What's The Penalty For Breaking The "Arms Length Transaction Notice"?

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

Short Sale negotiator

Hi folks. Last year I had a closing for one of my Orlando Short Sale listings. This particular lender required all parties, including the agents, to sign an Arms Length Transaction Notice. This notice basically states.....well here it is. Read it for yourself.

Kissimmee Florida Short Sale

Of course as an experienced Orlando Short Sale Agent and negotiator I explained this notice to the Seller not only at time of listing but also when it was received and before it was signed. It wasn't an issue as the Sellers were moving anyway and they certainly didn't know the Buyer. All parties agreed to the Arms Length Transaction Notice and signed it. Shortly thereafter the transaction closed and all was well.

Recently, and several months after closing, I was driving around and bumped into the Sellers. They were standing in the front yard of their old house. The one we did the Short Sale on!!

I pulled over to say "Hi" only to find out that they did not move and had signed a lease with the Buyer. I guess this all went down after closing. YIKES!!!

So what do we do now? Will the lender find out? Can I be held liable for an act I wasn't aware of? Can the Short Sale be rescinded?

What say you?

Are you facing foreclosure in Florida?

Do NOT be foreclosed on! Avoid foreclosure. Short Sales DO close.

Want to find out more? www.CentralFloridaShortSales.com

***I am NOT an Attorney nor do I play one on TV. Click the button below for my Bio.

The BIO for Bryant Tutas

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***I am NOT an Attorney nor do I play one on TV. Click the button below for my Bio.

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 4 times:

Re-Blogged By Re-Blogged At
  1. D B 01/14/2011 07:45 AM
  2. LINDA SABO 01/15/2011 09:24 AM
  3. Jim McCormack 01/17/2011 03:35 AM
  4. Jimmie Graham 01/18/2011 02:54 AM
Home Selling
Florida Orange County Orlando
Real Estate Rookie
short sale
arms length transaction

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Dara Tancredi
Southern Utah Development - Saint George, UT

There are a lot of federal laws on the books that are not often enforced, particularly against minor players.   Federal prosecutors seem to prefer more widespread abuse particularly in dollar form.  What would the bank fraud damages be in your scenario?  The original owner short sold the house and presumably received debt forgiveness while still maintaining his tenancy - how big is that fraud even if it could be proved?  Probably limited to the amount of debt forgiveness for the seller.  Now if the investor/purchaser in your deal had a pattern of offering to sellers "Stay in your home and I will do a leaseback with you"  and uses that business model to the detriment of the banks I believe that would definitely warrant prosecution.  It is really a numbers game-even our govt. has limited resources. 


Just my opinion and not meant as legal advice.

Jan 18, 2011 09:29 AM #189
John DL Arendsen
Crest Backyard Homes "ADU" dealer & Contractor

Definitely try to exempt yourself sooner rather than later. I don't know about Fla. but in Cali. it could get real ugly. Remember the age old adage "Ignorance Is No Scues"

Jan 18, 2011 02:44 PM #190
Joe woutersz

I would call your legal hotline for direction and secondly disclose to the proper authorities that you are now aware of the transgression and we were previously unaware. 

Joe Woutersz

Jan 20, 2011 04:42 AM #191
Joe woutersz

I would call your legal hotline for direction and secondly disclose to the proper authorities that you are now aware of the transgression and we were previously unaware. 

Joe Woutersz

Jan 20, 2011 04:42 AM #192
Kary L. Krismer

I was sucked into this by Ardell (#183) above posting this on her Facebook page.  I agree with post #184, that Ardell is twisting the facts and/or not doing any real analysis.


I agree with Joe Woutersz in #193 about consulting a legal hotline, or even paying an attorney to give you an opinion.  I did just that back when I was practicing law and thought I had to turn in a former client.  And I did so even though the rules applicable to attorneys on this type of thing were much clearer than the rules applicable to agents.  If you do take action here, that very well could have very negative impact on a former client, and you want to be on firm legal footing prior to taking such action.

