Education & Training with Law Offices of James M. Bosco & Associates


Hello to all! I just wanted to send out a quick note to give a heads up on an issue that you should be aware of.

Be advised that HUD/FHA/VA, Fannie Mae, Freddie Mac & FDIC are now carefully auditing short-sale transactions going forward and are also looking at previous closed short-sale settlements that may have been considered non-arm's length transactions. Agents, brokers, sellers and buyers should be aware of the “Arms Length Transaction” affidavit that many lenders/investors are now requiring all parties to sign. This specific language could be included in the short-sale approval letter itself or may be a totally separate agreement all together (such as in the form of an Affidavit) and can read something to the following effect:

“Whereas, all parties relevant to this transaction are hereby indicating to XYZ Mortgage Corporation that no party to this contract is a family member or business associate or shares a business interest with the mortgagor(s) or mortgagee. It is further stipulated there are no “hidden terms” or “special understandings” between the seller(s), buyer(s) or their agent(s) in order to entice, induce or otherwise defraud the seller’s mortgagee in this transaction. This purchase contract is not assignable. If the purchaser intends on performing a simultaneous closing (aka flip) such a transaction can take place only if the re-conveyance is of equal or lesser value as to the current sales price indicated in this transaction. The Buyer(s) & Seller(s) nor their Agent(s) listed below have any agreements (written or implied) that will allow the Seller(s) to remain in their property as renters or to regain ownership of said property after the successful execution of this short sale transaction.”

This is pretty self explanatory and if these stipulations are non-issues for your particular deal than you should be fine. But (if you have to think twice about this) you need to be very careful and think twice before you sign such a document. You would be surprised on some of the things that people have attempted to pass through our office thinking no one would know or find out. Keep in mind, lenders will not accept a sales contract that shows the contract can be assigned. If the buyer is planning on flipping the property, he or she will have to arrange a double close (or simultaneous closing). There is nothing unethical or wrong about doing the double close as long as it does not violate the parameters stipulated by the short-sale mortgagee.

Just be aware that HUD/FHA/VA, Fannie Mae, Freddie Mac & FDIC do not want to see anyone obviously taking advantage of their financial disadvantage. Lenders and investors will not tolerate "Bail-Out" situations that allows the distressed homeowner to benefit from their loss.


All the Best,

James M. Bosco, Esquire

Rick D. Misitano, Senior Paralegal

Law Offices of James M. Bosco


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John Zallek

Thanks for your support Michelle K!

Please email me. I tried to respond but was denied. I promise I am not a crook like our government and financial people. I have a lenghty letter I drafted for you that I believe may interest you regarding the Wells Fargo issue I have been through.

If you wish, please respond. My line is open.

Sincerely, John Zallek (

Dec 04, 2009 08:30 PM #5
Debi R

I just found this posting and even though it's a year later, I'd thought I pass along my experience regarding the Arm's Length Agreement.

My sister had been trying for 2 years to sell her second home and it was finally suggested to her by Bank of America to attempt a short sale.  They explained the details and she asked them, "You mean if I could convince my sister to move here and buy my house, that would be okay?"...  They told her as long as I qualified and submitted an acceptable offer.  Again, when I submitted the offer she discussed with the B of A representative about this being submitted by her sister and verified that this was acceptable.  Again, told it wasn't an issue.  The offer I submitted while about 30k less than the loan amount was still either at or above present 'retail' value... definiately NOT a 'great deal'.

EIGHT MONTHS LATER we were finally completed, closed, funded, recorded!  I went full steam ahead to do major renovations that were absolutely required to make the home livable.  I spent nearly $40,000 in gutting it to the walls, new ceiling, insulation, heating system, kitchen, flooring, rearranged rooms, doors, all new plumbing, windows, etc. etc.  Plus major work on cleaning up the overgrown property.

Several weeks later, our Title Company called to tell us the lender wanted us to sign an additional document..  You guessed it... the Arm's Length Agreement.  Of course we couldn't sign.   We explained that we had told them from the very beginning! 

So what happened???   THEY UNSOLD THE HOUSE!  UNrecorded it, UNdeeded it, and returned the purchase price.  This was THEIR error!  THEIR oversight.  But I am the one who has to pay.

I'm still out $40k and now do not have enough money to buy something comparable.  I have now purchased a piece of property that is just bare land with a 5th wheel RV on it with about 25k left to build a home.  Yeah... right!

Just thought you'd like to see the lengths the bank will go to cover their, uh... assets!

Mar 26, 2010 04:51 PM #6
Helping a friend in AZ

Question - once a home has been foreclosed on and the former owners have moved out, the home then is Fannie Mae owned and goes up on the general market. At that point can a family member of the former owner purchase the home or does the at arms length clause still apply? Our old neighbors were foreclosed on and she had to shut off her internet due to their quick move but I told her I would put some feelers out there for her. She said she spoke with Fannie Mae directly and they said once the home was back on the general market anyone but the former home owner could purchase it. She contacted a realtor however and the realtor said no, that the at arms length clause still applies. Just looking for some knowledge and confirmation either way. She lives in AZ. Thanks so much!

