The idea is to prevent the Seller from profiting from short sale. The Buyer should not be liable, should s/he?Īnd another question. Am I correct assuming that it is not the problem for the buyer, who may inadvertently sell later to the Seller or members of his family for as long as s/he has not conspired to commit the mortgage fraud. (Elizabeth – hint, need an autograph, please).ĭone with the question ? Not quite. Pleasant surprise, it was one of my AR favorite bloggers Elizabeth Weintraub, the short sale guru from Sacramento, and the article was posted on. I liked the article and looked who the author was. So, I Googled it, and the first article I ran into ( Why Does the Bank Require an Arms-Length Affidavit on a Short Sale?) explained that if the Seller later repurchases the property, this could constitute mortgage fraud, and it will be in the jurisdiction of FBI. We either go to Active Rain, or you go to Google. What do we all do when we do not know something. And I do not know how actually this works, how it is enforced. He asked me that would he need to do investigation to see that the future buyer is not the Seller, nor his relatives or business associates.Īnd I started thinking about it. It can happen 2 years from now, it can happen 5 years from now, it can happen 6 months from now (though unlikely). He would sell it when he can get the profit he is looking for. He did not have a slightest idea who the Seller was anyway.īut he is an investor. What the heck was that? I told him about relationship between the Buyer and Seller, and me as the agent. I signed for me and sent to both the Seller and the Buyer. The lender sent us the Affidavit of Arm’s Length transaction. These instances also merit careful scrutiny as issues of lender liability in real estate transactions become more prevalent in South Florida.I am getting close to closing on a short sale where I have never seen the buyer, and I have never seen the Seller. The lender may be privy to certain information that it would not otherwise know “but for” its special relationship with the developer over a long period of time. 3) Finally, while it is generally held that a lender/borrower relationship is arm’s length without a fiduciary obligation, there are instances where the lender and borrower have a long-standing relationship that transcends the traditional borrower and lender relationship.If a lender is involved with multiple parties in a real estate transaction and is taking actions that are negatively impacting one developer in order to benefit another party in the deal, it is worth exploring claims for lender liability against the financial institution. For example, a large real estate project may include multiple developers and a lender’s activities vis-a-vis one developer may have a negative impact on another. 2) Oftentimes lenders may have relationships with more than one party in a large real estate transaction or development.When banks improperly value the property or take actions that negatively impact the value of the property, they can sabotage – even unintentionally – the entire development project and expose themselves to potential lender liability. Because lenders have such significant control, it is important that they fairly and accurately value the property. The bank has significant control over the success of the project because its valuations of the project determine how much money the developer can draw at any given time and determines whether the borrower is maintaining a proper loan-to-value ratio. However, the borrower must also maintain certain debt-to-value ratios or risk triggering a default under the loan agreement. As development continues, the value of the property increases by virtue of the improvements to the land and the builder is able to borrow more money based upon the increased value. In these types of loan transactions, the bank lends the developer money up to a certain percentage of the value of property being developed, based upon a formula that is set forth in the loan agreement. 1) As real estate development in Florida has grown, developers have increasingly obtained construction loans tied to the value of the property being developed, called “loan-to-value” loans.Over the last two or three years, I have encountered scenarios where the traditional rule – that a relationship between a lender and borrower is an arm’s length transaction – is called into question and creates potential lender liability.
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