Tenant's offer rejected based on "arms length" transaction definition

have a short sale where ASC is the first trust.  The short sale property has been rented out and the tenant wants to buy it.  ASC is saying that they will not accept the offer from the tenant, as they consider it to not be an arms length transaction due to the "business relationship" that the lease creates.  has anyone else dealt with this?  I was not aware of this definition, and thought that a tenant could make the offer on a short sale.  thank you for comments.

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Thank you so much, I will get back to you, let me find out if they like to go that route. Thank you 

How do I get your contact info to discuss this with you?

Call me 831-335-2100

Hello,

 

The first thing you would want to look at is the actual lease agreement, and if it states anything about the tenant having the first look at buying the property option.

 

The second thing that would need to be looked at is any provisions in the lease agreement about the tenant's extensive renovations. If they are a tenant why in the world would they make such expensive changes to the property that is not theirs legally or financially. Was this a Lease to Buy contract?

 

Check your state's definitions, and tenant laws.

 

Dirk's advice is extensive but sometimes these short sales involve a lot of work, and you have to preform your best for your client. 

This is unfortunate but true.  Most banks consider it not an "arms-length" transaction because of the business relationship.  There is the possibility that the owners may be selling to the tenants at less than fair market value, or have some arrangement to repurchase.  It is not, as some are suggesting, an interference of the tenant's rights, it's just the bank's right to not approve the short pay-off.  Remember, the bank is not telling you who you can and cannot sell to, just under what circumstances they will or will not accept the short pay.  An owner who walked away from the property, accepting rental payments while not paying the mortgage, may have other liabilities and could be sued by the tenant.  The tenant who destroys the property in retaliation could be liable for damages from the lien holder, unless they are just removing items that can be removed without damage - like appliances and ceiling fans.  The tenant's recourse is to sue the seller, if they have any assets and if there was any agreement in place about the improvements and future purchase. 

My position on your comment about "tortious interference with contract".

 

I am confident of this after spending the late 80’s obtaining an education in Real Estate Law while attended California Western School of Law. If a Seller reports or indicates to Agent they have a written contract or clause within a lease agreement with their Tenant that states …Tenants have “1st option to buy upon future Sale”… and at that point said agent suggests/implies it is too complicated for Seller to honor said contract when pursuing a Short Sale…  There is nothing “quesi” about it – that suggestion ALONE crosses more than one gray line.  Its practicing law without a valid license and it is an example of an agent putting themselves at great risk.

 

If said Tenant is a ready, willing and able buyer and has made an offer with an Appraisal from a licensed appraiser as evidence that it is a FMV offer, it would legally prudent for the Servicer/Investor to approve and not put in writing they cannot buy it because of they consider the parties have a business relationship.

 

I have no argument that such an agreement complicates everything in a Short Sale.  It’s worse than what you think…these Short Sales are starting legal log jams for the CA courts as 100’s of Sellers and their agents that have unintentionally become “Ginny-pigs”, to set precedent.  Many of my alumni’s have been hired by agents in Southern CA trying to get their legal nightmare figured out.   It is predicted in 2-3 years we will see commercials for class action suits for those that participated in Short Sale. 

 

Banks/Investors have unending resources and can afford to risk crossing over legal boundaries on what they can dictate has to happen to secure an approval from them on a short sale or what circumstances they will or will not accept the short pay.  In fact, many have Sellers (their borrowers) sign “hold harmless agreements”.    Agents – do you endless resources, do you have your Sellers sign “Hold Harmless Agreements”?

 

Agents when this type of event happens, suggest to your Seller to seek out an Attorney as to how to CYA, if Sellers or their Bank/Servicer/Investor do not permit the Tenant to pursue their contractual rights to buy before anyone else or you think there is interference within any clause in a Tenant's Lease agreement.   

I think they would be well-advised to have the seller and the tenant seek legal advice in this case, as in any other where there is a tenant in the property.   However, the issue is not whether or not the Bank is interfering with the sale of the property.   The Bank has no obligation to accept less than a full pay-off of their loan.  So, unless they are discriminating on some unlawful basis (race, religion, sex, etc.) they do have the right to say NO to a Short Pay-Off request.  The seller does not have to sell the property - they chose to stop making payments and risk the foreclosure.   They can let it go to foreclosure and accept those consequences.  Doesn't mean the tenant can't sue them - although the likelihood of collecting may be small if there are no other assets.  In this Forum we're not giving legal advice, we're just expressing our opinions and our experiences in the field.

 

The use of common nouns as proper nouns and the complete abuse of apostrophes makes a lot of these posts challenging to read. Also, what the heck is a ginny pig?

Embarrassed for misspelling - Guinea Pig

Tee hee!!  I was thinking maybe it was a new branch of Ginnie Mae....

Ron well said.  I understand everything that you stated.  What would the issue be with a tenant purchasing?  What from your standpoint would raise a red flag?  If the tenant is not a relative and is willing to purchase the property for an amount the lender is satisfied with, what is the problem?  Most tenants, in my area, have never met the homewner, they pay the rental manager who them sends the money to the homeowner.  

Lets assume that Joe Buyer (not a tenant), can buy the home for $200,000 with an arms length transaction, why could Joe Tenant not do the same thing?  Lender still gets the NET amount that they require.  Just curious more than anything....

I agree that there is alot of  unauthorized "law" being discussed here.........

Thanks, good explanation. 

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