Short Sale Lender's Definition of an Arm's Length Transaction

Real Estate Broker/Owner with Move Up Properties CA BRE Lic 01193694


I recently received an affidavit from the seller's bank, Ocwen, requiring both agents and both seller and buyer's signatures. 

The affidavit contained these 4 affirmations:

•1.        This is an "Arm's Length Transaction" and that no party to this contract is a family member, business associate, or share a business interest with the mortgagor.

•2.        Further, there are no hidden terms or special understandings between the Seller or Buyer or their Agents or Mortgagor.

•3.       That neither the Buyers and Sellers nor their Agents have any agreements written or implied that will allow the Seller to remain in the property as renters or regain ownership of said property at any time after the execution of this short sale transaction.

•4.       With the sole exception of payment of Agents' Commission, neither the Seller, Buyer nor any other parties of this transaction shall receive any proceeds.

I am told that the affidavit will prevent the buyer from receiving any allowance from an agent in the transaction, both on the HUD and outside of closing. 

Now I understand the intent of this affidavit.  Lenders want to be absolutely sure, or at least appear as if they can be to enforce all rules and restrictions allowed to them to prevent any party from causing their short pay off agreement to be any dollar less than what they can diligently procure.  No hanky, panky now boys and girls! 

I work for a national real estate company who provides clientele to me in exchange for my commitment to pay a 30% referral fee at close of escrow.   Half of the fee goes to the buyer or seller and the other half goes to my broker.   However, the verbiage outlined in this affidavit which has been circulating for months now has caused my broker to make an about face towards their advertised incentive.

Not that this affects me and my pocket book any differently.  I pay 30% of my commission either way.  If not to the client, then all of it to the broker.   I do have to say that the client will not be happy with me or my broker when I notify them that the expected closing cost allowance will not be paid after all. 

What is the consensus among other agents regarding this issue?  Is a seller paid allowance towards a buyer's closing costs considered "sale proceeds" which are considered not allowed under the terms of this affidavit?  Can an agent grant their buyer an allowance from their commission proceeds without it being defined as an allowance from the sale proceeds?   

What happens when a buyer receives "proceeds" at the close of escrow due to an under estimated closing cost incurred?  Does "proceeds" mean any "proceeds" or is my broker over interpreting this affidavit?  Or, am I over interpreting this affidavit now that I think about it? 

 Diane Wheatley, Broker

Posted by

Diane Wheatley, Broker

Real Estate Brokerage, Upland CA


(909) 815-4499 Direct Cell

CA DRE Broker Lic #01193694




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Fernando Herboso - Broker for Maxus Realty Group
Maxus Realty Group - Broker 301-246-0001 - Gaithersburg, MD
301-246-0001 Serving Maryland, DC and Northern VA

Good questions for the closing attorney. . you should call them


Aug 13, 2010 11:47 PM #1
Ellen Dittman
Watson Realty Corp. - Middleburg, FL
#1 Stop for NE FLA-JAX/OP 904.535.1199 (TEXT OK) r

That's a tricky one. My guess is the lender will not be ok with it.

Aug 14, 2010 12:28 AM #2
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 15, 2010 12:10 AM #3
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Diane Wheatley

Broker, SoCal Real Estate Expert (909) 815-4499
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