Reblogger Kathleen Cooper
Real Estate Agent with Kathleen Cooper, Sposato Realty Group 9084437/Brokers

Just came across this post and feel it is necessary to share with all of my networks!  This is NOT how you want to lose a deal.  Please be aware and make sure to let your clients know if they are short selling their house.  

Original content by Brenda Noffert


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!

Brenda Noffert

Associate Broker, GRI, ITTI, CCREC

Realty World Alliance 

Wichita, KS






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Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

Kathleen...what constitutes collusion? This is crazy -but I can see why the lender is doing all they can to make sure they are not losing money on a cooked up deal.

Oct 01, 2011 05:07 AM #1
Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

Hi Kathleen - That is the one of the most ridiculous decision made by a bank that I have heard in a long time.  If we go back far enough all of us are related.  Dumb, dumb.

Oct 02, 2011 03:06 AM #2
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Kathleen Cooper

Sposato Realty Group - Broker Owner
What's My Home Worth?
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