: What's The Penalty For Breaking The "Arms Length Transaction Notice"?

What's The Penalty For Breaking The "Arms Length Transaction Notice"?

Short Sale negotiator

Hi folks. Last year I had a closing for one of my Orlando Short Sale listings. This particular lender required all parties, including the agents, to sign an Arms Length Transaction Notice. This notice basically states.....well here it is. Read it for yourself.

Kissimmee Florida Short Sale

Of course as an experienced Orlando Short Sale Agent and negotiator I explained this notice to the Seller not only at time of listing but also when it was received and before it was signed. It wasn't an issue as the Sellers were moving anyway and they certainly didn't know the Buyer. All parties agreed to the Arms Length Transaction Notice and signed it. Shortly thereafter the transaction closed and all was well.

Recently, and several months after closing, I was driving around and bumped into the Sellers. They were standing in the front yard of their old house. The one we did the Short Sale on!!

I pulled over to say "Hi" only to find out that they did not move and had signed a lease with the Buyer. I guess this all went down after closing. YIKES!!!

So what do we do now? Will the lender find out? Can I be held liable for an act I wasn't aware of? Can the Short Sale be rescinded?

What say you?

Are you facing foreclosure in Florida?

Do NOT be foreclosed on! Avoid foreclosure. Short Sales DO close.

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Do NOT be foreclosed on! Avoid foreclosure. Short Sales DO close.

Want to find out more? www.CentralFloridaShortSales.com

***I am NOT an Attorney nor do I play one on TV. Click the button below for my Bio.

The BIO for Bryant Tutas


 Tutas Towne Realty, Inc handles Florida real estate sales, Florida short sales, Florida strategic short sales, Florida pre-foreclosure sales, Florida foreclosures in Kissimmee Florida Short Sales, Davenport Florida Short Sales, Haines City Florida Short Sales, Poinciana Florida Short Sales, Solivita Florida Short Sales,  Orlando Florida Short Sales, Celebration Florida Short Sales, Winderemere Florida Short Sales. Serving all of Polk, Osceola and Orange Counties Florida. Florida Short Sale Broker. Short Sale Florida.

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Comment balloon 205 commentsBryant Tutas • January 14 2011 07:51AM


Reserved for prisoner #2785666

Posted by Bryant Tutas, Broker/REALTOR, Tutas Towne Realty, Inc (Bryant Tutas-Tutas Towne Realty, Inc) over 4 years ago

The picture is so hilarious! I don't know, but would not want to be party to the test case.  

Posted by Ellen Dittman, #1 Stop for NE FLA-JAX/OP 904.535.1199 (TEXT OK) r (Watson Realty Corp.) over 4 years ago

You need to notify your principal broker and if you are the pb then at least you need to notify the State. 

Posted by James Dray, AR., MO., or OK. "Your Market Professional" (Fathom Realty AR LLC) over 4 years ago

I say my license is more important to me than a client who is dishonest; that crap splatters and you might consider rolling over on them rather than be seen as assisting them.

You may not need to, but I would probably call an attorney for a conversation and clarity on my exposure.

Posted by Mike Jaquish, 919-880-2769 Cary, NC, Real Estate (Realty Arts) over 4 years ago

Bryant I would think that the notice would also state the probable or possible penalties.  Sometimes people put us in so much jeopardy by trying to beat the system.

Posted by Charita Cadenhead, Serving Jefferson and Shelby Counties (Alabama) (Keller Williams Realty) over 4 years ago

BB - not sure the prison garb works for you and TLW. I would check with an attorney.


Posted by Jeff Dowler CRS, The Southern California Relocation Dude - Carlsbad (Solutions Real Estate ) over 4 years ago

Interesting situation and probably not unique...but I will follow this because it may get interesting! The suits do look nice but I would get rid of the ball and chain - not TLW, the real ball and chain. Tell TLW to lighten up as I am really only klidding!

Posted by Gary L. Waters, Broker Owner, Waters Realty of Brevard, LLC, Small Office, Big Service (Waters Realty of Brevard, LLC) over 4 years ago

The issue is "intent" and good faith at the the time the document was executed by buyer and seller and brokers.  For instance, was there as post closing occupancy agreement (disclosed to the bank) and that is why upon closing the seller had not yet packed up and moved?

If the affidiavit was knowingly false, the falsifying party(s) are guilty of bank fraud.  But I think likely the prisoner garb is more appropriate to the seller and buyer than you, Bryant.

Posted by Richard Zaretsky, Florida Real Estate Attorney (THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY) over 4 years ago


If there was an attorney involved on the deal, I'd check with him or her. I don't think you are at risk, however, because you knew nothing about this.

Posted by Irene Kennedy Realtor® in Northwestern NJ (Weichert) over 4 years ago

BB, until I read Atty Zaretsky's comment to you, I was already packing your prison goodie box for you! This is fairly discouraging though.

Posted by Andrea Swiedler, Realtor, Southern Litchfield County CT (Berkshire Hathaway HomeServices New England Properties) over 4 years ago


You may want to call the Florida Realtors Legal Hotline.

They have a staff of attorneys available to members to answer real estate questions.

It's free to us.

The phone number is: 407-438-1409

You can also call me if you have any questions about the the staff there.

I just called them about some questions regarding rules of advertising and they know their stuff.

Posted by Coldwell Banker Camelot Realty, Homes for Sale Mount Dora Realtor (Coldwell Banker Camelot Realty) over 4 years ago

Thanks Richard.

I don't believe the seller had any intent of staying in the house. In fact the buyer, an investor, asked if the seller would be interested in staying in the propetry when he made the offer. The seller response was 'No we are moving". It was at the same time that the "Arms Length Transaction Notice" came into play and was discussed with the seller. He confirmed again that he was not staying in the property.

After speaking with the seller after finding out he was still in theproperty he said that the buyer kept asking him about post occupancy. The seller, not having any where else lined up finally agreed to stay for awhile. To the best of my knowledge it is only for a short period of time while they located suitable housing. The seller is married and has 3 small kids. Their short sale was denied earlier on the year and this was our 2nd attempt after the seller was forced into a lon mod that was also denied.

We weren't;t certain that the short sale would go through and once it did there were only 3 weeks to close. I guess the time restraints made it where the seller was not able to secure a place to live for his family in time for closing.

I did not go to closing and have not been by the house since it was listed.

I did a Google search this morning and can't find anything online related to this.

I'm sure this has happened many times through out the country. I wonder if there has ever been a case study? I wonder if the lenders really care or is this form is just a CYA form?

Posted by Bryant Tutas, Broker/REALTOR, Tutas Towne Realty, Inc (Bryant Tutas-Tutas Towne Realty, Inc) over 4 years ago

I guess if we do enough short sale transaction this is bound to happen. There are some things we just can't control.

Posted by Bryant Tutas, Broker/REALTOR, Tutas Towne Realty, Inc (Bryant Tutas-Tutas Towne Realty, Inc) over 4 years ago

That transaction notice is pretty clear..at any time.

Please keep us updated.


Posted by Margaret Rome, Baltimore Maryland, Sell Your Home With Margaret Rome ( HomeRome Realty ) over 4 years ago

The attorney in comment #10 says it all. It is all about intent and advance knowledge. Since you say you had neither, you should be safe. Of course, that doesn't mean you don't get indicted where you can prove your innocence in court.

Posted by Bill Pohl (Tetra Homes, Inc.) over 4 years ago

Where are the "sellers" going to go if it turns out the buyer/current owner is scamming them? Was it your buyer too? They may come back with you as the bad guy. Take good notes and do talk to an attorney.

Posted by Glenn Roberts (Retired) over 4 years ago

Broker Bryant, all I can say is that you and TLW look just adorable in stripes, and she is thin enough that horizontal stripes are actually flattering!

Posted by Patricia Kennedy, For Your Home in the Capital (Evers & Company Real Estate, Inc.) over 4 years ago

I've had about every other potential distressed client try and bring up this scenario when I tell them I also buy some of the short sale deals I work.  I, like you, tell them very clearly that this is not an option.  It's also part of the Affidavit of Understanding that I have them sign and notarize.

Posted by Nick Dailey, RE/MAX: Northern Kentucky Real Estate - NKY MLS - Short Sale (RE/MAX Affiliates) over 4 years ago

It appears that prisoners #2785666 and #2785667 shall receive their pardons without implication of duress!  Those stripes are not very becoming on either of you.

Posted by Kevin J. May, Serving the Treasure & Paradise Coasts of Florida (Florida Supreme Realty) over 4 years ago

Dear Prisoner prisoner #2785666M,

As others have said it's all about intent! You and prisoner #2785666F should win on appeal as soon as you can raise the $1,000,000.00 retainer for your attorney!

Good luck! Brenda and I will establish a defense fund for you with our contributions of a dollar apiece from each of us us to each of you! We'll even limit our defense fund management fee to 60% down from the common 85% for such services.


Posted by William J. Archambault, Jr. (The Real Estate Investment Institute ) over 4 years ago

Very interesting scenario. It appears you already have the advice from a FL attorney.  I would guess that there will be no standard as to how these cases are handled.  I wonder if you had written up an addendum granting the seller "x" number of days to remain in property after COE to secure a new residence, if the bank would have had a problem with that??

Posted by Kirsten Mellinger, Ventura County Real Estate (Emerald Funding & Realty) over 4 years ago

Yikes, that's a little scary.  This was bound to start popping up especially in markets like FL.  Keep us updates on what happens, if anything.

Posted by Justin Dibbs, REALTOR® - Ashburn Virginia Homes for Sale (United Real Estate) over 4 years ago

This is another reason why I rarely talk to my short sale sellers on the phone once the process is started. All communications are by email so I have a paper trail of everything we discuss. Vacating the property was one of them.

Kirsten. All things are negotiable. Post occupancy can be agreed to by the lender.

Posted by Bryant Tutas, Broker/REALTOR, Tutas Towne Realty, Inc (Bryant Tutas-Tutas Towne Realty, Inc) over 4 years ago


I agree with Richard Z.,however, I'm not an attorney.  It also appears the banks have PLENTY of transactions going forward to have time to look backward right now.

Not legal advice; JMHO,


Posted by Steve, Joel & Steve A. Chain (Chain Real Estate Investments & Mortgage, Steve & Joel Chain) over 4 years ago

Bryant- I am with Richard on this one. I think you are out of the woods! 

We have out attorneys advise our clients to NOT sign arms length transaction notices especially with the vague language of "no one you know". I refuse to sign those also. I should write a post about this... 


Posted by Nestor & Katerina Gasset, Realtors, Wellington Florida Homes For Sale (International Properties and Investments LLC) over 4 years ago

We were just discussing arms length transactions in our last team meeting. I'm going to keep watching this one as I am interested to see what ends up happening, if anything.

