In a Short Sale Transaction the "Arms Length Transaction Notice" means EXACTLY what it states.

Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

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Hi folks. One of our Sellers over at wants to know how to skirt around the 'Arms Length Transaction" requirement of his lender and continue to live in his house after the short sale by renting it back.

The language in the "Arm's Length Transaction Notice" is as follows:

  • "Affiant further says that there are no agreements or understandings, written or implied, that will permit Seller to remain in the above mentioned property as a renter or to regain ownership of said property at anytime after the execution of this short sale transaction"

The seller thinks thats:

"This is the wording in my arms length affidavit for my short sale. I know the offer that has been submitted to my lender is someone who is going to rent the property out. When the arms length affidavit was signed and also by the day of closing there will not be any discussion and there hasn't been and won't be any written agreement, any implication of me renting the property back.

I just don't think anyone understands this except lawyers. When I signed the affidavit there was no written or implied agreement. I never spoke to the buyers. At close of escrow there will have been no written or implied agreement. I will have never spoken to the buyers. I am looking for a lawyer to either back up what I am saying or tell me some case law that says I am wrong. You clearly are not a lawyer because you don't even understand what I am saying.

If I speak to the buyers AFTER the close of escrow and LONG AFTER I signed an agreement that said there was no written or implied agreement that I would rent out this property from them (there wasn't a written or implied agreement), there is nothing that says I can't NOW have a written agreement to rent the property from them."

My response was:

You're grabbing at straws. The language is not ambiguous. It's not about the timing of the signing. It's about the fact after closing. But certainly seek legal advice. If it's a battle you want to fight by all means fight it. Fighting it hear won't do you any good.

Your argument is like stating "I promise not to trespass on your property". Then signing an agreement to that affect. 2 days later you change your mind and trespass. When caught you go in front of the judge and try to explain that when you signed the agreement you had no intent of trespassing but then changed your mind. The judge will laugh at you and find you guilty. Make sense?

What do you think?

You can follow the conversation here.

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The BIO for Bryant Tutas


 Tutas Towne Realty, Inc handles Florida real estate sales, Florida short sales, Florida strategic short sales, Florida pre-foreclosure sales, Florida foreclosures in Kissimmee Florida Short Sales, Davenport Florida Short Sales, Haines City Florida Short Sales, Poinciana Florida Short Sales, Solivita Florida Short Sales,  Orlando Florida Short Sales, Celebration Florida Short Sales, Windermere Florida Short Sales. Serving all of Polk, Osceola and Orange Counties Florida. Florida Short Sale Broker. Short Sale Florida.

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Gita Bantwal 12/10/2010 10:50 PM
  2. Tony and Suzanne Marriott, Associate Brokers 12/13/2010 03:43 AM
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Eric Michael
Remerica Integrity, Realtors®, Northville, MI - Livonia, MI
Metro Detroit Real Estate Professional 734.564.1519

Arms length is arms length. It is what it is. Don't sign something with the intention of trying to avoid it later.

Dec 08, 2010 05:02 AM #7
Irene Kennedy Realtor® in Northwestern NJ
Weichert - Lopatcong, NJ


There are always some who should crawl back under the rock and leave others out of the slime!  We know you well enough to realize you won't aid or abet...

Dec 08, 2010 05:28 AM #8
Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Northern VA

You mean you can't stay in the house you can't afford?  (just kidding)  This is my biggest pet peeve in dealing with Short Sales are the Sellers that are intentionally trying to abuse the system. 

Dec 08, 2010 06:30 AM #9
Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

Makes sense to me. I've walked away from a few deals because I refused to sign this agreement as a Broker.

Dec 08, 2010 09:44 AM #10
Damon Gettier
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA
Broker/Owner ABRM, GRI, CDPE

Bryant, it seems that someone is always trying to push the envelope.

