Real Estate Sales Representative with Realty world Alliance


There is this form that must be signed with most short sales called an "Arms Length Transaction affidavit".  Basically, it says that the buyer and seller don't know each other.  The form says it with a lot more finesse, but the basic message is that the buyer and seller didn't "cook up a plan" regarding the purchase of the home.

arms length

Seems silly, right?

Well, It's not, or at least it didn't start out that way....

Picture it: A family is living in a home that they bought 4 years ago when values were at "WOW" prices.  Since then, Hubby took a cut small in pay and the wife lost her job.  She decided to stay at home with kids rather than working to pay for daycare.  They can make their payments, but they are eating mac-n-cheese more often than they care to.  They try to refinance to lower their payment and find out that they owe $15,000 more than what the house is worth in today's market.

While bemoaning the fact that they are going to have to do some belt-tightening, they decide to talk to their parents for advice.  Together they decide that Mom and Dad will buy the house on a short sale for $20,000 less than what they owe on it, the kids will make the payments until they can repair their credit from the short, then buy it back from Mom and Dad.  They never have to move and they own the house for $20,000 than they originally paid for it. 

That's is called Fraud.  Basically the house didn't change hands and the bank is out $20,000. 

The Arms Length Transaction Affidavit was born!  The bank will short the property, but the banks feels that the owners have to have a little discomfort too.

Now, PICTURE THIS:picture this


A short-sale seller receives an offer from a buyer that she doesn't know.  While waiting on the approval process, the buyer stalks the property (as buyers often do).  Once day while driving by, the seller is outside and the buyer stops.  The buyer and seller start talking and realize that they like each other.  They are both thrilled to have met and are happy!










The short sale gets approved and everything moves towards a closing.  Two weeks before closing you get an email from the bank that says that the short sale is rejected due to "possible fraudulent activities"

You call the negotiator, send them an email and dial the "help" (term used loosly) line to speak with "Betty" from Malaysia to find out what the heck is going on. 

All kinds of horrible things run through your head: The seller lied on their original Loan app; The seller was involved in Money laundering or tax evasion (Can't do a short sale if you were convicted of a felony involving money); The buyer has purchased 30 homes in the last 2 months; You did something horribly Wrong.....

Finally, "Betty", the bearded, sweater wearing man from Malaysia reads the notes on the computer screen and tells you that the closing department discovered that.....


the buyer and seller are friends on Facebook.  Therefore, this is not an arms length transaction and is rejected.  Active Foreclosure is immediately initiated.

"Betty, You got to be kidding me!"


The moral of this horrible, but true story: Check your Social network friends and tell your sellers and buyers to check theirs.  Apparently the bank does.  It could be the difference between life and death of your short sale.

Happy Real-Estating!

Comments (118)

Kim Dove
Watson Realty Corp - Jacksonville, FL
Realtor - Jacksonville FL

This is just extreme. When are we finally going to get it that banks just don't want to do short sales. Oh well the banks loss, something tells me that they will be losing a lot more than 15k when it goes to foreclosure.

The time that they are now spending on Facebook stalking customers they could be using to approve these transactions.

Oct 02, 2011 01:35 AM
Gail Nyman
Re/Max United Real Estate - Dunkirk, MD
Every House Has A Story

Wow, I never would have thought about facebook! Thanks for letting us know about it. Sometimes it does seem like banks spend more time dreaming up things to make the deal not work than working toward the sale.

Oct 02, 2011 06:21 AM
Payam Bakhaje
DC Realty Online LLC - Washington, DC
Licensed in DC, MD and VA

wow this what it called being rediclus. This is aweful. Interesting I will ask around about this case.

Oct 02, 2011 02:02 PM
Gail Robinson
William Raveis Real Estate - Southport, CT
CRS, GRI, e-PRO Fairfield County, CT

Brenda - Who would think that the lender would even take the time do this?  It's beyond bizarre!  They must have some automated software program that searches the Internet to see if the two names come up together on any site. 

Oct 02, 2011 03:31 PM
John Lydic
ReiFreeClassifieds.com - Cleveland, OH
Founder at REI Free Classifieds

Facebook has a feature called "lists" where you can organize your friends, such as, Family, Close Friends and Acquaintances.  Your story, Brenda, is good reason for Fb to add a legal disclaimer category to the list, called Armslength Friends.  LOL!

Oct 03, 2011 02:12 AM
Carol Babington
Carol Babington Associates - Las Cruces, NM

 Families can be very helpful at times...before the short sales tide, parents were buying homes for their kids. It doesn't look like it will work this time around. 

Oct 03, 2011 06:27 AM
Reba Haas
Team Reba of RE/MAX Metro Eastside www.TeamReba.com - Bellevue, WA
Team Reba, CDPE

wow. I have about 910 friends on Facebook with many of them friends, clients, and musician contacts. I will have to share this story with them since many are property owners and investors.

