Arm's Length Transaction-Can Owner of Short Sale lease back?
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I'm getting conflicting answers----I understand that an owner of a short sale cannot buy back there property at a reduced price, etc etc--however, I am told that they can lease back from an investor.....Please help me understand the law and such. THANKS!!!
Replies to This Discussion
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Permalink Reply by Jeff Payne on
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Bob, you will get alot of different answers on this one. I believe it depends on the lender, most will not let it happen but with that being said, I don't know how they can stop it if the owner rents the property back after closing.
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Permalink Reply by Smitty on
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LOL...I dont' think there is a LAW..which is why the arms length transaction is full of holes most days. To my knowledge there is NO LAW that state a buyer of a property cannot lease or even sell back that property to the previous owner. There ARE laws on mortgage fraud. So you will need to see how the arms length transaction acutally reads. Some lenders don't have an arms length transaction form so, depending on who you are dealing with you may be in the clear but MOST lenders do. The arms length transactions I've seen lately state in no way is the seller to remain on the premises, which I would assume mean 'lease back'
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Permalink Reply by Stephen Shafer on
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If in the arms length document it states no lease back then the lease must be disclosed. If there is no verbage as to lease back and the lease is at market rate no disclosure is necesary.
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Permalink Reply by Paul Aceto on
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It depends on the verbiage of the arm's length affidavit. Most lenders do not allow for leaseback. You should reference the arm's length from both lenders.
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Permalink Reply by Jorge Newbery on
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The leaseback should be disclosed to lenders, whether or not the lenders require an arm's length affadavit. American Homeowner Preservation (www.ahphelp.com) matches underwater homeowners with investors who will buy the homes and provide favorable leases and repurchase options to the sellers. In general, Wells Fargo, Chase, Ocwen, ING and some others will reject AHP offers, with Chase making occasional exceptions for loans in their recovery department(typically severely delinquent and secured by low value homes). Litton, Select Portfolio, Vericrest and many smaller servicers have no problem with leasebacks. Bank of America, Citi, GMAC will sometimes approve, depending on the investor who they are servicing for. Huntington Bank, Home Servicing and Resolve refer their defaulted borrowers to AHP to try to keep them in their homes, so they are fine with leasebacks. AHP also has experienced success with Flagstar, Nationstar, RCS and Saxon.
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Permalink Reply by Thom Colby CA Brkr 888-391-5245 on
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It's very simple,
If you know the borrower is going to lease it back - it's a material fact (to the short sale lenders) and you must disclose it.
Most Lenders / Investors do not allow it and they DO check on it in cases where they suspect it may be happening.
Thom Colby
Broker
Newport Beach CA
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Permalink Reply by ALLAN ARTHUR on
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I do not think that is so much the LAW, Freddie and Fannie (the illigit Twins) as well as many lenders will not allow a relative of the occupying owner to buy the property. it is more of a policy than a law. However I do not believe it is any of their Business who the new owner leases to. the are sort of out of the picture.
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We have a responsibility to disclose everything we know to the principles of the transaction. when in doubt disclose! Is the lender considered by law a principle in these matters? I would like to see the case history in this. Do they have the legal right to reject these offers? If they do have a arms lenth policy was it disclosed and made part of the original signed loan documents? Or after the fact as needed to punish the borrower for something the borrower had no, or little control over. I can see the lender opening up a BIG can of worms. (like the need another can) Can they produce those documents?
Consult an attorney regarding this.
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Permalink Reply by Vanessa Calhoun on
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Most Arm's Length Affidavits state that the seller may not remain on the premises AND it also stipulates that there must not be any additional arrangements or agreements between the buyer and seller that have not been disclosed to the lender. The possible ramifications could possibly be a reversal of the short sale approval and the original seller could face a tremendous financial liability. I'd have my client speak with an attorney regarding the possible backlash.
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The lenders can set any "rule" they want if they are the ones taking the substantial loss on the sale / debt (which they are). So, if a lender says "no rent-back to or or repurchase by a prior owner in order for the lender to approve the short sale and take the loss" that's their right - or they will simply not approve the short sale. Just the fact of this being asked suggests someone is looking for a way around the lender's rules.
It's our responsibility as Brokers, and our Agents, to disclose everything we "know". In my Brokerage, if an Agent knew a short-seller and new owner were making a side deal to rent-back and it was not disclosed, the agent's license would be returned to the DRE within minutes.
Thom Colby
Broker
Newport Beach CA
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Again I would consult an attorney, making new "rules" on an agreements already signed, sounds actionable to me. I would diSclose it to the lender, let them say no. then the ball is in your court. on where you go from there. All I know is, one reason those loan docs are so long in the first place is to cover every possible situation that may arise during the life time of the loan contract. if it is not in the original loan docs it is contestable! EVERYONE IN THIS CURRENT MARKET PLACE IS RESPONSIBLE TO GET THIS MARKET BEHIND US AS QUICK AS POSSIBLE. TRYING TO PUNISH THE THE BORROWER FOR LOAN PRODUCTS THAT WERE DEVELOPED TO SATISFY THE LENDERS GREED GOES RIGHT BACK TO THE LOAN ORIGINATORS GREED TO SELL WHETHER IT WAS IN THE BEST INTEREST OF THEIR CLIENT OR NOT. YES, IT IS THERE RIGHT TO SAY NO. BUT IT IS ALSO YOUR RIGHT TO SEEK COUNSOL ON YOUR RIGHTS. CONSUMERS DEPEND ON THE PROFFESSIONAL TO GUIDE THEM THROUGH THINGS THEY DO NOT KNOW. AS CONSUMERS WE DEPEND ON EACH OTHER TO ADVISE ONE ANOTHER ON OUR EXPERTISE.
THE FINANCIAL INDUSTRY PUT THE REAL ESTATE INDUSTRY AND THE NATIONAL ECONOMY AT RISK DRIVEN BY THEIR GREED, I HAVE NO SIMPATHY FOR THEM. ...MAKE SURE YOUR CLIENT KNOW THEIR RIGHTS BASE ON THE ORIGINAL LOAN DOCUMENTS.
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Permalink Reply by Trish Friberg on
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Jorge,
Do you have any cases where Chase has approved these buyers? I am desperately trying to get a short sale through....have a buyer that wants to lease the property to the seller but the arms length doesn't allow it. Neither the seller, the buyer nor myself will sign it with the lease back portion in there......any ideas would be great appreciated....or any cases that have closed.
Thank you Trish
Jorge Newbery said:The leaseback should be disclosed to lenders, whether or not the lenders require an arm's length affadavit. American Homeowner Preservation (www.ahphelp.com) matches underwater homeowners with investors who will buy the homes and provide favorable leases and repurchase options to the sellers. In general, Wells Fargo, Chase, Ocwen, ING and some others will reject AHP offers, with Chase making occasional exceptions for loans in their recovery department(typically severely delinquent and secured by low value homes). Litton, Select Portfolio, Vericrest and many smaller servicers have no problem with leasebacks. Bank of America, Citi, GMAC will sometimes approve, depending on the investor who they are servicing for. Huntington Bank, Home Servicing and Resolve refer their defaulted borrowers to AHP to try to keep them in their homes, so they are fine with leasebacks. AHP also has experienced success with Flagstar, Nationstar, RCS and Saxon.
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