Posted by Hilary Young, Team Assistant - The Nines Team in Lodi (The Nines Team Realty) over 4 years ago

I don't know Florida law.  I think that there are two other parties involved in this and since you were not a party to it you probably would not get to wear those nice stripes which is fine because not everyone can pull off horizontal stripes. 

Posted by Teresa Boardman (Boardman Realty) over 4 years ago

I like what Ginevra says and that is she takes photos to show that they moved out prior to the closing so in case this happens, you did your job.  They are adults and we can't control what the sellers or buyers will do after the closing. 

Katerina also has a point.  I'm going to sit and watch the conversation expand.

Thank you for posting.


Posted by Barb Van Stensel over 4 years ago

Well, on the date that you signed the affidavit, there was no agreement, right? So, I am willing to bet all will be okay. But... YIKES

Posted by Melissa Zavala, Broker, Escondido Real Estate, San Diego County (Broadpoint Properties) over 4 years ago


That's a great picture!! I have no idea what the ramifications would be if the seller's lender found out, as I have never had this happen on one of my short sale listings.  Contact a Real Estate Attorney.

Posted by Monica Foster, Broker, CRS, ABR, SRS, CHMS, CNE, CNHS (RE/MAX Space Center - Clear Lake Area, League City, Friendswood, Pearland) over 4 years ago

Good afternoon everyone, it seems to me that you have "acted in good faith" prior to closing and everything went ok until after the closing.  The kicker here is that you now possess first hand "knowledge" of a committed fraudulent transaction by 2 offenders; I cannot say if it was willfully done because as you say the seller has 3 little ones and perhaps things didn't work quite right on his favor or perhaps the seller knew the buyer who probably was a property rental investor and struck a deal before closing.

Either way the seller and buyer will be in hot waters no doubt, but I'm wondering how this might affect your right as an agent to the transaction and also since you just happened to stumble on this "factual information"; question is, are you liable if you remain silent and don't report this ? hmmmm  I say CYA all the way !!!

Posted by Gabe - Loss Mitigation Analyst - (Loss Mitigation Services) over 4 years ago

Bryant you might want to send me some cheese because I'm burning that bridge and ratting em out.  I'm not taking the heat for it.  Sorry

Posted by Joe Kenny, Better Than Your Average Joe (Realty Executive Midwest) over 4 years ago

That really IS you two in that picture, isn't it? You just made it LOOK like you put your faces in!

Posted by Terri Poehler, Coral Springs Real Estate Agent (Realtor) over 4 years ago

What is the penalty?  Ha...  Ha ha...  Ha ha ha!

In SoCal, most of the banks have the seller sign the arms length at the beginning of the process, so everyone "should" know... but...

There are no rules... or should I say "enforcement" of rules out here.  It's the wild wild west!

I'll say it again & again...

If you reward bad behavior, you get bad behavior.

If you reward good behavior, you get good behavior.

In the past two years, we have done NOTHING to reward good behavior...i.e. people who make prudent decisions and make their payments, and have only rewarded bad behavior... i.e. helped the people and institutions who have made stupid decisions and "milked" the system... whoops, did that slip out?  I meant people & businesses who have fallen on hard times through absolutely no fault of their own.  ;-)

Posted by Phil & Celeste Pafford, Corona Short Sale Broker (PaffordHomes.com, Corona CA) over 4 years ago

I agree with Joe above. If (or when) it's discovered, and they go after the seller/buyer, it's going to become evident that you have knowledge, even if it was after the fact. Don't forget that Courts have held that "what the client knows, the agent knows", even after the termination of the relationship. You'll be in court attempting to prove a negative. You'll probably win. However, that's an expensive roll of the dice. We're talking about your livelihood here. The length of their occupancy has nothing to do with it, based on your addendum, it's pretty black & white. Good luck!

Posted by Chris and Berna Sloan, Tooele UT (Group 1 Real Estate) over 4 years ago

I think that you are not at fault as you had no knowledge of the situaltion or the intent of the buyers and sellers. The buyers and sellers should be worried though. I would cover your butt and ask for buyers and sellers to acknowledge in writing that you had no knowledge of the events that took place.


Posted by K.C. McLaughlin, Realtor, e-PRO, Homes for Sale - Cary, Raleigh NC (RE/MAX United) over 4 years ago

How timely- I had an investor call yesterday, and as we got more deeply into the conversation, I realized that doing business with him might be a very bad plan- when he insisted that he had two lawyers, that was it for me. I dont' want to need one, much less the two that he appears to need for his short sale purchases.

Posted by Laurie Mindnich over 4 years ago

Quite the quandry. Fortunately I have several emails to the seller explaining the Arms Length Transaction Notice and what it means.

Someone up above mentioned the agent/client relationship. I don't have that issue because I was not working as an agent. I work as a transaction broker with no fiduciary.

So I guess the big question is what is my obligation now that I have this information?


Posted by Bryant Tutas, Broker/REALTOR, Tutas Towne Realty, Inc (Bryant Tutas-Tutas Towne Realty, Inc) over 4 years ago

The bottom line is "no harm, no foul". Zero chance of getting "caught" or of being "in trouble". The seller had to live somewhere, didn't they?  The banks have bigger issues to deal with. (like selling the other million homes on the books)

Posted by Andrew Martin (Keller Williams - Danville) over 4 years ago

BB-I would take the advice of many and not leave this one to chance.  Call the legal outline provided by your local association and get legal advice.  No sense in anyone making you a test case.  Good luck to you!

Posted by Karen Feltman, Relocation Specialist (Cedar Rapids/Iowa City, IA Skogman Realty) over 4 years ago

I'll let you know after the 2012 short sale of 1600 Pennsylvania Avenue.


Since this is a civil issue and not criminal, I don't think it is covered under and FREC guidelines, however if the sellers fully intended the entire time to dupe you, well, then you were duped and that is a very defend-able position.

It certainly does weaken the sellers position if and when the bank comes knocking for a DJ.

Gary De Pury, SFR


Posted by Gary De Pury (Bay Vista Realty) over 4 years ago

Now that is a very interesting situation! I would believe that they have violated some Federal laws during and after that transaction.

Can't wait to see what you find out!

Posted by Paige Walker, Real Estate Guru - Alexandria Pineville LA (Louisiana Lagniappe Realty, LLC) over 4 years ago

Interesting, it appears to have happened "after" the sale. Don't know Florida law. You stumbled upon it. Would probably run it by an attorney to CYA.

Posted by Missy Caulk, Savvy Realtor - Ann Arbor Real Estate (Missy Caulk TEAM) over 4 years ago

Two Hypothetical questions -

1)   I you (or an associated) encounter the buyer of this property in another Short Sale Transaction, What would you do?   Would you refer it to another Realtor for a Referral Fee or apply a Don't Ask/Don't Tell attitude, Just making sure you pointed the clause out to everyone.

2)  If after the sale the Short Sale Buyer sold or transferred the property.  Would you view this as there was no breach of the Clause, because the rent/Lease Back was executed by the Short Sale Buyer?


Posted by Tim Bradford, NMLS 250013 over 4 years ago

Very interesting quandry. 

Read through all of the comments.. do not have anything AHHA going on here..

I would call a real estate attorney and discuss it.  Then if you are implicated in anyway, you've already got an attorney and maybe the two of you can choose a more fashionable wardrobe for the vacation and a more comfortable mode of travel for it too!  :)

Posted by Judi K Barrett, Broker/Owner, Integrity Real Estate Services -IDAB (Judi Barrett~Integrity Real Estate Services~Idabel, Oklahoma) over 4 years ago

One of my clients recently discussed knowing many people who did this with relatives. I explained rather heatedly that this was ILLEGAL!

This fine gentleman from Peru, just shrugged and said, "You don't understand. These are Spanish people!" as if that justified the behavior!

Two of my four children are of Spanish heritage. I tried to explain to him that your language, country of origin or cultural heritage did not make the law any different.

I am commited to the letter and spirit of federal and Virginia Fair Housing and Fair Lending!


Posted by Jim Gilbert, The Gold Homes Team (Keller Williams Fairfax Gateway) over 4 years ago

I don't see how you could be held liable for something clients do after the closing and unbeknownst to you. 

Posted by J. Philip Faranda, Broker-Owner (J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY) over 4 years ago

I don't see how either, they would have done so against your advice and against the form they signed, they would be liable...long as you didn't help them do it, you should be fine.  I wrote the featured arms length post last week and got so many varied opinions on it I was actually surprized at how lightly some take this.  I'm with you, I'd be worried and wouldn't help someone do this.  My license is not worth risking for your risky move...or unmove.

Posted by Terrylynn Fisher, HAFA Certified, EcoBroker, CRS, CEP Realtor, Etc. (Dudum Real Estate Group - BuyStageSell.com) over 4 years ago

Bookmarking this one! I have people request to do this all the time and I explain the arms length and then they ask "how will anyone know"


I run....

Posted by Billie Hillier, Savvy Home Realty Solutions (http://702IsHome.com) over 4 years ago

Very clear in our license law: you have to know what you are supposed to know. Grievance would look at the evidence that you had looked at a number of sources to determine the facts. You might fail on one count but get off on the attempt to determine the facts.

Then you get a double margarita just for having to deal with it all.

Posted by Leslie Ebersole, BRIX Group (Baird&Warner Fox Valley) over 4 years ago

Well you didn't do anything wrong. But your sellers will probably have some explaining to do. 

Rest well knowing that your hands or clean.  Plus minimum security is a cake walk anyway -- worst case scenario you'll survive.  LOL.

We aren't the short sale police.   We are short sale agents.

Posted by Tni LeBlanc, JD, MA, REALTOR, CalBRE # 01871795 (Mint Properties, Tni LeBlanc (805) 878-9879) over 4 years ago

Bryant, interesting.  Last year the FBI set up an office in Fort Pierce, specifically to go after mortgage and lender fraud cases as a result of short sales.  While I doubt these folks are in any serious harms way because of their circumstances, many others very well may be.

Posted by Gabe Sanders, Stuart Florida Real Estate (the BlueWater Realty team specializing in Martin County Residential Homes, Condos and Land Sales) over 4 years ago

I wonder what the neighbors are saying? . .

"your dropped the values of our homes by selling it short but you still live here?"

Someone will be calling on this one. .pull it and dust your file to get it ready.

Posted by Fernando Herboso - Broker for Maxus Realty Group, 301-246-0001 Serving Maryland, DC and Northern VA (Maxus Realty Group - Broker 301-246-0001) over 4 years ago

An agent I know allowed the buyer's parents to buy the home.  In this particular case, the bank did not ask for an arm's length transaction.

No matter!  I still would not encourage anyone to purchase a short sale if they are related.

Posted by Kay Van Kampen, Realtor®, Springfield Mo Real Estate (RE/MAX Broker, RE/MAX Solutions) over 4 years ago

Bryant, I worry about knowing the seller before hand but that is a problem in the making I would thinking. By the way I to pretty for prison, I know all the menzzz would love to know me. HA! 