Dec 08, 2010 02:06 PM #11
Katerina Gasset
Get It Done For Me Virtual Services - Wellington, FL
Get It Done For Me Virtual Services

Bryant- To tell you the truth, I really don't care what the seller does after closing as long as I don't have a part in it, as long as I don't know anything about it, etc. If they don't tell me anything and 2 years later they are renting the house and someone tells me in the grocery store that is not my problem and I am not judging them. 

They can do whatever they want to do and bear the consequences of their actions. 

And writing offers from people in the same family who have the same last name is not a crime. Because we get NON arm lengths transactions through. It does not hurt to try. Not all lenders make sellers or brokers sign arms length transactions. There are exceptions to all the rules. You don't know until you try. 

There is also nothing illegal about chattel agreements contrary to what people say or think. And if the seller has a garage sale and the buyers happen to come by and buy things in their garage sale that is their business and does not need to be put on the HUD. 

The main thing to remember is that the arms length affidavit is a document that some lenders require to be signed as part of the short sale transaction. If you sign it and then lie about it, you are lying under oath which is then breaking the law. But the arms length notice itself is not a law. It is a rule of the lenders not a state or federal law. Which means it can also be negotiated. 

Dec 08, 2010 04:56 PM #12
Katerina Gasset
Get It Done For Me Virtual Services - Wellington, FL
Get It Done For Me Virtual Services

The other thing I hate about some of these arms length's language from certain lenders is the language itself. There is one we see that says the seller is not selling the house to anyone they know or have met, in a nut shell. 

So let's see. The seller goes to Publix and as he is standing in line at the check up a young lady in front of him starts up a conversation with him. They start chatting. She then says she is looking to buy a home in this neighborhood. He says, let's go over to Starbuck's. I will buy you a cup of coffee and tell you about my house that I have listed for sale. They go to have their coffee and they hit it off. They chat for a couple of hours and then make arrangements for this lady to come and look at his house. She likes it, he calls his agent who writes up the offer. 

So now the bank would ascertain that this is NOT an arms length because the seller has the hots for this lady? He knows her now? Hmmm, I think some of this language is way too out of line for ordinary circumstances on how the word gets out that your house if for sale. What if you live in small town where everyone knows everyone. Heck, that would mean you could not sell your house to anyone unless they rode in from out of town:)

Just my 2 cents. Katerina

Dec 08, 2010 05:05 PM #13
Dawn Barrier
EXP REALTY - Las Vegas, NV
eXp Realty Owner/Agent/REALTOR (702) 812-4550

Great blog and some interesting points to consider.

Thank goodness I haven't had this as an issue here doing Las Vegas short sales,,,,,yet

Dec 08, 2010 05:16 PM #14
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

or to regain ownership of said property at anytime

I think the key word(s) is / are "any time." It means never. Ever. I am curious, though, as to why Melissa says she refuses to sign ALT. I have no problem with them.

If sellers tell me they want to sell a personal item to the buyer, I tell them no, they can't do it, and if they do it anyway, I don't want to hear about it because they can't do it. But I'm not the ALT police.

Dec 09, 2010 04:02 AM #15
Chris and Berna Sloan
Group 1 Real Estate - Tooele, UT
Tooele UT

"Skirt around", "work around", "get around"....Any such term automatically tells an ethical person, let alone Realtor, to run away. If they can afford to pay the legal fees such a fight would require, perhaps they can afford to actually live up to the loan agreement they signed....Great post!

Dec 09, 2010 04:10 AM #16
Andrew Martin
REMAX Accord - San Ramon, CA

The best way to "skirt" the issue is to ask the bank to take that language out of the document. I've personally never seen that language in a arms-length document, but I'm sure it depends on the bank. It's done in my market quite often and I have investors looking for short sales where the sellers want to stay and rent. It's a win-win for all parties, and I have found that the banks don't really care as the sellers need to live somewhere. Once the sale closes, the bank doesn't care what happens to the house. The only thing they care about is the seller not walking away with any money, and not selling to a relative etc. Who cares if they rent back.

