I am getting close to closing on a short sale where I have never seen the buyer, and I have never seen the Seller. The lender sent us the Affidavit of Arm’s Length transaction. I signed for me and sent to both the Seller and the Buyer.
The buyer called me next morning. What the heck was that? I told him about relationship between the Buyer and Seller, and me as the agent. He was OK with that. He did not have a slightest idea who the Seller was anyway.
But he is an investor. He would sell it when he can get the profit he is looking for. It can happen 2 years from now, it can happen 5 years from now, it can happen 6 months from now (though unlikely). He asked me that would he need to do investigation to see that the future buyer is not the Seller, nor his relatives or business associates.
How can he do it?
And I started thinking about it. And I do not know how actually this works, how it is enforced..
What do we all do when we do not know something. We either go to Active Rain, or you go to Google. So, I Googled it, and the first article I ran into (Why Does the Bank Require an Arms-Length Affidavit on a Short Sale?) explained that if the Seller later repurchases the property, this could constitute mortgage fraud, and it will be in the jurisdiction of FBI.
I liked the article and looked who the author was. Pleasant surprise, it was one of my AR favorite bloggers Elizabeth Weintraub, the short sale guru from Sacramento, and the article was posted on About.com. (Elizabeth – hint, need an autograph, please).
Done with the question? Not quite. Am I correct assuming that it is not the problem for the buyer, who may inadvertently sell later to the Seller or members of his family for as long as s/he has not conspired to commit the mortgage fraud. The Buyer should not be liable, should s/he?
And another question. The idea is to prevent the Seller from profiting from short sale. So, let’s assume that the Seller, who purchased the property for 500K ($150K down and $350K mortgage), and then sold it as short sale for $250K, comes in 3 years and buys the same property for $400K. Does he make any profit? And if not, would he still have a problem with FBI?
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