BEWARE OF NEW LANGUAGE IN THE SHORT SALE AFFIDAVIT

October 18th, 2011 at 12:01 am

As you know, the world of short sales changes on an almost daily basis. Today there are rules and requirements that did not exist at the beginning of this economic cycle. For example, many of the early practices by sellers resulted in rules against seller rent backs and the creation of the Arms Length Transaction Affidavit. Recently, however, we have seen a change in that Affidavit that you need to be aware of. Specifically, many banks have added an indemnity clause to the Affidavit, providing that anyone signing it will be responsible to indemnify the lender for monies waived by them in the case of a “negligent or intentional misrepresentation.” In the Wells Fargo Affidavit, for example, the new clause provides for indemnity in the case of a loss “resulting from any negligent or intentional misrepresentation made in the affidavit including, but not limited, to repayment of the amount of the reduced payoff of the Mortgage.” Of course, this clause merely emphasizes the need to be clear and honest when signing the Affidavit and to be sure we are going along with questionable activity just to get a deal closed.

For example, the Wells Fargo affidavit includes a clause swearing that no one has knowledge of a higher offer for the property at the time the short sale is approved. Of course, that clause means we can’t take part in a short sale where we know the property is being flipped for a higher price. Additionally, the Affidavit provides that no one is aware of any party receiving money except as set forth on the HUD-1. Of course, that clause means we cannot take part in a deal where there is money being paid to the second lienholder outside of escrow. I could go on with more examples, but the point is clear. Banks are very serious about their rules and want to make sure that if anyone knowingly breaks them, the bank gets compensated. So please be careful. Short sales are rife with wrongdoing and we need to be sure we are not a part of that activity. If we don’t act appropriately, by this new language the wrongdoing could lead to both the loss of a license and the obligation to indemnify the bank. And, of course, none of us wants to be part of such a result.

As always, please let us know if you have any questions

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