SHORT SALES: TRY TO GET THE ARMS LENGTH AFFIDAVIT UPFRONT.

October 12th, 2012 at 7:17 pm

As we have discussed many times in the past, short sales are both a major part of our marketplace and among the most difficult transactions we face. They include an unhappy seller who is getting no money from the sale of his house, as well as an unhappy lender who is being asked to write off a portion of its loan, sometimes in very large amounts. As a result, these deals have many additional rules and requirements that make them hard to close. Unfortunately, those rules often don’t come to light until late in the deal, meaning you have spent months of your life working on a transaction that often cannot close. It is not uncommon that we get calls in the last week of a short sale transaction, asking how to handle a bank requirement that now makes the structure of our deal unacceptable. For example, maybe the buyer agreed to buy some furniture from the seller and the Arms Length Affidavit says they can’t. Or, perhaps the buyer is the agent’s sister, and the Affidavit also says that is unacceptable. At the last minute, with a trustee’s sale on the calendar, these problems are very hard to solve.

So, what can we do to avoid these last minute issues? Well, since we know that your lenders “no-nos” will be listed in their Arms Length Affidavit, get a copy of it as early as possible. By reading the Affidavit up front, you will know specifically what types of things the bank will not allow. You will know how they feel about “related parties” and how broadly that term is defined. That knowledge will tell you whether you can represent a relative. You will also know what the bank says about “other agreements” so that you can tell your client that they can’t sell personal property to the buyer. In short, the Affidavit will give you a road map of what structures you can and cannot use so those issues can be dealt with up front, and will not kill your deal after you have done all your work.

Now, how can you get the Affidavit up front? Well, most of the institutional, large lenders have a web page that includes a link to their forms. Go to that page, and print out the Affidavit at the same time you are gathering the seller’s short sale package. It will help you put that package together and guide the buyer’s agent to properly structure their offers. If the lender you are dealing with does not have the Affidavit on line, ask for a copy the first time you speak to their representative. Ask until you get the form, as early in the deal as possible. By doing so, you will help avoid problems later on and ensure that your deal can close. And, of course, that is our ultimate goal.

As always, please give us a call with any questions you may have

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