At short sale closings Buyers and Sellers sign an arms length affidavit. This is required because banks wish to attempt to prevent sellers from selling to a relative and to curb mortgage fraud. Banks do not want short sellers to profit from the sale.
Many times sellers have lost jobs and a parent may offer to buy their house and rent it back so families can live in their home. However, these parties would be unable to sign an arms length affidavit. This practice above essentially allows sellers to repurchase their home at less the cost and amount they borrowed. Banks take the position that if they wanted the sellers to have a benefit they would have agreed to a loan modification.
Arms length affidavits contain –
All parties names to the transaction referencing the property address and that they are making an Arms Length affidavit.
No party in the contract are family members, business associates or a person who shares a business interest with the seller.
There are no hidden terms nor special agreements among the buyers, sellers and / or agents.
IF YOU SIGN AN ARMS-LENGTH AFFIDAVIT ON YOUR SHORT SALE AND THEN VIOLATE IT, YOU COULD BE HELD LIABLE FOR MORTGAGE FRAUD. MORTGAGE FRAUD FALLS UNDER THE JURISDICTION OF THE FBI.