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I've never had anyone tell me that and I've done a couple and I'm doing one now. I put that information in my cover letter when I open the file. In all the cases I'd handled the tenant and the landlord had never met or had one conversation. I've read through many arms length affidavits and never seen a prohibition on it.
I would escalate the matter.
By HUD rules, I would agree with Bryant, this is not an arms length, which I think is defined as relationship through blood, marriage, or business. A tenant has a contractual business relationship with the seller.
The question is, would the Servicer, Investor and Insurer approved the sale? I think this will depend on the parties. Eg, I think Wells/FHA would probably say no. And, I'm pretty sure this violates the SunTrust arms length, for example.
But, for a securitized loan, or an unregulated Investor, it's probably okay.
It is a bit like selling to a relative. It's not illegal, but it's a red flag event for a regulator. May not be worth the bother to the Bank to justify and explain, when the regulator asks "how come?" If I were an OCC regulated bank, I think I would not do this, I'd rather give up $5000 in price.
To me, the key issue is disclosure. Once you've disclosed it it is in their court to accept or reject.
Get some legal advice of course.
The tenant has been in the property for more than a year. The tenant was disclosed to the bank up front. This is what triggered them to reject the offer. We escalated the situation to a senior negotiator and the answer was the same. No one on my team predicted this would be an issue as we have seen it done in the past. An alternative offer was submitted.
Great Input from everyone. Thank You.
Does your state or locality give a tenant a "first right of refusal" when a property is being sold?
I would take this all the way up the chain. Bank policies should not favor displacing a tenant who can afford to buy the property. I would put some public pressure as well.
If you have already submitted another offer the issue may be moot now though.
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