Oct 03, 2011 11:03 AM
Leonard Ruiz
Evergreen Realty, Homesmart - Chino, CA

Wow, sorry to hear that FB killed your shortsale. Lessons to be learned in this new age of technology, "Privacy Settings" and only friend people you absolutely know. I read a different type of story about how a high school football team had to forfeit two games due to something a parent posted on FB...unbelievable. So be careful with this, who knows who's watching.

Oct 03, 2011 01:39 PM
Valerie Duncan Stewart
(Metro First Realty) - Oklahoma City, OK
Real Estate Agent-Broker, OKC, OK
OMG! The short sales I have been involved with employ "negotiators" who barely read the notes on the file, now I hear they may actually do some real investigating??? Absurd and thanks for the heads up. Sorry you lost the sale. >:(
Oct 03, 2011 03:48 PM
Marcie Purcell
Better Homes and Gardens Real Estate Cassidon Realty - Quakertown, PA
Realtor, Bucks & Montgomery Co PA

I'm glad they have so much time on their hands to cruise facebook to find out about the buyer and seller. May be they should be reading the files a little faster.

Oct 04, 2011 07:05 AM
Steve Mun
Keller Williams Silicon Valley - Santa Clara, CA
Silicon Valley Realtor

I have never heard of anyone going to that extreme. Do they have a new Social Network Expert they employed at Loss Mitigation?  

But I'm not shocked either......


Oct 04, 2011 12:16 PM
Sandy Shores FL Realtor®, Melbourne Real Estate
M & M Realty of Brevard Inc. - Melbourne, FL
Brevard County Real Estate, Florida's Space Coast

Brenda, Incredible. Today people put their entire lives out on the social network for all to see.  It seems that each day we hear of another new way someone is finding out everything they need to about someone else.  Crazy world we're in today. But, a short sale negotiator looking on FB to see if a seller and buyer are friends... now that's a new one on me.

Oct 04, 2011 01:06 PM
Jennifer Spanbauer Brodoway
Lethbridge Real Estate.com - Lethbridge, AB
just call jen

Wow.  I am amazed by the amount of information that is put on to facebook, but this being "friends" seems pretty tame, considering some people have thousands of friends.  Just another thing to look out for.

Oct 06, 2011 05:35 AM
John Flaniken
American Dream Realty- Broker Associate - Santa Cruz, CA
Realtor Santa Cruz Homes For Sale; Santa Cruz CA

When you live in a small, tight-knit community that is also very tech savvy, your story is terrifying. Thanks for the bringing this up. I will be watching FB a little more closely.

Oct 06, 2011 10:27 AM
Deb Brooks
Brooks Prime Properties Wichita Falls Texas - Wichita Falls, TX

I think I am going to delete all my friends. You just never know. lol...

Oct 07, 2011 07:23 PM
Cherry Temple
Real Living At The Beach - Myrtle Beach, SC

I think many responding to this topic miss the point.  As Kathy Sheehan and Rodney Mason pointed out - the banks take the rules very seriously, even if our clients and us don't.

For all those making fun of the bank and the time killing looking at Facebook of their staffs - I'm sure the larger mortgage departments have systems in place  to put in two names and run a check of Facebook.  All part of the same process of running the credit check and bank account info of short sellers.  Not the huge deal some seem to think it is.  I'm not a Facebook fan, but I doubt it would be terribly hard to find anyone's so called friends on line.

Oct 13, 2011 03:13 AM
Brenda Noffert
Realty world Alliance - Wichita, KS



You are so right!  If anyone has ever read the Short Sale Agreement from HAFA; it says that

"you can't list the property with or sell it to anyone that you are related to or have a close personal or business relationship with."  (page 4 of 8 paragraph 1)


That leaves a load of latitude for the bank.  Although it hasn't happen to me; think about it:

  • Another agent from your office is in a bind and knows you rock at short sales.  They ask for your help.  NOPE!
  • You are in a bind and decide to do your own short sale.  NOPE!
  • Your sister wants you to do her short sale.  NOPE!
  • Someone from your church, that put a roof on your house a year ago did such a good job you gave them a glowing recommendation on a website; mentioning that you go to church together; then that roofer wants to buy your house.  NOPE!
  • Your kids go to the same school as the buyers kids and you are on 3 Parent committees together for the school.  NOPE!

Better to know BEFORE it falls to crap that this is out there and REAL.  Thank you all for the comments. 

It's nuts!, but its real and it's happening!


Oct 13, 2011 03:26 AM
Marcia Kramarz
Re/Max Executive Realty - Medway, MA

You're telling me this struck a nerve!  Wow - what a lot of responses - Wanted to let you know a friend who is NOT in Real Estate sent this to me - (the link to your blog) - I was amazed and shocked at the story - thanks for the heads up - But like one person who replied, noted - it doesn't mean you don't know the person - just that they're not a relative or friend -  Amazing - Something more to alert our clients about!! 

Oct 24, 2011 07:14 AM
Slam duknin like Shaquille O'Neal, if he wrote informative articles.
Nov 20, 2011 03:28 PM
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Nov 21, 2011 05:18 AM