Posted by Frank Rubi, MBA, SearchNewOrleansRealEstate.com (Frank Rubi Real Estate, LLC) over 4 years ago

At least you will be able to continue your short sale business while in the Crossbar Hotel.  You will have the hours that you need to sit on the phone waiting for a rep to find your authorization or the docs you sent in three times.

Posted by David James (ReMax Real Estate Services Columbia South Carolina) over 4 years ago




Posted by Larry and Marilyn Mennetti (FIVE STAR REAL ESTATE) over 4 years ago

Wow! Lots of friends and advice! I am new here and it's good to know there's help out there if I need it. Best of luck!


Posted by Frank R Phillips (Realty ONE Group Infinity) over 4 years ago

I agree with Nestor and Katerina and avoid signing an 'Arm's Length' agreement. I feel it's against Fair Housing Practices to dictate to a property owner who they can and can't rent to and make it a condition of the sale.

AND it wouldn't hurt to get some legal advise...in writing.

Good Luck!

Posted by Donna Rockman over 4 years ago

Your damned if you do and maybe damned if you dont. This is where my attorney would earn his money. i can not wait to see what you decide.

Posted by Scott Godzyk, One of Manchester NH's Leading Agents (Godzyk Real Estate Services) over 4 years ago

I really doubt any bank would pursue legal action against anyone involved in your situation. Think about it, how often do you hear about banks suing homeowners for anything, even when they have a clear recourse loan situation after foreclosure. It is too costly to pursue, especially when they have to prove fraud. I would not worry one bit it this happened to me (and I am sure someday it will-it's just the nature of the distressed property business).


Posted by Laura Higginbotham, Broker/Real Estate Consultant, Mesa, Arizona Home (Arizona Real Estate Options) over 4 years ago

I would immediately upon discovery of this information call the attorney that closed the transaction. The parties signed a affidavit and appear to have violated it. If you had no fiduciary responsibilities you didn't even have to explain the form to the client. You just had to put it in front of them and have it signed. You're not on the hook for anything here, EXCEPT, if you don't report it. I'm not trying to be rude, but I'm shocked at some of the answers here. Especially the ones that say, it happens all the time just ignore it. And we wonder why our industry suffers from a bad reputation. Folks, educate yourselves, read your license law at least once a year. Some of you are scaring the crap out of me. 

Posted by C. Mark Willix over 4 years ago

I cannot believe you were lied to by a client-- especially one that wanted to get out of a contract...
I wonder if attorneys face this problem at all?
I think the intent of the law was to reserve the right of the short sale lender so the short seller did not sell to the wife's parents (most likely different last name) and make it look like a legitimate sale.  I think in your situation, the lender would have to prove you had "scienter" which is knowledge  of running what would then be a scam against the bank/lender.  For an action against you, that might be tough to prove.
In a situation like the one down the street from me, the agent-sister (one last name)- sold to her brother's wife's parents (another, different last name), and the couple (yet, another last name) remained in the property.  Basically, they cut what is owed in half.  The sister had her maiden name on the Dept. of Real Estate records.  Not only did they employ a scheme to fraud the lender, but with more than one participant, you have a conspiracy.  So far, it looks like I am the only one who picked up on what really happened.  I don't think the lender has the resources, time or energy to go after it, which is a pity, because it obviously has hurt the value of my house and all my neighbors.

Posted by Gary Frimann, REALTOR and Broker (Eagle Ridge Realty / Signature Homes & Estates) over 4 years ago

IMO you did your job and it seems none of this was in motion or initiated at the time of the signing and closing.  If they chose to approach the new owners with a proposal AFTER the closing I'm not so sure that anyone is in violation.  An arguable loophole for sure, but not necessarily an illegal one.  I personally don't see a difference in them approaching the new owners with a propsal after the closing whether it be 1 day or 10 years.

Posted by Jim Pirkle (Harvest Realty LLC) over 4 years ago

This is precisely why I don't like these things - too many tricky and sticky terms and conditions set forth in those approval letter and sometimes (not always) the mindset of the seller out right scares me.  I really respect those that do take them and dot your i's and cross your t's to CYA.

Posted by Renée Burrows, Las Vegas Real Estate Broker - www.urLVhome.com (Savvy Home Strategies Realty, LLC-REALTOR®-Estate-Probate) over 4 years ago

I wouldn't know the penalty but I don't think you will end up in those matching stiped suits. You apparently were not a party to, nor had any actual knowledge of, any related written, verbal or even implied agreement allowing them to stay. But of course that doesn't seem likely as to the Seller/Buyer. But what to do next?? Start by making some carefully written notes and get them to your managing Broker asap.  Jerry

Posted by Jerry Henson (Bachman & Assoc.) over 4 years ago

Yikes.  What a horrible position to be in.  Sometimes people don't think (or maybe they just don't care) that they are putting us in harm's way by not be honest.  I will absolutely be waiting for an update.  I agree with everyone else.  I'd talk to a real estate attorney.  I'd be surprised if you could be held liable because you had no way of knowing that your clients were possibly duping you.  Good luck and keep us posted.

Posted by Lisa Ackerson, CRS - Dallas Fort Worth Area Expert (DFW Fine Properties) over 4 years ago

you've done nothing wrong.  if you had no knowledge of any prior deals struck between the parties as to the circumstance that led to  the current rental agreement you need do nothing.  further, until you get named in a suit you have no damages and further still if you do drop dime you may be liable for some sort of claim for interference between   the parties to   the current lease or rental agreement

the arms length memo treats the situation as it exists on the day it was signed.  if you think this through the arms length addendum probably causes the topic of rent back to be raised for the first time in many cases. an example of a similar deal we all are familiar with is the use of a home as a rental when we took financing as an owner occupant.  circumstances change.

there is a huge difference between violating a law and breaching a covenant in a contract, if such a writing can even be called a contract.

that picture's old timey!  bona fide even, and fittin' for a fella like you bein' the pater familia, as it were, vis avis your progeny.

Posted by Michael Ford, California+Hawaii+Oregon (EncinitasHomes.com) over 4 years ago

Richard's response was the best.

Richard is an attorney and we must remember that it is illegal for Realtors to give legal advice to anyone aside from "seek an attorney's advice". That said. Great topic and I appreciate you sharing this with us prisoner #2785666. Hopefully it will keep us aware in future transactions.

Posted by Ted Duncan (Hammond Residential Real Estate) over 4 years ago

Personally, I would not worry about it.

When you sign an "arms length" you ONLY vouch for yourself and any know ledge that you have have at that time. 

You are not expected to babysit or to police what the buyer and seller do after the transaction. 

Eve in Orlando

Posted by Mike & Eve Alexander, Exclusively Representing ONLY Orlando Home Buyers (Buyers Broker of Florida ) over 4 years ago

That's pretty interesting. Wells Fargo does the same here in AZ with this form. The points I would like to make is that as Realtors, we are not part of the transaction, so I have some doubts on its enforceability. Second, this was the case and true at the time of the transaction - it does not say for how long that condition shall remain in place. Third, you cannot control the behavior of a principal after the transaction. Fourth, you as Realtor, cannot enforce this document any which way or form after the transaction is consumed.

I think this document is actually a request from the investor from the previous loan. I doubt it will come around full circle. But keep us in the loop, just in case.

Posted by Richard Bazinet /MBA, Phoenix Scottsdale Real Estate (AZuRE Team - Realty ONE Group) over 4 years ago
Hi BB, I guess they would have to show " prior knowledge " or at least " intent " to scam the system. Keep your signed disclosures handy. Not sure I see any real risk for you.
Posted by Bill Gillhespy, Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos (16 Sunview Blvd) over 4 years ago

Definitely something to be concerned about and I agree with some of the other that consulting with an attorney might be in order.....at least to CYA. I will continue to follow this to see how it turns out.

Posted by Linda Zawislak (Coldwell Banker Residential Brokerage) over 4 years ago

If you were not privy to the agreement - they you have nothing to worry about.  You are not in charge of your seller's actions post sale.

Posted by Adam Brett, The Adam and Eric Group, Fullerton's Finest (The Adam and Eric Group) over 4 years ago

We have a fiduciary relationship with our clients during escrow, but after it closes, that relationship is over. Since you knew nothing about this during escrow, I think a court would be hard pressed to find you guilty after the fact.

It's my understanding that sellers who lie to their lenders are commiting mortgage fraud.

Posted by Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents, Put 40 years of experience to work for you (Lyon Real Estate) over 4 years ago

It is like I always say, "You cannot legislate honesty or integrity". They can continue to write rules in Washington that make it more difficult and expensive to do business, but it won't stop the problems. I firmly believe there is equally as much fraud today as there was three years ago - just a different kind of fraud.


Posted by Dora Griffin, NMLS 6380 (D A Griffin Financial.LLC) over 4 years ago

Excellent post again, guys.  Two quick comments:

Post:  I don't believe the seller had any intent of staying in the house. In fact the buyer, an investor, asked if the seller would be interested in staying in the property when he made the offer.

We do alot of short sale in Houston Texas.  Because of our market and price ranges, we have a large number of homes attractive to investors.  You would be surprised at the number of agents representing investors that are short sales with the intent of leaving the tenant in place!

Post:  The seller, not having any where else lined up finally agreed to stay for awhile. Their short sale was denied earlier on the year and this was our 2nd attempt after the seller was forced into a loan mod that was also denied. I guess the time restraints made it where the seller was not able to secure a place to live for his family in time for closing.

It appears the seller procrastenated for a long period if this was going on for over a year.  Texas is a 21 day state "Yikes!  So, the seller does not have a lot of time.  Even when we postpone the inevitible by a short sale, it still leaves them with 2-3 months to secure other living arrangements.  We make it clear upfront that they have a time line to secure other living arrangements.

Posted by Jim McNinch over 4 years ago

ditto c mark willix.  as a lender, let me point out that the devil is in the details.  ignorance of fraud committed does not exhonorate a party to the transaction in case of a law suit.    lenders are getting tougher and tougher on crime as technology allows them more and more vision into transactions.  if it were not so, why were all loan officers required to become licensed last year?

the more active a roll government takes in lending, rest assured that the more civil cases will become criminal.  my dvice is to call florida state banking and let them sort it out. of course they will investigate your buyers/sellers.  your role will be challenged but better they hear it from you and not, say, the rat amongst us here or from a disgruntaled neighbor.

thanks to new banking laws, we all are all one step closeer to working for the government.  when are we going to get health insurance?

Posted by jacob Taylor over 4 years ago

I don't see where you were complicit in the lie. You made your disclosures and were not partner to it. I am sure the bank has bigger fish to fry then looking for fraud.

Posted by Michael Russell, Overland Park Kansas Real Estate (Keller Williams Realty Partners, Inc.) over 4 years ago

My experience says that the seller/tenant and buyer/landlord are culpable because they conspired to commit fraud in the closing.

You're off the hook because you had no knowledge of what would happen post-closing.

