Recently one of our readers asked how she would go about buying her sister’s house which was a short sale. Not possible we had to tell her, a short sale must be an arm’s-length transaction.
An arm’s-length transaction is one which takes place between parties that have no kind of familial or business connection to one another. This ensures that there is no question of conflict of interest and the parties to a transaction are independent and on an equal footing.
Many lenders are requiring buyers to sign arm’s-length transaction affidavits if the purchase is a short sale.
posted by janice SEARCH the Philadelphia MLS. No Registration Required!
Jan Deno said
Does that apply if the property was already given a value, went into short sale negotiations with a third party, the third party got tired of waiting and left, and the property once again came on the market at that same value. It seems at that point, the sister would have as much right to offer the same fair market value price that had been determined previously. Does this apply to boyfriend/girlfriend situations where fair market value had been determined? Thank you.
Janice said
The arm’s length principle (ALP) is the condition or the fact that the parties to a transaction are independent and on an equal footing. By definition arms-length would preclude anyone related to the buyer. The lender wants to make sure that the market dictates the price; when the buyer is a relative of the seller, we cannot assume the sales price is “market”. This would also apply to boyfriend/girlfriend and other friends as well.
Assuming the lender has already arrived at what they consider Fair Market Value, my advice is to have an open discussion with the lender or perhaps employ a real estate attorney to negotiate on your behalf.
What is the 90 Day Mortagage Flip Rule? « The Philly Pretzel said
[...] 31st 2011 that will allow flips to close. There are some conditions – the transaction has to be arms length (meaning not between friends or family) and if the seller is making more than 20 percent of their [...]