Jan 21, 2011 11:21 AM #193
Eugene Lew
RE/MAX equity group - Happy Valley, OR

Some very interesting and intense posts here. I for one, have never encountered any of this in a short sale. However, is it the agent's job to go back and drive around the neighborhoods to see if past clients are not being deceitful, or violating the terms of their purchase contracts? As long as you know at the time of the signing of the document, that you do not know of any side agreements, and as far as you know it is an Arms Length transaction, then you should be set.

You can't control what other do. To try would be an exercise in futility.

Jan 21, 2011 11:35 AM #194
Kary L. Krismer

In Washington under our standard contracts the seller doesn't have to be out until 9:00 pm, and closing is usually between noon and 5:00 p.m., so they are often not even be out of the house at closing.  While it is true they should be moving, many actually move the day of closing so even if you saw no moving activity that morning it would give you very little time to act.

Jan 21, 2011 11:44 AM #195
ARDELL DellaLoggia
Better Properties Seattle - Kirkland, WA

Kary, you are so funny. Is that the Pacino line. "Just when I thought I was OUT they PULL me BACK IN!" :)

Jan 21, 2011 04:56 PM #196
Kary L. Krismer

Bryant, I've actually managed to read most the posts here a couple of times now, and I'm impressed at the percentage of agents which advised you to get legal assistence.  I hope you took that advice, and I hope you stayed away for the advice of those here who suggested taking action that might be adverse to your former client prior to getting legal advice  (e.g. contacting the bank before contacting an attorney).

Since I'm not authorized to practice law in Florida, and haven't seen the entire contract, I'm not going to give any legal advice here.  In fact, I wouldn't give specific legal advice on this even if it were based on Washington. Instead, I'm going to give an English lesson.  The language at issue is:

There is no agreement, whether oral , written, or implied, between the Seller(s) and the Buyers and/or their respective agents which allows the Seller(s) to remain in the Property as tenants or to regain ownership of the Property at any time after the consummation of this sale transaction.”

As many have noted, that is written in the present tense.  The "at any time" language refers to the time the seller rents or regains ownership, not the time of the creation of the contract to do so.

Some people here interpret it as being:

“There is and will be no agreement, whether oral , written, or implied, between the Seller(s) and the Buyers and/or their respective agents which allows the Seller(s) to remain in the Property as tenants or to regain ownership of the Property at any time after the consummation of this sale transaction.”

I won't go into the legal reasons why a court might not interpret it that way, in part because I'm not at all familiar with Florida case law.  What I will point out though is that the bank is actually interested in is making sure the original contract did not include a favorable lease-back or option that might have affected the funds to be received by the bank.  They really don't have any interest or even care about where the seller lives after the fact.  Of course, if the seller moves away it's better for everyone for many different reasons, including that there is no question that a favorable leaseback or option exists, and if it does exist, no question as to when it was created or whether it affected the price. But the concern of the bank is over price, not over where the seller lives.  That very well could be the reason the language used is present tense.  Pure speculation.  It could also be drafting incompetence if they did mean something more, and there is some evidence of incompetence.  For example, the use of "Seller(s)" but not "Buyer(s)."  Also the use of the word "consummation," unless maybe they think one party is being screwed.  ;-)

Again though, I hope you get legal advice and look forward to your reporting back what that is if it's favorable and your attorney agrees it's okay to post that information here.

Jan 22, 2011 04:00 AM #197
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Great response Kary. I did seek legal advice. My opinion is that banks have way to many real issues to spend time and money worrying about my sellers staying on in their old house while they decide where to go. I'm not the occupancy police for the lender.

Jan 22, 2011 07:38 AM #198
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

After reading Richard's comments I knew that it was a fashin statement. Also, I do not think in this case there was any prosecution because what is the damage? It would be differetn if the Sellers used a trick to basically repurchase a home for pennies, then there would be fraud. but if they stay and pay rent, what is the difference to the bank who pays rent to the new owner?