Besides, who's going to complain?  The seller/tenant?  The buyer/landlord?  Of course not... they got what they wanted.

Erick Blackwelder
Exit 1st Choice Realty
Woodbridge, VA  22192

Equal Housing Opportunity

Posted by Erick Blackwelder, Text or call Erick now at 703-677-1120. (Cell: 703-677-1120) over 4 years ago

I just had an investor want to submit an offer on a Freddie Mac property under First Look terms.  No dice.  I don't look good in stripes!  His response was "the last time I got caught it was only a $5000 fine"  Good for you!  I'm not doing it!!!

Posted by Bea Lueck (Coldwell Banker Rox Realty) over 4 years ago

Janice and I have PrePaid Legal for these types of things. Better safew than risking your license!

Posted by Mark Hall, Homes for Sale Vancouver Washington (Elite Realty NW - Keller Williams, Vancouver Washington) over 4 years ago

You did nothing wrong if you had no knowledge beforehand but you now have been made aware of the existence of possible fraud.  You should now report it. I concur with other readers that you should make your Broker aware since there may be some steps they need to take as well regarding the possibility of reporting this.

The Lender who negotiated the short sale in good faith would not have allowed the transaction if made aware of those facts.  Frankly, while the Seller was possibly in a tough spot, they are not supposed to benefit from the short sale.  It's the whole point of the Lender allowing the leniency of a short sale as opposed to a foreclosure.

You can anonymously report the fraud to: Fannie Mae at mortgagefraud_tips@fanniemae.com or call at 1-800-732-6643.  BTW - it's a no brainer that if he hasn't already done so that Gary needs to report the situation he is aware of as well.  Earlier post re: calling the Florida hotline was a good one as well.

This definition of fraud is from Fannie Mae:

Characteristics of Fraud for House/Property

"Fraud for property generally involves material misrepresentationor omission of information with the intent to deceive or mislead a lender into extending credit that would likely not be offered if the true facts were known."

(Definition from: Financial Crimes Enforcement Network (FinCEN)Mortgage Loan Fraud; An Industry Assessment based upon Suspicious Activity Report Analysis; November 2006).

Bottom line:  It's time for everyone in the real estate industry to stop looking the other way when faced with such situations.

Posted by Michael Scott over 4 years ago

Several agents commented that they have their clients NOT sign the arms length agreement.  I'm curious how they got around that and did the properties close?

Posted by Gary & April Greer, Real Estate Professionals (Century 21 Wright) over 4 years ago

Hi Bryant

I am no lawyer, but it sounds to me like you did nothing wrong up to the point you stopped and talked to them. Now that you know the situation you may be obligated to blow the whistle. I think I may have turned my head and kept going on that one...........Brad

Posted by Brad Hornshaw, Realtor, Listing Agent, Buyers Agent, Investments (Brad Hornshaw Realtor Lynnwood, Bothell, Everett) over 4 years ago

Don't worry just report this action to everyone. Send a statement to the Federal Reserve Board they will surely cover you.

Posted by Ron Aguilar over 4 years ago

You were not aware of this transgression, and had no part in setting it up.  I would however, note that in your files notes regarding the closing that at the time of closing, it was an arm's length transaction.  The only issue you have now is that you are now aware of the situation.  At this point, you might attempt to contact the bank, but I bet no one would be willing to talk to you, as you no longer have representation Authorization to speak with them regarding these sellers anymore.  The bank has closed the file, and you would then be put in "phone tree hell" trying to find the right person to speak with.  I'd keep that in your notes, that you at least made an attempt.  The other way to look at this is that you represented the sellers not the bank and have no fiduciary duty to the bank.  You didn't do anything wrong, and do not have control over others.

Posted by Geoff ONeill (John L. Scott Medford) over 4 years ago

Desperate times calls for desperate measures and unfortunately, this one falls right into that category.  I completely agree and practice communicating as much as possible via email to document everything.  The Arms Length can be very specific and sometimes not only includes the seller/buyer but both agents to completely disclose everything (ie. no compensation other than what is noted on the HUD).  It is so important to be on the up and up.  If a client takes measures beyond our control or counsel and we documented our steps to insure they comply, then I can't understand how we can be culpable.  However, seeking counsel is an EXCELLENT idea whether from an attorney or the broker.  I have an excellent broker so that's my source. 

Posted by Helena Kaucheck over 4 years ago

OMG !!

Posted by Denny and Denise Rockwell, Realtors - Brea Homes and Real Estate for Sale (Prudential California Realty) over 4 years ago

Mortgage companies are cracking down when it comes to fraud.  Its best to always be careful on each and every short sale transaction.

Posted by Rodney Mason, FHA 203K & HomeStyle Renovation-AL,GA,TN (Prospect Mortgage) over 4 years ago

BB, You will look good down at the end of Boulevard aka the Atlanta Federal Prison. All kidding aside great post and very important topic. Please keep us informed. Tell TLW that the prison is short ride from downtown Atlanta. Tell her if she times the visits right she can catch a Braves game. Turner field is very close to the prison.

Posted by Tom Bailey (Crystal Coast Realty & Home Services, LLC) over 4 years ago

My idea of a three piece suit is not a prison garb, ball and chain!

Therefore, I am not an attorney and the following statement is just my humble opinion:  You did not knowingly participate in the fraud so you shouldn't be accountable for it.  Unless your state laws say anything to the contrary, it is not your "duty" to police or report future findings.

For example, the buyers also agree that they will keep up the property since it is collateral for a loan and you don't have to tell the lender if they are letting it get run down (or abandoned). They agree not to use it for illegal use (i.e. meth labs) and yet you can't be held accountable after the fact if they do.

Great post!  You made a lot of people think and that is always a good exercise!


Posted by Jim Paulson, Owner,Broker (Progressive Realty (Boise Idaho) www.Progressive-Realty.info) over 4 years ago

A picture says a thousand words.... yes it does!

Posted by Bradenton, Sarasota, Real Estate ~ The Serena Group, Selling Real Life Dreams in Paradise! (Bradenton-Homes, Experts - Keller Williams Realty ) over 4 years ago

Two words - MORTGAGE FRAUD.  If this was a recent closing, I would imagine that the file has not been audited.

Posted by Kathy Sheehan, Senior Loan Officer (Cross Country Mortgage Corporation 770-634-4021) over 4 years ago

As a lender just about every form in a mortgage transaction has a clause telling me if I "stretch the truth" I will be responsible for civil and criminal indictments.  From all of the courses I have taken over the years I hear one message repeatedly:  The only proof you have that you were not party to the fraud is to report it.  I am the last one to be a snitch but if you know about it and don't report it you will be included in the legal mess.  Tell your broker.  If you are the broker then tell the lenders fraud division and the real estate governing body in your state. Otherwise you take the chance of getting in a lot of trouble.

And yes, lenders have so many ways of catching cheaters these days.  Insurance policy is insuring the property as a rental. The lender gets notified of any and all changes to the insurance on the property. Where does the mortgage statement get mailed etc.

Posted by Nevin Williams, Raleigh Mortgage Pro (Sierra Pacific Mortgage Raleigh) over 4 years ago

My question to you is why would you sign it?  You are not a Party to the Contract of Purchase and Sale.  Many things are put in front of us as Realtors and that is one I would not sign nor do I understand the point of.  Is this notice just "CYA" for the lendor to make sure the foreclosed upon individual gets out of the house and if they dont "Oh well, we had em sign this waiver"?

  • I will not sign a waiver promising the stock market will not crash tomorrow.
  • I will not sign a waiver guaranteeing that Al Quaeda will cease hostilities.

You get the idea, its out of your control what your clients do after completion and I for one am not taking responsibility for mine.  Some of those people are crazy man! :)

Posted by Scott Leaf, Scott Leaf & Associates Real Estate Team (Keller Williams Elite Realty, Port Coquitlam, BC) over 4 years ago

No advice from me!  I wouldn't want to be occupying the jail cell next to you!LOL!

Posted by Kathy Opatka, Serving Ocean City, MD, & The Delaware Beaches (RE/MAX CROSSROADS) over 4 years ago

Forever is a long time. Eveyrthing has a statute of limitations. Since short sales are fairly rampant, and there are so many, I cannot imagine what the % of those result in the seller renting or buying back. Even if the seller signed such a statement, there has to be a time frame... 1 year, 3 years, 20 years?

It would be nice to hear some cases, or experiences.

I know of a luxury home builder, who was able to buy his short sale back from the bank, at about 1/4 of what the house cost. Go figure on that one!!

You did all you can. You cannot control the actions of other people.

Posted by Eugene Lew (RE/MAX equity group) over 4 years ago


I had a realtor ask me why we had to let the bank know that the sellers and buyers entered into an agreement even with the signed ALT by all parties.  Her famous quote to me "Why do they need to know?  We do this on every transaction." 

Of course our and most likely your realtor board and state real estate department won't do anything about it.  If it were me I'd turn it over to the local FBI fraud task force and to the lender and let them deal with it.  Unfortunately everywhere we turn there are shenanigans like this every day. 

And the real estate industry along with their clients wonder why the banks, there investors and the MI companies scrutinize each short sale.  The moral to this and your dilemma...unless we as realtors police ourselves this will continue on and on and on. 

Good luck,

Dean Carver, Owner/Agent United Brokers Group

95% Short Sale Sucess Rate and Over 750 homes sold

Posted by Dean Carver (United Brokers Group/Carver Home Team) over 4 years ago

And this is PUBLIC? yikes....big warning bell if the FEDS are watching :). jk. We can only do what we can during a transaction. We can't know what's in the hearts and minds of our clients. Whether it truly did come about after or not.

Posted by Karen Fiddler, Broker/Owner, Orange County & Lake Arrowhead, CA (949)510-2395 (Karen Parsons-Fiddler, Broker 949-510-2395) over 4 years ago




3) UNCHAINED MELODY (everyone's favorite prison song?   Didn't you know?)






When it all gets bad...Mention My Name...But Please Don't Tell Em' Where I Am


Posted by Tom Waite, So Cal-Apartment Bldg Investments (Thomas Waite Real Estate Broker) over 4 years ago

I agree with post #13 - The first thing I would have done after this discovery is call the Legal Hotline for Florida Realtors - that's part of what our dues go to support - and of course document to whom I spoke, etc. and what advice I was given. I have spoken with them regarding various things over the years, and they can do a lot to ease your mind about potentially distressing situations such as this one.

You are smart to document everthing thru email, and having done so will support your position that you didn't know until after the fact. I'm not sure what agency it should be reported to, but I'm betting that the Legal Hotline will be able to tell you if you should report it, and to whom. As another poster stated, the bank probably doesn't have the time or manpower to go after this issue, and there are so many homes going through the system they may not care as long as they are moving the units off of their books.

Good luck with this problem. I've subscribed to the thread so that I can follow it since we can never have too much knowledge and information in this ever-changing business. Thanks for the post!

