Arms Length Short Sales

One of the features of a short sale is that the transaction must be “Arms Length.”  This means than an immediate family member or business partner or business associate can not buy your house if it is a short sale.  The reason is that neither the seller, the buyer, nor their associates can benefit from the bank’s loss.

For example, your sister cannot buy your short sale and then allow you to live in it.  Your business partner could not buy it, list it and then share the proceeds of the sale with you later.  Here is a sample of what must be signed by both the buyer and seller as a part of the transaction:


No party to this contract is a family member, business associate or share a business interest with the mortgagee.  Further, there are no hidden terms or special understandings between the seller or buyer or their agents or Mortgagee,

The Buyers and Sellers nor their Agents have any agreements written or implied that will allow the Seller to remain in the property as renters or regain ownership of said property at anytime after the execution of this short sale transaction. None of the parties shall receive any proceeds from this transaction except the sales commission.

2 Comments on “Arms Length Short Sales

  1. I totally agree with this post. If someone is in the process of a short sale, then they should let it be. Meaning, don’t try to get over or bypass the system because eventually one would get caught and reap the consequences.

  2. I agree with the sellers not being able to receive any money from the transaction, but I don’t see why the seller would can’t stay in the property if the new buyer wants to rent to them.

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