Apr 19, 2010 05:09 AM #7

I have been dealing with Loss Mitigation at WF for 8 months. If you have a securities backed morgage with them, they will not allow any substantial reduction of the principal, or any transaction such as a short sale where they see you staying there. There is just too much fraud.


I wish ther were a way to get an honest appraisal they could trust, and accept a deal for a short payoff at the current market value. Such is life.


May 26, 2010 01:40 PM #8

My fiance and i are living in a house that her mother is trying to short sell.   The mother has another house so this is her former home that she had leased out to someone intending to purchase the house but rather they bailed out on her.   There is one offer that a totally disinterested party has made.   At first we were not interested in buying but have reconsidered and my fiance would like to make an offer.    The house is owned by her mother but in this case it would be a legitimate purchase based on what the market is bring and furthermore she would offer more than the one being considered by the bank.   

Are there any exceptions for family members who wish to negoatiate to purchase a house with no intent to place the owner/seller in a more favorable position or to take advantage of any lender??



Jun 15, 2010 05:42 PM #9
Debi R

I don't know who your lender is or who owns the loan, but from what I've been told, most of the banks and those who back them do not allow short sales to family members or business associates.  For those loans that are backed by a government entitity such as Freddie Mac there is absolutely no way that they will allow a short sale to family or business associates.  It doesn't matter whether you paid full market value.  It's a big broom to catch the one piece of dust!  Those that are out there who would use those relationships to commit fraud or to unfairly capitalize on their relationship for profit.  In order to prevent that, the rule is broadly enforced.  You would think common sense could play a role here, but these are government backed entities... and common sense doesn't seem to be a tool in their drawer!

Jun 15, 2010 07:28 PM #10
A Bacon
Tony and Suzanne Marriott, Associate Brokers
BVO Luxury Group @ Keller Williams Arizona Realty - Scottsdale, AZ
Serving Scottsdale, Phoenix and Maricopa County AZ

Short Sale Buyers and Sellers who ignore the Arms Length requirements risk legal consequences - both criminal and civil.

Dec 14, 2010 12:42 AM #12

A and B are brothers. G is girlfriend of B. Can A shortsell to G who in turn sells or transfers property to B?

Feb 27, 2011 04:08 PM #13

what the world has deemed as trailer trash is now the elite.  They still live in their trailer (free & clear) and they didn't have anything to do with the current foreclosure crisis.  I think I'll go get a trailer to live in.   The fat filthy greedy governement and lenders and law makers can take it to the grave. 

Mar 16, 2011 06:04 PM #14

Here's the deal:  After 9 months negotiating with Fannie Mae, sending hardship letters, 3 years worth of tax returns, two appraisals and a BPO, they fianlly reached an agreement for a short sale price.  Fannie Mae told seller "Look, we know uncles who have been known to purchase the homes and sell them back to the owner;  all we need is a signed buy sell agreement for x amount of dollars, without your name on it, and your good to go"   Three days later seller produced the buy sell agreement from a distant relative.  Fannie Mae replied, (in writing) "Perfect!"  Seller proceeded to the title company.  The closing agent happens to be good friends of the sellers wife, a real estate broker, the escrow agent  said OK, well whatever they told you is OK, I'm OK with it too.   Then when Fannie Mae contacts the mortgage company,  the mortgage company sends the closing agent, you guessed it, the arms lenth agreement.  She immediately refused to do the closing knowing that the buyer was a distant relative of the seller.   So, go to a different title company, not so fast still have to sign the arms length transaction.  You know, the one Fannie Mae forgot to tell the seller about. So now who is in the hot seat?  Where is this all going.  Why cant the seller pay for the reduced amount?  It took them 2 years to get the money, take the accepted amount from whomever has it.  Who cares?

Mar 16, 2011 06:19 PM #15

I attempted to have a FRIEND (NOT a relative!) that I trusted step in and buy the house.  They would be able to sign the "Arms-Length Agreement"  There were no legal agreements in place.  If my friend wanted to keep it for themselves, they could, or they could sell it if they wished.  This person had no connection to the Seller other than as an acquaintance.  The bank accepted the offer which was the same as I had originally offered.  The transaction was in process then inexplicably the transaction cancelled after about 4 months.  So, to be clear, the bank accepted, then rejected TWO full cash offers of $140k for the property.  After the foreclosure was completed, the property was sold to Freddie Mac (the guarantor) for $70k.  Freddie Mac now has the property listed for $80k.  Now, had I known this would happen, I would have just waited it out and bought the property for the $80k, saving myself $60k!  But, we have moved on and have had to close out my retirement funds in order to build a home.

Again, they rejected a full cash offer than would satisfy the "Arms-Length Agreement" in the amount of $140k in order to sell it at auction for $70k. 

Does this make sense to anyone else??????    Can ANYONE explain to me how the banks are making these kinds of decisions and are still making record profits?  HOW do they 'make money' on these deals?  Is the government compensating them????

Mar 17, 2011 06:35 PM #16

P.S.  The most recent comment referances the situation I explained in a post dated March 26, 2010...  sorry if may have been confusing on its own.  Hang in there everyone!