Dec 09, 2010 04:24 AM #17
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Good topic for discussion.  It is important to point out (as Katerina did) that not all banks require this on every deal and you CAN negotiate it out.  Requests for these type of affidavits are popping up more and more.  Some banks have almost zero of their own paperwork that they require a seller to actually sign in order to complete a short sale.

If it were my client, I would tell them that if I was in their position I would not do it, whether they want to do it is up to their own conscience.  If they feel comfortable relying on that narrow interpretation of the wording, which is essentially, "I didn't plan it -- it just happened," then ok.  But personally, I think that sounds like the same argument a kindergartener might make.  I would also advise them to consult with an attorney about it and leave it at that. 

Clearly the intent of the agreement is that he not remain in possession of the home after the short sale, and since he accepted an offer from an investor you easily could argue that that was his intention from the outset, and that may in fact be the reason the affidavit was presented.  There is also a reason why the word "implied" was used.  (And people complain about how long legal documents are!) 

Also, he isn't considering the possibility that he will not be able to argue around the implication of those facts -- is it possible for the justice system to deal unfairly with you?  Well, yes it is.  Although I don't know that this would be unfair, because he is pretty clearly trying to get around his agreement.  You can be convicted of a crime because of how things look after all.  That's why people who want to avoid problems avoid even the APPEARANCE of impropriety.  Also, if they can show that he accepted a lower investor offer in order to leave open the possibility of renting back there could be another issue as well.  And, of course they now have the email he sent you -- LOL. 

BTW - For anyone wondering, legal advice cost money and this comment was totally free.

Dec 09, 2010 04:36 AM #18
Phil & Celeste Pafford, Corona CA - Corona, CA
Corona Short Sale Broker

...but you don't understand, they really, really, really want to continue to live there!  Oh, I know they haven't made a payment in over two years, but let's not get bogged down in mere details.

Next time try, "GET OUT, LEAVE NOW!"... I'm no lawyer, but I believe this might get the point across.  ;-)

Dec 09, 2010 05:20 AM #20
Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

Skirting the issue ... makes your skin crawl, eh?

Dec 09, 2010 05:56 AM #21
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

I completely agree that this can be negotiated out of the deal. BUT if it isn't and you sign it and then do it anyway be prepared for when it comes back to bite you.

If you want to stay in your house it's your mortgage.

Tni, Thanks for the free legal advice. I'm pretty certain that's what he is looking for over at Short Sale Superstars. He didn't get it :)

Dec 10, 2010 09:37 AM #22
Roy Kelley
Realty Group Referrals - Gaithersburg, MD
Roy and Dolores Kelley Photographs

Good information for short sale sellers and their agents. Thanks for sharing and starting the discussion.

 Happy Holidays!

Critter ornament from the Brandywine River Museum

Dec 10, 2010 10:58 PM #23
Lenn Harley
Lenn Harley,, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland



I doubt that there are very many consumers who identify with that term.

Dec 10, 2010 10:58 PM #24
Joshua Gamen

Interesting points. What I wonder is, what would the  banks seek for "damages" if they did persue going after someone who signed the affidavit but then rented back. Had they not signed the affidavit, would the bank have made more/lost less money? I certainly don't think so. I am anxious for someone to force the issue and have it brought to courts. I don't see banks finding out(A), and (B), if they did find out, would they really want to take it to court which could end up with a judgement not in their favor that could create a wave of strategic defaults for people to stay in their home for less money?


I was pondering the idea and shot this vid with an attorney:

Dec 22, 2010 05:19 PM #25
Cheryl Cairns

Affiant? Heck, I've never even heard that word before! How would most consumers even know what it mean? Yes, I understand the word from reading the posts so don't send me an email...

Jan 15, 2011 03:44 AM #26

BTW, I agree, the bank will probably never find out and even if they did, the transaction is a done deal. What would they ever hope to acheive? I agree once the Arms Length is signed, and (if I truly never knew a thing), I am absolved of all liability. I did what was required and I fulfilled my obligations to everyone concerned. As Realtors, we could split hairs over anything... People will do what people will do, I am not their babysitter.

Jan 15, 2011 03:51 AM #27
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