to purchase there property back in the future. Pleasetalk to a lawyer if this is really what she intends on doing to find out if and what legal ramifications can and do happen in these situations. I personally as an agent won't represent a transaction like that for ramifications and liability. From all that I know it is not legal.
Some people may disagree and think as long as everything is disclosed that it is legal. Like Dawn said a Real Estate Attorney would be a great person to ask. You could just talk to your loan company as well. Good luck.
Comment by Dawn Barrier eXp Realty Vegas on May 27, 2010 at 8:11am
consult an attorney is most likely your best bet now

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