Posted by Rhonda Patterson, Broker/Owner, Waterfront and Preferred Homes, over 4 years ago

It sounds as if you acted in good faith but I would contact your board or state DRE to follow-up.  Keep us posted!

Posted by Monica Atherton, Your Temecula Real Estate Gal (South County Realtors) over 4 years ago

On the face of things, sounds like an investor bought it, and went after the easiest renter he could find....  I wouldn't worry too much as Atty Bryant spoke to earlier. Intent is the key.  Life is what happens.  And Sometimes,  what happens gets you life.


Posted by John King, President & Broker (Bluefax Realty, LLC) over 4 years ago

I'd say you'd better hope you look good in stripes!  Just teasing.. The photo is cute though.

I worry about that same thing when ever I sign the document and the sellers and buyers sign.I mean I have had sellers and buyers leave the table after doing a 2 hour closing and they act like they are new best friends! I am not sure how much we can control AFTER the closing. Its not our job to walk our clients to their car to make sure they don't talk to the buyers after the closing.

I do think it wouldn't hurt to create a document of your own that says something like..."I have explained the Arms length transaction to the seller (and or buyer if that is the case") The seller/buyer understands the PENALTY of having a relationship with the buyer/seller  that is NOT disclosed to or hidden from the lender constitues FRAUD.  To the agents knowledge at the time of closing there is no relationship between the buyer and seller as disclosed by the (buyer and or seller)

I am not sure the Arms length transaction in its current form has enough visable TEETH in it to scare the buyer and or seller.  We as agents appreciate the seriousness of the document but buyers and sellers need to understand they could face severe legal consequences from a lender that finds out after the fact that the buyer just leased the property to the seller! OMG.

Let your broker know about what you learned after the fact and keep TONS of great notes about the series of events that led you to find out about the lease back situation.

It is something for those of us that are doing a lot of short sales to consider. Thanks for the "heads up" 



Posted by cyanda monaco over 4 years ago

I am sure if it comes to blows that you have it all documented.  Either emails, or notes that document you were out of the loop-- that you had no knowledge of there intentions to allow the original home owner back into the property.  If a client decides to do something illegal after you sell a home how can you be held responsible.  Just make sure your ducks are all in a row during the time of the transaction.  Make you BIC aware of the situation. 

Posted by Jennifer Marks (On Maternity Leave) over 4 years ago

I would certainly get a written opinion from an attorney. If the bank comes after them, they are going to come after you also because you signed the arms length agreement.

As usual, anyone filing a law suit will come after everyone involved in the transaction, and you have E & O, therefore potentially a deep pocket target.

If you have a legal hotline with your association, then get a written opinion from them. If not, get one from a good real estate attorney.

The little money you spend may save you a lot of money, your license and keep you from having to wear the prison garb for real. 

The paper trail will help you, but you do need an attorneys written opinion as to what action you should take.




Posted by Bill Travis, Broker/Owner (Captain Bill Realty, LLC) over 4 years ago

After a recent post on the arms length transaction "meaning" I had asked what are the consequences... didn't get a "real" answer.  After reading the comments here, it seems that there isn't much info out there.

Posted by Tamara Perlman (Referral Network Inc.) over 4 years ago

I agree with #13 - call the FAR legal hotline

Posted by Kimberly Brandon, Broker/Owner (Smart Moves Real Estate) over 4 years ago

I would definitely seek the advise of a competent RE Attorney.  Make sure he deals with this type of law.  We have attorney clients and they are best at the law they are most familiar with. I would also discuss this with your Broker to see how he/she says it best to document the situation to keep you out of harms way.  Larry & Marilyn made a good point in sending a letter registered with return receipt.  This may be a good idea, but I would check with your Broker and Attorney first.  (This certainly could end any future business and or referrals from them - yet if this is the way to handle it then better to keep your license and keep you out of trouble!)

I am also surprised by some of the answers here.  (Not shocked like C.Mark Willix because I have been in the business 22 years and have seen quite a bit of shocking behavior from agents.)  You will want to keep detailed records to show a paper/email trail of your explainations to protect yourselves.  The banks are cracking down on a lot of this fraud.  In AZ you can't have even worked with a person and be involved in the short sale.  I also would like to know how some agents say not to sign the form as the banks won't allow the transactions to close with out it being signed.

What I am really surprised at not hearing here is the fact that whoever would prosecute for this type of fraud WILL EXPECT ANYONE ACCUSED OF SUCH BEHAVIOR TO DENY KNOWING ANYTHING ABOUT IT.   To me this is the biggest reason to be concerned.  You may not have known anything.  How do you prove it.  The signatures on the arms length is one - but then eveyone could have lied.  Your emails would be another - yet that could be staged so that it looked like it wasn't planned  (this would be extreme I know, just saying).  This is why I would talk to my Broker and my Attorney for advice.  I would keep a complete record of all correspondence.  An this is why doing something now that you do know would probably the best thing to show you were not party to it.  Not sure what I would do at this point, but this is why the Attorneys make the big bucks!   Who knows, maybe an attorney will say that after the fact it would be okay for the investor to rent to the sellers, but I doubt it!


Posted by Brenda & Ron Cunningham, Realtors, Homes for Sale - Phoenix Metro (West USA Realty) over 4 years ago

Yikes, good question. It seems like that would fall under "mortgage fraud," even though you didn't know about it at the time. I would definitely lawyer up and talk to the state. (Kinda sad that I would want the lawyer first, but such are the times we live in.)

Posted by Barbara Charlton, REALTOR - Minneapolis-St. Paul-Southern Suburbs, 612-414-6721 (RE/MAX Advantage Plus - The Minnesota Real Estate Team) over 4 years ago
I have been reading all the comments and I thought that as an investor, I can offer you a fresh perspective. 1) As an investor (not as an attorney), when I buy a short sale or any other type of "creative" transaction, THE SELLER MUST GO! Not only is this the law in Illinois regarding distressed sellers but it is the smart course of action. Even if the payment amount due to the bank is very much lower than the seller was paying, there is no reason to believe that a person who was so broke that they let their house payments go, will be able to pay me post sale. 2) In Illinois, I have been advised by my attorney but cannot verify legally, that none of the parties is responsible for notifying the bank of the breach of contract. I don't have any idea why a Realtor would be interested in acting as the police and reporting it. 3) My layman's opinion is, the selling bank does not want the buyer to "win" or be compensated for defaulting on the mortgage but, why would they want the house back if this was not indeed an arms length transaction? 4) An attorney in comments above stated that this is a question of intent. Where in the transaction can it be shown or implied that you did not have the intent of completing a proper transaction? 5) This may be a little off topic but I think it impacts directly on the nature of the transaction with which you are concerned. I have never understood why and will never agree to participate in an agreement to purchase that states specifically in the agreement that the agent for the seller (or buyer for that matter) is entitled to a commission. I know, this may shock and amaze you as Realtors because it is common practice to put this clause in to the standard agreements written by your individual boards all across the country. Here is my rational: you already have an agreement with the seller to pay you and this will be written into the closing instructions at the title office. Why as the buyer, would I want to be party to this agreement? Whether or not I agree to this you will be paid if the sale closes. If the sale does not close due to improper actions on my part, you will still be due to a commission on the collected earnest money (which is why, I suppose, that general practice is to collect enough earnest money to cover the commission. Once upon a time I did have a license which I allowed to lapse). Whom amongst you has ever enforced one of these agreements against a defaulting buyer? I imagine it is few of you and that the cost of a suit would be prohibitively high. Additionally, why would the Realtor agree to participate in the purchase and sale agreement? Once again I remind you that you already have an agreement with the seller. If you are not a party to the sale contract, you cannot be responsible for any of the clauses or misdeeds related to that contract. The LAW in your state (again according to my belief and not professional opinion) guarantees your right the commission as the procuring cause of sale even if you are not a party to that agreement and the LISTING agreement confirms that you have this claim. In reality, all you need to do to secure your position as the procuring cause of sale is to introduce the buyer to the seller. There is no more work required. Compare this last thought to your listing agreement. If you have the property up on the MLS and, another Realtor brings a buyer, it may be a good idea but, not a requirement that you do any other work. What if you are out of town on the weekend that the offer comes in? Won't an agent in your office of the buyer agent do the work to get the seller the contract? Of course they will! This proves my point. Concluding, I can't believe that the agent could be responsible for the misdeeds of the participants in the contract. I appreciate that you have read my comments this far. If you would like to have some of my other opinions, check out my blog at www.stopforeclosureanswer.com/stopforeclosure
Posted by Mark Elkins, Investor, 630-745-1452 over 4 years ago

Great topic to get everyone talking. Hopefully some new agents - and some who tend to bend the rules - will understand that this is a serious issue.

I don't know what the penalty would be - probably not prison, but could certainly be monetary. And, if you're a licensed agent and knowingly enter into a fraudulent contract, I would guess that your license would be in danger.

I don't believe you're in danger because you had no prior knowledge. But for those agents who do go forward knowing there's fraud - and who tell their buyers and sellers that "It's OK," the consequences could be dire.

Posted by Marte Cliff, your real estate writer (Marte Cliff Copywriting) over 4 years ago

I think that you should take a little time, set up a ""just in case"" folder and put extra copies of the entire transaction and paper work that was involved in the deal.  Also write up the the situation as to how you found out about the sellers now leasing the "sale"..include dates and times and what transpired when you drove by. 

My thoughts are that by doing it now you will have everything documented while it is fresh in your mind.  you may never hear anything about the issue....but if you do get a ""call"" down the road you may not remember an important item...and the pressure of the call may cause some extra stress which helps extra memory loss..

Posted by Anthony Vosilla (Tony's Appraisal Services) over 4 years ago

As some one who no longer believes in the justice system:

Most complaints fall on deaf ears...

No one will send out the man power for petty things...this is petty.

Try asking a real question of one of the green horns on the legal hotline, and  they will dance around a real answer. 

The lender watchdogs go after big $$...maybe, if they feel like it.

....no one cares.



Posted by Mike & Eve Alexander, Exclusively Representing ONLY Orlando Home Buyers (Buyers Broker of Florida ) over 4 years ago

Great comments guys.

I put this post out there to start this converstaion. If you do a lot of short sales I am POSITIVE this has happened to you as well. You just may not know about it. Or maybe you do.

Let me ask another question. Has anyone on this post EVER heard of a seller getting in trouble because of this? And is there any case law about whether or not this would even hold up in a court of law?

Can a lender really dictate what happens to a property after it has been sold? Can they control who the new owner rents to?

Posted by Bryant Tutas, Broker/REALTOR, Tutas Towne Realty, Inc (Bryant Tutas-Tutas Towne Realty, Inc) over 4 years ago

I think the "forever" aspect of the arms-length requirement is a little over the top.  Rules are rules, and laws are laws.  At best what are they doing, breaking a contract?  At worst, commiting fraud?  What can you really do to someone who's broke, has nothing to sue for (if it's a contract issue), and what court is going to uphold a fraud conviction for a family down on their luck?  What would the Buyer's culpablility be, if he indeed did incite the Seller to live there?

