Replies to This Discussion

Permalink Reply by Eric M. Boyd on July 10, 2010 at 1:32am

I've seen effectively the same language in bank documentation, in the past. I'm certain the banks are becoming well aware of the shenanigans that some sellers are playing with the current mortgage "crisis" in our environment. I have been approached by at least a few sellers inquiring about how to get around their loan obligations via the short sale process and continue to stay in their home. In one instance, the wife received notice of an inheritance, so they wanted to pay off the house. But, they'd rather pay $100k less than what's owed on the property, so they were asking about using a family member to purchase or a 3rd party "service" to facilitate that transaction. I told 'em that sounded way too fishy for me to get involved with and they're opening themselves up to some fraudulent activity. Haven't talked with them since then.

Permalink Reply by Smitty on July 10, 2010 at 1:34am

Yes. This is normal. The lender doesn't want the homeowner back on the property. We had to have ours signed and notarized. Wells Fargo has something similar.

There are buyers that will buy short sales and work out an arrangement to lease back the property to the homeowner. The lenders DON'T want that happening.

I've seen this in several contracts. It's normal.

As far as the "legality" of it, I can't say. Technically the purchase and sale is between the homeowner and the buyer. The bank is really not party to the contract, but has the say on the sale of the property. So to enforce this would be tough as a title agency may say no. After an owner takes title, who knows what will really happen to the property and that's what the title agencies have issue with. That's why when some of the lenders started saying no resale of the property within 30 days, the title agencies had a field day and said they couldn't ensure title. Basically when an owner buys it, they in reality can do with it whatever the heck they want. How can a title agency INSURE it won't get sold in 30 days. They can't. Unfortunately this language has become normal in the lenders contracts.

I personally wouldn't test it though, and if you have a homeowner and buyer working out that kind of arrangement, I'd run quick.

Permalink Reply by Ben Racela on July 10, 2010 at 2:01am

This is typical condition from lenders for thier approval of the short sale. The intent is that a distressed seller will not benefit in any manner from the short sale. Keeping them as renters could be viewed as a benefit to the distressed seller and possibly considered as fraud by the lender.

Permalink Reply by Ben Benita on July 10, 2010 at 2:30am

Like ANYTHING with the short sale it is negotiable. They TRY the above so no funny business occurs between the Seller and his/her family or friends.

My 2 cents, and how you can negotiate it away, it is STILL in the Investors best interest and cuts the ivnestors losses by doing a short sale.

Anyway, keeping it short (I am out of town), the above is ONLY an issue if the Seller wants to stay in or move back to the subject property, if so, you can negotiate that language away. if not, sign it, get paid your commission and let the Seller move on.....

Permalink Reply by Doga Hays on July 10, 2010 at 7:00am

Thanks for your feedback. I have not seen this language before in my other short sale approvals. I understand what they are trying to prevent, but if the seller really is in financially distress how can they afford to move and pay the rental plus security deposits? It would benefit the seller to stay since they can only afford to rent without moving expenses.
If the banks agreed to principal reduction none of this funny busniess would be taking place. people would be staying in their homes and pay market value. The system is forcing people to go around it because it's only benefiting the investor, banks and other lucky ones who waited to buy a home. It seems like the alternative programs are not addresing the real problem, bailing out all but the homeowner. Homeowner gets the long waited approval letter but there it lies more punitive conditions.
I am sure everyone has their own feeling about the situation. Glad to be part of this group. And thanks for your comments.

Permalink Reply by Smitty on July 10, 2010 at 7:04am

"The system is forcing people to go around it because it's only benefiting the investor, banks and other lucky ones who waited to buy a home. It seems like the alternative programs are not addresing the real problem, bailing out all but the homeowner."

EXACTLY!!!

It's one reason I won't do a HAFA short sale. Another program that benefits the LENDERS GREATLY and is awful for the homeowner. I would NEVER ask a homeowner to sign a deed in lieu if the property didn't sell in 4 months. UG...homeowners should have the option of how long to try to sell the home for...not the lender WHO by the way sets the sale price. Ok...sorry WAY off topic. I'll get off my soap box.

Permalink Reply by Jennie Blackburn on July 17, 2010 at 4:40am

In this case, not letting the Seller lease back the property from the Buyer is a condition of the approval. If the lender finds out later that the Buyer rented to the Seller, I think the approval could be considered voided, which could void the contract for sale. If that's the case (and I don't know if it is -- I am not an attorney-this is not legal advice), it's conceivable that the lender could sue Buyer and Seller for breech. Maybe even take the house from the Buyer and foreclose on the original Seller because technically, the sale never took place. To sign and accept those terms, then violate them, is fraud. What a mess that would be!! I doubt the bank would bother unless they wanted to make an example of someone.