Jan 22, 2011 10:13 AM #199
Kary L. Krismer

One more thing on this topic.  When I said above that there are "reasons why a court might not interpret it that way" I was referring generally to rules of construction.  The problem is though that the rules of construction used by courts often conflict with one another, and the courts often pick and choose the rules to get to the result desired by a particular judge or group of judges.  Thus, there is no assurance that if this matter were litigated that the court would recognize the language used is present tense, and it is likely that any attorney advising a real estate agent about this would warn them of that possibility. Thus, by going to an attorney it's unlikely you're going to get an opinion that you're 100% safe, unless maybe that attorney can find a recent binding decision.  Even so, I still recommend getting that legal opinion.

Jan 23, 2011 05:56 AM #200
Edith Schreiber
Luxury Homes, Move Up Buyers, 1st Time Homebuyers, New Construction - Frisco, TX
Dallas Area Real Estate

Boy, what a can of worms.

I commend you for doing what appears to be the right thing all around.

I think that speaking to an attorney was a smart move, if only to confirm that you had not done anything wrong.

I TOTALLY agree with your decision to document the goings on via email. There's nothing like written, verifiable exchanges if the need arises.

Good for you in doing the right thing!!! We need more agents like that!

Keep up the great work!


Jan 26, 2011 08:13 AM #201
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Thanks Edith.

I think the sellers are now working on moving. They have read all of these comments.

Jan 26, 2011 11:09 PM #202
Kary L. Krismer

FWIW, I asked a very respected real estate attorney up here in Washington, and her response was that you had no duty to do anything to disclose, but that you also couldn't make any statements that might further any misrepresentations, if any, that might have been made.  It was via an email exchange, so I don't exactly know how she thought someone might further a mistatement after closing.  I guess if the bank knocked on your door and asked you a question?

Jan 29, 2011 03:45 AM #203
Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

I think you had better start lifting weights and practicing taking quick showers!

Feb 10, 2011 04:20 PM #204
Patrick Henry
PMZ - Stockton, CA

It sounds like you did your part. However, someone might have bent the rules on their part. I could see this happening as any investor is going to try to get a hold of the tenant it is just a matter of when they do it. Hopefully after it closed.

Feb 11, 2011 06:58 AM #205
Krista Abshure
Fathom Realty - Fuquay Varina, NC

I think "WOW" sums it up pretty well!  It is scary to think all of the legal things that we as real estate agents are liable for. However, I do agree that as long as you were "not in the know" about everything then technically you should be ok. I don't know about the people who say to report the sellers and buyers because unless you know the entire complete scenario that occurred after Closing you could just be stirring something that was entirely coincidental.

As a former Kissimmee resident I also wanted to let you know that when it comes to sellers in your neck of the woods or buyers that I work with that are headed your way from North Carolina I will send you the referral! I love to read your posts!

Mar 04, 2011 06:32 AM #206
Sandy McAlpine
Search Lake Norman Homes For Sale - Lake Norman NC

It's amazing what you see go down these days. I think a lot of folks just look out for numero uno and don't look at what they sign or what they promise

Mar 14, 2011 07:34 AM #207
Matt Robinson
Professional Investors Guild - Pensacola, FL

Bryant, I have yet to hear a story where a lender pursued any legal action against a buyer or seller for fraud or misrepresentation regarding the arms length affidavit.  In most cases, I think it's the servicer protecting their butts against possible litigation from the investor who owns the note...in case something fishy was discovered down the road.  I've even had buyers refuse to sign them, and the bank still moved forward with the sale. 

I don't think the banks are policing it that closely, so I can't imagine any repercussions for your seller.  This is an old post, so I'm sure you've already dealt with it and come to a resolution/final opinion, but a very intriguing post nonetheless.  Thanks for sharing!

Aug 29, 2011 05:51 AM #208
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