Watch Out For Blossom Valley Short Sales When The Seller is a Realtor

I was reading about short sales, as I do every Sunday morning on a great site for short sale information Short Sales Superstars. There was a discussion about a Bank of America Short Sale that had been approved, and then denied after the approval, a few days before closing. The reason:

The seller was a real estate broker and the listing agent works for the seller. The buyer used the listing agent to represent her.

Surprise Surprise, B of A said this is not an Arms Length Transaction and rescinded the approval.

Blossom Valley Short Sale

There are multiple things wrong with transaction so let me see if I can organize the problems coherently.

1. All short sales must be an Arms Length Transaction and an afidavit needs to be signed by all parties saying they are not related to each other in any way. The listing agent works for the seller so that is not arms length.

2. The seller may be offered a closing incentive by the bank, but is not allowed to receive any money from the buyer. Since the buyer is using the the listing agent who works for the seller and would have received commission for the sale, a portion of which would go to the broker, then the seller is getting money from the buyer.

3. Again, since the listing agent works for the seller and would get commission from the sale, a portion of which would go to the broker, the seller would be receiving money from the sale outside of the closing incentive.

4. The buyer has agreed to a dual agency and is entitled to the information that the listing agent works for the seller and that this can cause potential problems with The Arms Length Transaction.

I do not know if the seller was trying to pull something over on the bank, or if he was just not familiar with short sales but this was totally avoidable.

Buyers: get your own agent to represent you.

Seller: If you are a broker, get a different company to represent you. If you are an agent, get another agent to represent you, not your broker, and ask the bank if it is ok to be represented by someone else in your campany first, not after you are about to close.

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Comment by Lynn Garrison-Illescas on October 16, 2012 at 2:54pm

Marcy, 

I understand, and the mortgage on the 1st was relatively small but does extend into other states.  The second, however, was Cadence Bank, which used to be Superior Bank.  They are in abundance here in Florida.  :-)  Let's hope someone has an idea of where this "written in stone" notion may have emanated.

 :-)  I know Freddie Mac was crawlin' all over themselves warning about what could and couldn't happen in short sales and what was considered "fraud", however, their terms were mostly ambiguous scare tactics and they proved to be unfounded in the long run.  

Comment by Marcy Moyer on October 16, 2012 at 1:52pm

Lynn,

Very interesting. I have never done a short sale where the Arms Length Affidavit was not required, but I have not done a short sale with a small local bank so maybe they don't care.

Comment by Lynn Garrison-Illescas on October 16, 2012 at 1:09pm

I realize that it seems generally understood that ALL short sales MUST be an Arm's Length transaction.  However, I'd like for someone to provide proof that this is, in fact, OBLIGATORY for ALL short sales.  True, that many lenders require it and Fanny & Freddie require it for all their short sales, however, how can I/we make such an assumption when I've never seen any hard and fast RULE about this (not to mention the fact that I'm not sure who might have the authority to make such a requirement for all lenders and all investors)?  I closed a short sale about 6 months ago wherein neither the first, nor the second requested an Arm's Length Affidavit.  They simply didn't care.  They wanted the highest and best offer they could get and didn't give a hoot about who purchased the property.  Please don't shoot the messenger, because I'm really looking for definitive information that this is an absolute requirement of transacting a short sale.  Any assistance would be very much appreciated.  

Comment by Jean DuBoise Metz on October 10, 2012 at 1:53pm

Thank you.

 

Comment by Marcy Moyer on October 10, 2012 at 12:17pm

www.shortsalesuperstars.com

there is a week;y roundup every week.

Comment by Jean DuBoise Metz on October 10, 2012 at 12:07pm
Hi Marcy, please share with us the site you read every Sunday morning.

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