Forum

Arm's Length Transaction-Can Owner of Short Sale lease back?

Posted by Bob Sluys on March 29, 2011 at 9:17am in Short Sale Discussions

Help-

 

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!!!

You need to be a member of Short Sale Superstars to add comments!

Join Short Sale Superstars

Email me when people reply –
Follow

Replies

  • Melvin Vy February 22, 2013 at 5:20pm

    Hi Bob,

    We've been doing it in the last 4 years in east coast.  If any one in here interesting to learn more about our short sale lease back program, please email me at realestate.vy@gmail.com.

    Agent program is available.

  • Thom Colby CA Brkr 888-391-5245 June 5, 2011 at 4:30am

    Bob, most short sale lenders require signature of all parties in the transaction on an "Affidavit of Arm's Length Transaction".  Basically the bank is stating that they will only consider the short sale if the soon-to-be former owner can reap no benefit from the sale which would likely include; cash back, a repurchase, a lease-back, etc.  Although I doubt very much any state has a "Law" about this practice, the lender who is taking any loss can place whatever restrictions they want on their approval.  Similarly, there will likely be a restriction on resale to anyone for "X" days aftter closing - typically 30, 60, or 90 days.

     

     

    @Roberta - in your situation, as the agent I would write a letter for submittal to the lender to be included with the short sale package explaining the situation and the tenants desire to buy the property.  Be very careful about representing both sides of the transaction - the lender may not like it unless the commission is reduced to only one side.....

     

    You will likely have a couple of additional challenges;

    1) If the tenants are paying the entire cost of carrying the property, then there is no hardship as it relates to the property .  That will be interesting to explain. 

    2) Is the owner paying the mortgage or using that rental income elsewhere?

    3) Was the property purchased as a owner-occupied residence - if so, did the owners ever live in it, or did they always use it as a rental?

    4) What did the borrowers/owners state in their original loan application for #3 above?

     

    Lenders are reviewing short-seller's original "wet signature" loan applications during the short sale review process so sellers need to be honest with themselves and you as they go through the process.

     

    Best of luck,


    Thom Colby

    Broker / Negotiator

    Newport Beach CA

  • Kimberley Kelly June 5, 2011 at 3:19am
    I don't know about laws particularly, as they are state by state, BUT, when I have a Short Sale Seller that wants to lease back, I REALLY discourage it.  The Lenders can make it harder for approval and who needs that, plus, I always suspect that they are keeping some kind of mysterious ledger somewhere in their ether world and putting stars and checks by suspicious looking files..I'm just sayin..
  • Roberta Baldwin June 5, 2011 at 2:27am
    I have a case where the tenants have asked to purchase the single family house they've been living in for three years. They are carrying the entire load of the mortgage and taxes right now and say they either need to purchase or leave. The owner can't carry it himself at all, so if they leave, we'll need to list it as an empty, abandoned property. Any thoughts about whether this passes or fails a standard Arms Length Affidavit? The two banks involved would be a local savings bank and, for the approx. $100,000 line of credit, Citi.
  • Trina Gonzales April 6, 2011 at 12:13am
    Disclose. Disclose. Disclose.  There are lawyers taking continuing education courses on "How to sue Real Estate brokers for negligence and knowingly defrauding a lender."  It may work out for the seller in the short term but trust me, if you know of a material fact and don't disclose and seek legal counsel when you're operating outside of your scope as a realtor, somewhere down the line, you may get yourself and your broker in trouble.  It's not worth it to you.  Be careful!
  • Kimberley Kelly April 5, 2011 at 1:58am
    I agree.  Read the arms length doc.  I tell Sellers they cannot do it..it MUST be arms length..period.  To do a Short Sale, they must plan on moving on.
  • Trish Friberg April 4, 2011 at 2:43pm
    The sales price is $280,000 approved by Chase......we are all good to go except the lease back part of the arms length.  Would this not be considered discriminating?  They let some lease back but not others? 
  • Jorge Newbery April 4, 2011 at 11:06am
    Trish - Chase will only approve if it's in their Recovery department, which is their charged off loans which are typically severely delinquent and secured by low value(sub- 30K) homes. If this is a regular Chase short sale, then Chase requires the affadavit which disallows leases or options back to the seller. What is the sale price of the home in question?
  • Trish Friberg April 4, 2011 at 10:12am

    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.
  • ALLAN ARTHUR April 3, 2011 at 8:50am

    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.

     

This reply was deleted.
********************************** like buttons ************************