Not that I'm a lawyer.  And please, don't think I condone this, either.  Just stating some things that are obvious to me.

By the same token, if they do end up in court, you can bet they'll want to drag their Realtor(s) right along with them. 

Posted by Victoria C.B. Trees, Principal Broker (Crater Lake Realty, Inc.) over 4 years ago

There was a moment when that arms length notice was signed. If, at that time, that seller was intending to move out then where is the fraud? What a property owner does after they close escrow is not the old lenders business. The document signed was a condition of purchase, not a CC&R's document. Once the purchase is complete, done deal.

I'd walk away and stay away. It never does anyone any good to stir up sticky business that's NOT YOUR BUSINESS. You can be an honest, forthright guy/agent/broker without being a knowitall butinsky tattletale!

Posted by Pete Buckley (Independent Broker/Realtor, North San Diego County CA.) over 4 years ago

I love the "intent" angle -- and that an attorney wrote it. I would follow up with a call to your legal hotline, and of course tell your broker (just kidding BB on that last one).


Posted by Erica Ramus, MRE, Schuylkill County PA Real Estate (Erica Ramus - Ramus Realty Group - Pottsville, PA ) over 4 years ago

I agree with Pete. Not that you are trying to be a butinski, you are just trying to cover yours.

What I don't understand is how banks that own these properties can bully people around like this. We are in the middle of closing on our first REO property and I had to sign so many rights away it was dizzying. In fact, I have to pay them $100 per day if we don't close on time!

Since when did we arrive at this closed market system? If you have the cash and can purchase the property at what the bank is asking for, then why shouldn't you? And if you want to rent it to the former owner, why can't you do so? What is this, Communist China? Why must we rip these people from the homes they love with no recourse?

This policy is not good for families, especially with so many of them losing their homes. If they have truly over extended themselves, then they won't be able to afford the rent. But if they can afford the rent, then I say let them live there.

Posted by Christine Emmick (Freelance Writer) over 4 years ago

Since you profited from their fraud you do have an ethical motivation to let all the parties know that you were unaware of the relationship until the date you discovered the mess.

Getting sued or prosecuted is no fun way to spend your time and money. If the lender or anyone who took a loss in the transaction were to go after them there is no statute of limitations on fraud. You would be stuck in the mud and based on how the "sneaky" buyer and seller treated you - one might guess that they would not take the fall alone. I like the idea of sending registered letter noticing them, but if you send to sneaky buyer and seller it will only assist them in their plans to hide the fraud. 

If you notice the lender, the HOA, the tax collector or anyone else who took a loss they may ignore it or just start the flaming lawsuit. Catch 22.

Bury head under pillow at night?  Next time know the DNA of your client?


Posted by Caroline over 4 years ago

What an interesting topic here, so many differing opinions!

I read this other post of an "Arms Length Transaction", here awhile back, and it had some banks requiring the seller to sign an affidavit saying they will "never, ever" occupy the home again. I would really like to know how that would hold up in court. Forever is a long time. Fannie & Freddie will let you buy a house after 7 years from foreclosure, and 4 years after bankruptcy.

Be interesting to see what would happen if a person sold a short sale to a buyer, then moved out, and bought the house back from them 4 years later. Or, what if the seller sells it to a buyer, who sells it to another buyer, and the short sale seller buys it from them 7 years down the road?

I think the intent of the "Arms Length" requirement is preventing sellers from intentionally selling a house they're upside down in short, then buying or renting it back to essentially get a reduction in principal at the lender/banks' expense. Just the same as a buyer buying as house and provides all the correct information, income, job, etc. Then they quit their job 6 months later. Is that mortgage fraud? We all know if you make $50,000 a year, and you forge documents saying you make $200,000 a year, to qualify for the loan, then it is fraud. The intent at the time is probably what we'd say is the most important factor in this situation.

I personally have only sold a few short sales, and they were from owners who are builders liquidating inventory. The buyers are still living there, and the builders are long gone.

As for penalties... that probably depends. If this is as common as some say it is, then I would imagine that sooner or later, someone is going to be made an example of. Some bank is going to prosecute a seller for fraud, in such a situation.

Posted by Eugene Lew (RE/MAX equity group) over 4 years ago

Not signing the agreement would IMPLY there is going to have something shady happen. I like the answer someone gave about pictures moving out for your file.  I think they can make your life miserable if they choose to on this, if & when that happens. 

Posted by Lyn Sims, Schaumburg Homes (RE/MAX Suburban - Schaumburg IL Real Estate - Northwest Suburbs of Chicago) over 4 years ago

My advice is similar to the dozens of other agents.

Find an attorney, a legal counselor, a barister, a solicitor and a lawyer.
I am sure your state real estate association has many of them on their payroll.
Get in touch with one of them. Depending what he or she will advise you, I would
contact the lending institution and tell them what and when you discovered. They
may or may not choose to do something about it. If anything, it will benefit you by
getting better service from that lending instituion in the future because they will
know who you are and know they are dealing with an honest agent.

Oh, by the way...if you do get locked up, can I have your open house signs?
Some of mine were stolen last week. -)

Good luck to you.

Posted by Freddy over 4 years ago

Was there an agreement, either oral, written or implied, at the time of closing?   No?   Then why is this an issue?   Well, I suppose it would be an issue if there was a party who was damaged in this matter.   Do the current occupants, i.e. the previous borrower's, whom I presume were released with a full settlement from their prior obligation,  stand to gain in any manner from their occupancy?   Are they tenants or ... heaven forbid, or a tenants with an option to buy, or contract purchasers?    

I don't know how you personally would have liability, but I would write a letter to both the Investor and your borrower client (the "A" party in the transaction), send it certified mail and make sure you have informed them that you have been advised that this MAY be interpreted as a breach of contract -- IF, and that's a BIG *IF* -- you DO actually get such advice, and from your attorney, not little old Andrew, who is only an educator and NOT an attorney.   

Anyhow, that's what I would do.   Good luck!  

Posted by Andrew Lietzow, MBA-Exec Dir Iowa Real Estate Investors Association - (IaREIA | Iowa Landlord Association) over 4 years ago

Excellent post - Yes, it is highly probable that no one will stop and look twice at this transaction.  Even so, if they did (and assuming they are not an active rain member and read this post) it is probable that they would not involve you.  BUT...

Posted by Ira Freireich, EBA (Best Buyer's Broker Realty) over 4 years ago

I have never heard of any seller getting hammered for something like this however, in today's society nothing would surprise me.

Hell, common sense has flown out the window..I mean, really, we need a law on the books that tells people that you CANNOT DRIVE AND TEXT AT THE SAME TIME...I mean, come on...

Also one should not take a cup of hot coffee, take off the lid and drive with it between your legs!!!

Since the Real Estate market fell anyone and everyone is looking to make an example out of someone...

As others have said...you might want to talk to an attorney for your own protection..and peace of mind..

Posted by Anthony Vosilla (Tony's Appraisal Services) over 4 years ago

Yikes! Ask for legal advise from agents and look what you get! 95% of the information posted is absalutly false! "Call the state" "Call the mortgage company" are these agents serious? I have spoken with several extrely qualified attorneys regarding short sale approval letters and arms length trasaction letters and their feedback regarding these documents, including the exact verbage that is stated above is completely different that what has been stated here. When seeking legal advise regarding legal documents, talke with a qulified atorney who specialzes in that area.


Posted by Steve Marx (Champion Real Estate) over 4 years ago

If I put on my contract lawyer hat here for a moment...  As far as I can tell, that section you've got in your post can be read as "at the time of signing".

So, if your buyer and seller had no agreement when pen hit paper, you're fine.  It wouldn't make sense that the buyer and seller could never, ever do another real estate transaction in their lives :)

Posted by Torgie Madison, Websites and Contact Management (Quicksilver Real Estate Solutions, LLC) over 4 years ago


Thanks for the inspiration. I think I'm going to call my congressman. :)

Posted by Christine Emmick (Freelance Writer) over 4 years ago

Bearer of bad news here. Sending cake with file in it.

You are likely at fault for not providing the necessary paperwork for all to sign at closing to address the property not being vacant on the day of closing. The standard is not what you did know. It is what you should have known. If the contract had no post occupancy terms for the lienholder to review and know about before closing, it is because you did not cause them to be there.

So it depends on whether or not they broke an agreement AFTER closing, that you wrote before or at closing. If the contract stated possession day as closing day, then you were aware, or should have been aware, that the possession was not transferring on day of closing in accordance with the contract terms. You should have seen/witnessed a vacant property before closing OR written up a post possession agreement if it were not vacant.

If on the day of closing you knew it was not empty (and you should have even if you didn't) and the loose agreement between buyer and seller was an extra day or more of occupancy, then you should have written up that agreement with an end date. You should then have sent that agreement to all parties, including the lienholder and the buyer's lender. If the buyer bought it as owner occupied vs an investor loan, there is potentially lender fraud on two counts, but you can probably get concurrent terms of sentence on that. :)

Was the insurance policy at closing for an owner, or a landlord policy? Did it have a vacant property rider? Or was the policy done as an occupied property with a tenant in place? Pretty easy for investigators to note if the buyer's insurance policy did not note a landlord policy with a vacant property rider, meaning the buyer, buyer's lender and buyer's insurance company thought it would be vacant at closing vs occupied.

If the agreement had no post occupancy provision (and since you don't mention one I'll assume it did not), then it was your obligation to view the property as vacant prior to closing and prior to giving the buyer the keys to the house.

There is no excuse for your not knowing the property wasn't vacant and writing up a post possession agreement once you knew it was not vacant immediately prior to closing.

Let's say you DID write up a 3 day post possession or a 10 day post possession or even a 30 day post possession agreement, and that document was signed by buyer and seller as part of the contract and sent to all parties and lenders/lienholders. If the parties subsequently extended or ignored that agreement, then you "may" not be liable, depending on how that post posession was worded.

But if the property was not vacant prior to closing and you did not write that up in a post possession agreement, then you are liable for not having done so.

Where do I send the cake?


Posted by ARDELL DellaLoggia (Sound Realty) over 4 years ago

I do not get the logic of everybody advising the agent to seek legal advice.  The rental agreement happened after the transaction and he was not a party to it.  If  Bryant  would not driven by the house or the sellers would not be out at that exact time,  he would never know about this.   How can he be liable for a rental agreement happened between 2 people.  We are not the banks or states  paid detectives, I see no logic here.

Posted by Teksin Duman over 4 years ago

P.S. to mine above. The issue is not merely the "arms length transaction notice". The possession terms of the contract are in play. If the contract said possession AT closing, that means you were to verify that the property was vacant at closing OR modify the contract if the seller had not vacated prior to closing.