Mar 17, 2011 06:37 PM #17
Ronda Ching Day, Realty Executives Oahu

It's a shame that there is not a provision to allow lenders to approve a non-arms-length transaction if the net proceeds or sales price is at market value (a policy can be created to ask for an appraisal within certain time frames, requiring X-# of comparables, etc) and guarantees by principal parties that the home will not be sold back to seller and signed by all including agents.

In a world of foreclosure chaos (MERS, lost original mortgage docs, fraudulent docs, etc.) you would think we could find some leaders who could inject some common sense to the broad blanket policies.

May 11, 2011 09:29 PM #18

To Whom it May Concern,

I am in the middle of a short sale on my townhome, as the seller.  Having said that, my lender (Wells Fargo) has required that I sign an Arm's Length Transaction affidavit to protect them against fraud.  However, the buyer has offered to allow me to stay as a renter subsequent to the close of escrow.  I have no intention of re-acquiring the property, but I would like to retain the option to rent.  Unfortunately, one portion of the Arm's Length Transaction affidavit states: "Said parties do not have any agreements written or implied that will allow the seller to remain in the property as renters or regain ownership of the property at any time after the execution of this transaction."  Does this mean that my only recourse is to move after the close of escrow or face possible charges of fraud?

Thank you for your response, Eric.

Jun 10, 2011 05:02 AM #19
Debi R


Sorry to say, but that's the way I read it as well.  Of course there may be some people who understand this better from a legal standpoint.  Hopefully they will post as well.

That said, I wouldn't give up just yet.  Put on our 'think outside the box' hat and see if there is a legal way to comply and still get what you need.  For example it says you can't 'remain in the property as renters'  Does that mean you can't leave and return?  If you could, then what constitutes leaving and returning?  I'm thinking it might be time to consult a creative attorney.

Whatever you decide, please come back here and post what you learned and what you decided, okay?   I understand the purpose behind the rule is to prevent people from defrauding and profiting from a short sale, but it goes beyond that in many cases.   Best of luck to you... and hang in there!


Jun 10, 2011 10:32 AM #20

Would it be legal to buy short sale from my sister in law's husband?  I am also in the process of divorcing her brother from whom I've been separated for 1/2 a year.  Does it make a difference?

Jun 17, 2011 01:58 PM #21
Chad Deihl

Someone please email me if you have an answer to this question.

I have been a renter for 5 years and finally have decided to try and buy the house. However, 3 years ago when I was just renting a room in the house, 2008, I had claimed the homeowner as a dependent on my tax return because he had lost his business and was no longer making payments to the bank. At the time I was not even considering purchasing the house so the tax benefit was niceto have. Now, 3 years later, my loan application was denied by the underwriters because I claimed him on my return 3 years ago. he moved out and lives nowhere near here for the last 2 years yet I am still being denied even though I am fully qualified.

My question now is, can I go back and legally amend my 2008 tax return to show no dependents and resubmit an offer with a different mortgage company? Or will bank of America automatically deny it again because it was an arms length transaction the 1st time? I have no relation to the owner in anyway - just a renter and I really like the home and have put alot of my own money and hard work into keeping it nice.

If you are a real estate lawyer I would especially like to hear form you. Thank you.

Jun 27, 2011 06:25 PM #22

From a different perspective...I am a Canadian looking to buy property in Florida in anticipation of my retirement 10 years from now.  One of our primary goals after seeing how desperate the situation was,  was to purchase a property now,  and allow the original owner stay for as long as they wanted until we used the property for 6 months of the year, 10 years from now.  If they moved due employment etc,  no problem we would have to look at something else but at least a family would be booted out of thier home.... The rent I was proposing was 50% of market value + utilities. this would be compensation for maintaining the property,  not paying the bills for maintenace over the next 10 years,  but simply someone who would look after the place till we could use the property  and someone to keep me informed of what needed to be done.

Once I finally narrow down the list of properties to one I think would work it would literally be " heres the money" where do I sign,  no lenders or issues there. I have presented this scenario several times to several agents and keep getting different answers.  Maybe its my small time Canadian atitude,  but if I own it,  I can let whomever live it.

 ps to the one post where they said " Short Sale Buyers and Sellers who ignore the Arms Length requirements risk legal consequences - both criminal and civil."  all I can say is those who made Billions and then got bail out money as a reward  for creating this ,  aren't too worried about criminal or civil consquences... why should the rest of be... sorry I digressed

Jul 25, 2011 03:45 PM #23
LBC_Metro Detroit

I would really like to hear from Eric.. We're buying a house in Vegas, but can't leave Detroit for six months or so.  Seller is trusted, and has taken meticulous care of the house.  We'd like for him to stay for six months.  We intend no fraud, we are clearly intending to live there, but we're at the whim of current employer in Michigan.  (Long story, no details here...)  We really don't want to leave the house vacant for six months.

I don't know a work around for "There is no agreement, whether oral, written or implied between the seller and the Buyer ... which allows the seller to remain in the property as tenants...."  I don't think I dare let the seller stay in the house without some sort of written agreement.

Is there a way to have our cake, and eat it too?



Aug 06, 2011 05:37 PM #24
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