Is Selling Your Short Sale To The Tenant A Good Idea?

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

short sale superstars

 

In my opinion.....no...it’s not.

And here’s why. The Lenders want as much money as possible for the property. They want the property exposed on the open market to attract a Buyer at the highest price possible. They want it to be an “Arm’s Length Transaction”. The Landlord (Seller/borrower) and the Tenant have a “business relationship”. In direct conflict with most “Arm’s Length Transaction Affidavits” they “Share a business interest”.

Here’s what three of the major Lenders say about the “Arm’s Length Transaction”.

  • Wells Fargo Arms Length Transaction Notice:No party to this contract is a family member, business associate, or share a business interest with the mortgagor. Further, there are no hidden terms or special understandings between the seller or buyer or their agents or mortgagor.

  • Bank of America Arms Length Transaction Notice: The Parties acknowledge and agree that the Subject Property must be sold through an “Arm‟s Length” Transaction. Arm‟s Length means two unrelated parties characterized by a selling price and other terms and conditions that would prevail in a typical real estate sales transaction. No party to this contract is a family member, related by blood or marriage, business associate, or shares a business interest with the mortgagor (Sellers).

  • SunTrust Mortgage Arms Length Transaction Notice:The Short Sale must be an “arm’s-length” transaction. The property may not be sold to anyone the seller has a close personal or business relationship with, including family, friends or neighbors.

Now folks, I know there are exceptions. I know that some lenders in some cases will allow the Tenant to purchase the property. But what’s the advantage to the Seller? I can’t think of any. To me it’s just an easy fix to try and soothe a Tenant that doesn’t want to move.

And it’s risky. What if the Seller spends several months trying to have this exception approved by the Lender only to have the Short Sale denied over it? Now they have just wasted good time that could have been spent finding an “Arm’s Length” Buyer.

Recently I had a Seller who was being pressured so hard by the Tenant to sell her the house that the Seller almost cancelled the listing over it. The Tenant who is staying in the property, at a reduced rent, is telling the Seller that the price doesn’t matter and that the Lender will have no problem with it and blah blah blah. The main problem is that the Tenant can’t afford the property and is trying to pressure the Seller into accepting a offer that will cost the Lender about $25,000. This is EXACTLY why Lenders do not want the Seller to sell the house to the Tenant.

This particular Short Sale is a  Bank of America Florida Enhanced  Co-op Short Sale. It gives the Seller a full “Waiver of Deficiency” and is paying the Seller more than $10,000. Because of these great incentives Bank of America gets to control the price and wants an “Arm’s Length Transaction”. Isn’t that fair? I think so and I’m glad the Seller now agrees.

So folks, play it safe. Don’t be bullied into making a costly mistake. What say you?

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 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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Rainer
307,368
Kim Carlson 480-993-9384
www.NowSellingAZHomes.com - Mesa, AZ
Valley of the Sun Realtor, Seller Specialist

I agree with you on not selling to the tenant although it seems like sch an easy way for everyone to get what they want. The seller to sell their home, the tenant to buy the home and the bank to get the sale. To bad it has to be so hard.

Feb 12, 2012 03:04 AM #1
Rainmaker
2,444,302
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

The pressure and temptation to do what you want to do... dam the consequences is strong especially when people make their mind up to do it. I have become aware that some negotiators will trigger a fraud FLAG to your file if they have the slightest doubt that there is shenanigans afoot. An audit may take place 2 years later and that chicken is not the one you want coming home to roost

Feb 12, 2012 03:09 AM #2
Rainmaker
1,520,392
Amanda S. Davidson
Amanda Davidson Real Estate Group Brokered By eXp Realty - Alexandria, VA
Alexandria Virginia Homes For Sale

Hi Bryant- I agree with you, it's not worth the risk both from a time factor if the short sale gets denied and the legal factor. Suggested. Thanks for sharing.

Feb 12, 2012 03:11 AM #3
Rainmaker
527,629
Eve Alexander
Buyers Broker of Florida - Orlando, FL
Exclusively Representing ONLY Orlando Home Buyers

 

True.

...the reason that the tenants are renting instead of buying in the first place is because there was something stopping them from buying:  credit, cash available, or qualifying ratios.

Eve in Orlando

Feb 12, 2012 03:26 AM #4
Ambassador
3,964,841
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

Makes perfect sense to me. I can't see any advantage other than avoiding hassles with a nagging tenant who does not want to move, unless this is a stellar buyer who happened to make the choice to rent for a time adn really SI qualifed. But the Arm's Length issue might be tough to overcome. And shouldn't you be looking at ALl offers and getting the best you can?

Feb 12, 2012 06:31 AM #5
Ambassador
1,726,157
Richard Weisser
Richard Weisser Realty - Newnan, GA
Richard Weisser Retired Real Estate Professional

BB...

Disclose, disclose, disclose, and then eventually get turned down. And I agree that doesn't help the seller very much. 

Feb 12, 2012 03:07 PM #6
Rainmaker
551,502
Lynda Eisenmann
Preferred Home Brokers - Brea, CA
Broker-Owner,CRS,CDPE,GRI,SRES, Brea,CA, Orange Co

BB, I'm with you on this one and would want any part of this type of sale.

We've got a co, here in So Cal that's telling sellers if they deed their property to them (their company), they will negotiate with the lenders. Afterwards they can rent back their "former" home and most likely re-buy it 5 years later! Seems like it's one big scheme after another.

Feb 12, 2012 03:07 PM #7
Rainmaker
1,513,377
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Fifteen Years Experience in Brevard County

I am with Richard....disclosure is key. As for me, I have a SunTrust Arm's Length affidavit on my desk to get notarized. There is no way I am ever going to make a false statement regarding these transactions or any other one.

Feb 13, 2012 03:35 AM #8
Ambassador
1,229,631
Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

Those transaction addenda can be tricky to work around. So, probably best to sell to a 'stranger.'

Feb 17, 2012 01:53 AM #9
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