Posted by ARDELL DellaLoggia (Sound Realty) over 4 years ago


If the contract called for the seller to move out by closing, then it is the agent's responsibility to go look in there and make sure it is empty before the transaction closes.

Posted by ARDELL DellaLoggia (Sound Realty) over 4 years ago

I'm no attorney, but according to the language you provided as long as there was no agreement, oral, written or implied at the time of the closing that you are aware of, I would say you are OK.

Posted by Dan Quinn, Dan Quinn (Berkshire Hathaway HomeServices PenFed Realty) over 4 years ago

See no evil...hear no evil...speak no evil.  i would leave well enough alone.  During the transaction til close you complied with all the shortsale requirements.  Just make sure you have all your documentation and pictures to prove compliance.  I wouldn't pass down that street if it took me directly to my mothers house!!  The penalty for breaking the Arm's Length Agreement is jail time!!  


Posted by Shannon Adams over 4 years ago

Well I certainly can't have a new, original opinion after 138 comments, but I do like the picture. It was very creative!

Posted by Michael Weaver, Real Estate + Technology (The Vearus Group) over 4 years ago

One thing that Agent's have to realize is that agents have no fiduciary duties to the lender at all or at any time. The only thing that agent's have to do once signing the document is to ensure that the parties involved are represented fairly. I love how agents play 'lawyer'. It really has  nothing to do with you what the seller does or what the buyer does. Leave that up to the lenders to deal with. Why should you be a 'tattle tail'? 

Nothing against agents as a whole but to the few that go out of their way to find out a matter. 

There is a legal way to get around these laws because this is the United States and people are free to do as they please. 



Posted by Brian Peters over 4 years ago

You have to determine your down side.

You did nothing wrong, but you are now aware of what might be a felony.

You could send a certified letter to the lender...say Deutsche Bank.    Letting them know that you became aware of the situation.

It should cover you. 

As a party to the transaction, you have only the opportunity to get caught up in it.  Your only defense is the truth.  You will have a hard time claiming ignorance now that 139 of your fellow Realtors know your secret.

The customers probably have a story....they completed the transaction, moved out....then saw the for rent sign....it really was arms length at that time.   Or they really are felons and you are a hero for helping capture them.

Posted by Randal Jenkins, Your Investor Friendly Realtor (Coldwell Banker F I Gray and Sons Residential, Inc.) over 4 years ago

Quit being the banks detectives and furthermore quit letting the banks be king and have court with you as court jester or pawns for the slaughter!!! *throws hands in air*

Posted by Brian Peters over 4 years ago

I would hope not, as you had not prior knowledge of the "side deal".  However, it is scary to think that we must  worry that the actions of another could cost us our license.

Posted by Gayle Barton, Forsyth County Real Estate - Cumming GA Home Sales (BERKSHIRE HATHAWAY Georgia Properties) over 4 years ago

the way i understood it and correct me id im wrong but the first sentence says it all "there is no agreement" at the signing of this. it doesnt say theres a penalty or its not allowed it is just stating that there is nothing out there saying that they can stay between the agents and the sellers and buyers.

Posted by Anonymous over 4 years ago

I am not an attorney, but I too think it matters what the "intent" was at the time of contract. The Sellers intended to move. They could not get a loan mod and were resigned with the fact they'd need to move somewhere else. There was no contract orally or written between Buyer and Seller at the time of the sale. Where the Buyer is concerned, I don't think he'd find better renters than those who have lived in the house as previous home owners. They are more likely to take better care of the house than some of the other less respectful renters.

Posted by Karen Burns over 4 years ago

Shrewd buyer. Approach the sellers "AFTER" the short sale. Sellers are innocent, and you have an "Avoid Jail Free" card.

Posted by Ed Borne (Transitions Realty) over 4 years ago

Love the striped suits....looking sharp!  I shall park and enjoy the comments since I am puzzled about broker responsibility in something like this!!!

Posted by Jeani Codrey (RE/MAX Access) over 4 years ago
The bottom line is the lender can rescind the short sale. You did not make the agreement so you are not responsible, if that is your concern. The buyer is now the owner so he should be considered. If the short sale is voided it's no longer his/her house. The lenders attorneys will read this disclosure the way it best suits them and they would not care about intent, timing or anything else in their decision to void the short sale.
Posted by Kathryn Collins over 4 years ago

It appears that no one has done anything wrong. There was no agreement. No where in the disclosure does it say that the property can never be leased back to the seller, only that there is no agreement to do so. One would think that someone would have to cough up some actual proof there was an agreement before trouble could be made for anyone involved in the transaction.

Posted by Debra Fergerson - Real Estate Broker Associate (Tropic Shores Realty) over 4 years ago
Sounds like an issue for the two lenders involved, not the RE agents. If the form was between the buyer and his lender, thereunder could call the note. If the agreement was between seller and their lender, I imagine thatender could sue to recover their loss, if they had nothing else to do, like, maybe 100,000 other short sales to worry about.
Posted by Tom Tousignant, CMPS, NMLS id#56471 (Fairway Independent Mortgage NMLS id #2289) over 4 years ago

Wow...I'm sure the bank is too busy with all the other foreclosures and short sales to really be trying to document all the new tenants in homes that have closed.  I'm sure you'll be fine.

But it does make me question again why something like this matters so much to the banks, when they and the gov't are throwing money away on stupid stuff.

The old sellers/new tenants would have to rent from someone, somewhere.  It just turned out the new buyer made them an offer they couldn't refuse.  I'm sure it happens everyday.

Good luck!

Posted by Karen Steed over 4 years ago

I know of a situation where the sellers boyfriend bought the house on a short sale- he lived 70 miles away

and no addresses or names connected them as a couple.

But what really upsets me is they found an agent who was willing to only submit THAT buyers (the boyfriend) offer to the bank.

He made the whole 6%commission himself, plus did a very illegal and not too mention highly unethical thing. I do not know if there was any arms length agreement signed, but I do know the agent is still very unethical.

These are the types of things that make it bad for the rest of us. the property was listed on MLS and everything, only the listing agent gave his offer to the bank. And the sad thing was, the sellers were able to make the payments,they just didn't want to because they had lost so much value-

I have had people approach me about doing this type of thing and I just turn them away and tell them I will not go to jail or lose my lisence for them or anyone for that matter.

I feel like turning in people like this, but then I wasn't involved, and maybe there are other circumstances I don't know about.-

Just bothers me the way some people have no morals.

Posted by DD over 4 years ago

Considering the main purpose of the creation of the Arm's Length transaction affidavit was to cut down on all of the shady deals where the sellers were not being completely truthful on their financials and short selling their homes to family, friends and business acquaintances...

... what you describe is hardly what the banks are worried about.





Posted by Paul Francis, Las Vegas Real Estate Agent - Summerlin Homes (Francis Group Real Estate) over 4 years ago

There were many mistakes made since the beginning of the current real estate crisis.  Rules and laws are being created on the fly.  The only way to not have made a mistake is to not have done anything!

Posted by Tony Lewis, RE/MAX Valencia, Stevenson Ranch, Santa Clarita (RE/MAX of Valencia (Hall of Fame) 30 year Valencia Resident) over 4 years ago

Bryant, I would think the bottom line is that there wasn't an agreement at the time all of you signed the form.  It doesn't say or that they will ever let the sellers live there.  Just my thoughts though!!!

Posted by DeeDee Riley, Realtor - El Dorado Hills & the Surrounding Areas (Lyon Real Estate - El Dorado Hills CA) over 4 years ago

Here is my thoughts along with my attorney's thoughts on the matter...



Posted by Joshua Gayman over 4 years ago

So much of what is being done in this market is making me sick. Im not sure what has happened to all the honest ethical people in the world. I know of an unmarried couple who bought a home back in 2005 (the high time in our state) for 320K - bought it under her name. The market dropped and they decided they didnt want to owe 300K so she (who is a realtor) had someone in her office list the house but put it as pending right away. The agent wrote a contract on the house for 127k in the boyfriends name and submitted it to the bank. They took it and they both still live in the home. I dont know if there was ever an arms length agreement signed but I think that is so dishonest. He runs around boasting about his great deal he got and was able to stay in the same house. She calls herself a Realtor-I call her a crook.

Posted by Cheryl over 4 years ago

I have not seen this scenario written about before, but I have heard it discussed between agents. Some people (me included) go by the written word, if its says don't do it, I don't do it. In this case I would get back to my former client and let them know they had put me in a bad situation, I would ask them for a letter of explanation and I would file it right after I talked to my broker.  Other agents are more willing to roll the dice and see if anything pops up later. Some of those agents do very well but I would rather go through life not having to look over my shoulder. It will be interesting to see how this plays out! 

Posted by Bill Bentley (Realty One Group) over 4 years ago

On a Fannie Mae home purchase I as an agent had to sign an agreement that I would notify Fannie Mae if I found out the buyer moved out of the property and used it a a rental.  Did you agree to be the police for them?

Posted by Gene Riemenschneider, Turning Houses into Homes (Home Point Real Estate) over 4 years ago

Cute costumes, but very serious story.  Now that this is on AR, on the INTERNET, I would definitely get legal clarity.  Even though you had no idea they would do something like this, make sure you COA!  Great post and good luck to you all!

Posted by Jan Green, RE/MAX Excalibur, REALTOR®, EcoBroker, GREEN (RE/MAX Excalibur,Scottsdale, 602-620-2699) over 4 years ago

Wow! This is a great topic. Brain cells all over the US were certainly in high gear. THIS is the post we should forward to our agent friends to show the value of Active Rain. I learn more in these blogs and responses every day than I ever would sitting in a class. I hope there will be a defining solution at some time. Keep us "posted"

Posted by Lynn M. Bower, PA, ABR, GRI, RSPS, AHWD, PMN, CNE (John R Wood Realtors) over 4 years ago

Some very intersting comments.

ARDELL. I completely disgree that I have an obligation to check whether or not the property is vacant at time of closing. The agreement was already reached and I can assume that all parties are abiding by their part of the contract. I'm not a part of that agreement.

Someone had mentioned this being a felony. What law was broken? Seems to me all that was broken was a contract condition. And actually it's just an affidavit and is not a contract addendum. So I'm not sure any laws were broken. Just an agreement.

Still I would be very interested to see any case law related to this.

As always I appreciate everybody taking the time tp participate in this discussion.

I have sent this thread to the seller.

Posted by Bryant Tutas, Broker/REALTOR, Tutas Towne Realty, Inc (Bryant Tutas-Tutas Towne Realty, Inc) over 4 years ago


Posted by Greg Uihlein over 4 years ago

Sounds like the buyer and seller are taking a huge risk.  For your own protection, I'd document it. In PA, arm's length also includes a clause that no party to the contract is a family member.


Posted by xxxx xxxx (xxxx) over 4 years ago

Curious to find out, Bryant, the seller's reaction to this post. Also the buyer's.

