Silicon Valley Short Sales Arms Length Transactions: Are They Too Onerous?

Real Estate Agent with eXp Realty of California Silicon Valley Probate, Trust, and Investment Sales B.R.E. 01191194

Menlo Park Short Sale

Arms Length Transactions in Silicon Valley Short Sales Is It Too Onerous?

When a seller sells their home as a short sale, most lenders  will make everyone, the buyer, the seller, and the agents sign and notarize an Arms Length Transaction document. This states that the sellers and buyers do not know each other, are not related, and the seller will never again, EVER, live in the house , or ever make any profit off of the sale of the home. They can never rent the house or ever buy it back from the new owner.

The intention of this rule is obvious. The banks do not want to sell a home for less money than is owed on it and then have the seller get the benefit of being able to own the home for less money than they originally promised to pay for the home. I am not going to take sides here on whether the seller or the bank has the moral high ground on this. I am just going to say that the banks have made a decision that it is in their best interest not to reduce principal on most loans, but allow a short sale with new owners instead.

In addition to not being able to buy back the house for less money, or have a friend or relative buy the house for less money, the seller is also not allowed to rent the house, ever. This is where I start to have a problem. Some  banks have been allowing foreclosed owners to stay in the homes as renters which makes a lot of sense. The house does not get stripped or destroyed and the renter has a relationship with the house which will help preserve the home's value.  So why can't a seller rent from the new owner in a short sale? Many of these sellers do not have money to move and except for HAFA short sales or an occasional generous bank they are not given moving expenses.  It may be hard to find a place to rent after having some credit hits from missed mortgage payments or high credit card bills due to trying to keep up with the mortgage. It seems like an onerous rule to me, and one that does not directly benefit the bank anyway. Why should the bank care who the next owner rents to, especially if the original bank no longer owns or services the note?

And most importantly, what is wrong with a little humanity? Why can't families stay in their familiar surroundings, keep their children in the same schools, have the same neighbors? Isn't is enough punishment to lose your home, your equity, and your savings?

What do you think?

Marcy Moyer

Keller Williams Realty


D.R.E. 01191194

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Marcy Moyer eXp Realty of California  Specializing in Probate and Trust Sales, and Rental Investment Properties



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Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

I think that there is a reason for these rules (abuse.)  HOWEVER the masses always get punished when a few abuse the system.

Jan 17, 2011 12:41 AM #1
Vickie Nagy
Coldwell Banker Residential Real Estate - Palm Springs, CA
Vickie Jean the Palm Springs Condo Queen

We're trying to puchase a primary residence and have disclosed that we are both agents on the original purchase agreement. Seller accepted. We shall see what the bank says.

Jan 17, 2011 02:01 AM #2
Marcy Moyer
eXp Realty of California Silicon Valley Probate, Trust, and Investment Sales - Mountain View, CA
Probate, Trust, and Investment Specialist

Renee, unfortunately I think unless something is directly in the interest of the bank it will not happen, and the abusers do not help.

Vickie good luck. It will be interesting to see how the bank responds.

Jan 18, 2011 03:29 AM #3
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Marcy Moyer

Probate, Trust, and Investment Specialist
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