Posted by Judy Chapman (Referral Network of Illinois LLC) over 4 years ago

As I see it, you need to do what is right and disclose or you are quilty also. Unfortunatly, in our county nothing even happens when another REALTOR blatantly disregards the rules to disclose and buys a property for herself  with never a disclosure in writting or otherwise. After a time consuming Code of Ethics hearing all she had to do was take a class. Thank God for honest people like you who try to do what is right.

Posted by Penny L Bogardus over 4 years ago

Each State having different laws makes this a tough scenario.  On the surface if all parties acted in good faith upon the Arms Distance Agreement during the transaction the Act was adhered too.  If you had no knowledge of a connection during the time leading up to and after the actual closing you performed in a consistent manner as when you represented the property with the Disclosure information provided by the Seller.  There is a chance the Buyer contacted the Seller after closing to see if they would be interested in renting the home, as that was the intended use for the purchase.  It seems the new owner now runs the risk of eviction if the payments cannot be made.  Running the scenario by an attorney to at least be on record to show you acted with the knowledge seems good advice.  

Posted by Robert Courtney, Century 21 All Islands, RA, CDPE, MCRE, CIAS over 4 years ago

I don't think you have anything to worry about.  However, should I be wrong, see if they have stripes going vertical.  They are much more flattering. LOL

Posted by Carol Tunis, Carol Tunis...a "HouseSold" name! (Florida Homes Realty & Mortgage) over 4 years ago

Ok, we all know it is illegal and you knew nothing about it, but my question is why is it wrong? Banks are letting howowners rent after they are foreclosed on. why shouldn't short sellers have the same option?

Posted by Marcy Moyer, CDPE (Keller Williams Realty Palo Alto Probate & Trust Specialist) over 4 years ago
Maybe they moved out and then found it for rent on craigslist? Nah. You did your best based on information given to you at the time. What they decide to do with the property after closing should not be your responsibility. Aloha
Posted by Karla Casey (Karla Casey (BIC), List Sotheby's International Realty, Hawaii) over 4 years ago

Bryant, your photo is priceless!  Richard, Karla and Marcy's points make sense.  I hope you update us on this topic in the future.

Posted by Sharon Parisi, Dallas Homes (Keller Williams Dallas Premier Realty) over 4 years ago

I think your fine & I hope your clients will be as well.  Where else can they live on such short notic & three kids as well.

Posted by Phil Parisi, Specializing in Florida's Treasure Coast (Better Homes & Gardens Real Estate Laviano & Associates) over 4 years ago

I agree with #37 - The banks do whatever They Want, but you have toe the line even if you have no control over anything!

Posted by Mark & Janelle Potter, Mark and Janelle Potter Realtors - Broadmoor Colo.Springs CO Home Sales (The Real Estate Network 719.331.4824) over 4 years ago

This is a nightmare scenario.... just another reason to hate short sales.  Unfortunately, we have to deal with them as a part of our reality.

Posted by Debbie Solano, CRS -- Tulsa, Oklahoma Horse Properties & Land (Coldwell Banker Select, Realtors -- Tulsa, Oklahoma) over 4 years ago

Well you certainly did not do anything wrong and you have little to worry about. the buyer and seller have to worry unless they can prove that the idea of the sellers regain occupancy came AFTER close of escrow..and the longer after the close, the better (for them)

Posted by Paddy Deighan JD PhD, Paddy Deighan J.D. Ph.D (Aston McLaren Inc) over 4 years ago

I would call my state association legal hotline and ask the attorneys what I should do.

Posted by Dennis & Terri Neal (RE/MAX, Big Bear) over 4 years ago

The first thing I learned when I enlisted in the US Army (several lifetimes ago), that it's easier to get forgiveness than to get permission.

You are completely in the clear! The common contract law states that two people cannot agree to something that is contrary to law (eg: I agree to buy 1lb. of cocaine for $100)! It also states that a third party having knowledge of an illegal act has no responsibility to let the authorities know about it. This has been tested in cases where a bystander didn't report a criminal act (home break in, etc.).

The law states that you have free will to do anything you want as long as two people agree to it and it's not against the law!

A third party (lender) cannot force you to behave in a certain way after the deal is made. Does this mean that for the rest of their lives, the buyer and seller can never again be in a real estate deal? Of course not!

This also happens when a person borrows money to buy a property and states that he will be an owner occupant. The day after close of escrow, he changes his mind and rents the house. I've heard that lenders try yo go after the owner and try to re-do the loan as an investor loan without success. Does that mean the owner who moves in to the house cannot ever move out, or move out a week later and rent it? How about a mont later? Do they have to wait 5 years before they can rent? Of course not!

The intent of the agreement is to prevent Uncle Fred from buying the house owned by his Nephew John for 50% of the value, and then selling it back to John for the lower purchase price.

Unfortunately these morons at the banks have no clue regarding the law.

Also, as others have asked, what the hell can the lender do in this case? It would cost them a fortune to go after the buyer and seller and have very little chance to prove that an illegal act was committed. What law did they break?

Posted by Peter Rozsa (Cupertino, CA) over 4 years ago

After thinking about this I do have a few questions...Full disclosure; I sense that I have a deal that is shaping up to be exactly the scenario sited.

1)What do I do as the mortgage rep when I find out that a qualified buyer is intending to rent the home back to the seller?

2)What reaction should I expect from the Buyer and the R/E Agents when I suggest that the deal cannot be done based on the phrase in the contract...Absolutley nothing to to with qualification for the mortgage?

In my opinion, I feel that the banks are overstepping their boundaries here. I did not realize that the long arm of a bank could reach beyond a transaction with a definitive closing and dictate who a homeowner can rent to.

What if the Buyer elected to allow the seller to live rent free? What if the "seller" comes back 90 days later and offers to rent the unrented property? Where does the long arm of the bank cease to grab?

This is a slippery slope and I believe that the banks have taken their implied authority well beyond it's limits. I would imagine that a Lawyer with moxie and the court of public appeal will not feel warm and fuzzy towards these banks...Only a matter of time before one of these situation explodes.

Posted by Stephen Mondile over 4 years ago

I would recommend keeping excellent records in this case and sending an email to the seller and buyer stating that they had agreed not do what they did, did so without your knowledge, should seek legal counsel in case the bank finds out.

Posted by Jim McCormack, Nashville Short Sale REALTOR - Stop Foreclosure (Accelerate Realty Group, LLC - Nashville Short Sales & Foreclosure Help) over 4 years ago

Jim McCormack: When the transaction records, the seller's and buyer's agents are no longer representing either client and their job is complete and done! They are no longer legally libel for the action of their ex-clients!

One other thing I learned when I was in the US Army is to NEVER VOLUNTEER!

Posted by Peter Rozsa (Cupertino, CA) over 4 years ago

Thanks for the interesting scenario and all the great comments...I think we all know what to do in the future should we find ourselves in a similar situation.  CYA!

Posted by Mike Miller over 4 years ago

BB...read the "arms length" agreement YOU signed and YOU quoted in this post. In it you confirm that there are no written OR VERBAL agreements for the seller to remain in the home past closing. By signing that you are obligated to find out if there are such agreements. You obviously knew the seller was not leaving on the day of closing. You said as much in this post.

Granted you thought it was reasonable because they had 3 children and short notice and if you had written up a 2 week post occupancy, the lienholder may have approved that. But you chose to turn a blind eye to it.

If you did not have to sign the Arms Length Transaction Notice, the people would be right that maybe it was none of your concern. But you did have to sign it and there is a reason why you had to sign it.

This one is water under the bridge, but please tell me you "get this" and in the future when you put your "John Hancock" on a document confirming the seller will NOT be staying in the property as a tenant (long or short term...even 3 days) that you will do the right thing...next time and do a final walk through to make sure it is vacant at closing or write up a post occupancy agreement for the lienholder to approve.

Posted by ARDELL DellaLoggia (Sound Realty) over 4 years ago

Ardell. That's not what I said in this post. What I said was I didn't find out until months after closing that they were still there. When I signed it I had discussed it with the sellers and they were moving. This scenario only came up after closing. The affidavit I signed was confirming that there were no agreements either written or implied that would allow the sellers to maintain possession after closing. There weren't.

Posted by Bryant Tutas, Broker/REALTOR, Tutas Towne Realty, Inc (Bryant Tutas-Tutas Towne Realty, Inc) over 4 years ago

It seems to me, the intent of the arms length clause, is to prevent FRAUD.  If the sellers and buyers had no prior relationship, friendship or family ties, then we have a seller who could not refinance, and went to short sale.  The buyer generally discloses that it is a non-owner occupied purchase, then the intent to lease the property is already disclosed.  If the seller intends to lease the property, (generally what a non owner occupied purchase does), then when the property is legally theirs they can lease it.  period.  (at least thats my OPINION).

If the seller has accepted some hafa relocation dollars (i've yet to see any distributed), it could get dicey on the relocation funds, but near as I can tell, this is a free market transaction, as long as the new renters are paying fair market rents, and there were no previous ties to one another.

Now the buyer had made an offer, and the bank in their due diligence did a bpo, listing agent and buyers agent and the buyers bank financing appraisal....then fair market value was paid for the house.  Somewhere in here, the buyer or lessor, lets it be known that the house is for rent, then the lessee falls under FAIR HOUSING, and the seller cannot discriminate, except on their ability to pay the rental amount.

Now then, as long as we are on the subject, I had a CASH buyer for one of my listings, on a vacant home, and was a remodeler.   The bank wanted his partnership papers, a power of attorney for the partnership AND his personal w-9 for his income for the business.  The buyer WALKED...

I believe here it is the TITLE company who determines the legal entity as affidavits of ownership and the bank should let them do their job..and not interfere in a CASH transaction.   JEEEEZ.


So is the bank making LAW?, or just asking you to sign an affidavit that it is arms length?   Just found this video upline in this blog:





Posted by Gloria over 4 years ago

BB, If things go bad, I will visit you and bring a cake with a file in the midlle so you guys can escape! LOL! I wouldn't worry, now go do another deal!

Posted by Abel over 4 years ago

Dara. Those are some serious penalties. I wonder why bank fraud is not inforced more often? 

Posted by Bryant Tutas, Broker/REALTOR, Tutas Towne Realty, Inc (Bryant Tutas-Tutas Towne Realty, Inc) over 4 years ago

There are a lot of federal laws on the books that are not often enforced, particularly against minor players.   Federal prosecutors seem to prefer more widespread abuse particularly in dollar form.  What would the bank fraud damages be in your scenario?  The original owner short sold the house and presumably received debt forgiveness while still maintaining his tenancy - how big is that fraud even if it could be proved?  Probably limited to the amount of debt forgiveness for the seller.  Now if the investor/purchaser in your deal had a pattern of offering to sellers "Stay in your home and I will do a leaseback with you"  and uses that business model to the detriment of the banks I believe that would definitely warrant prosecution.  It is really a numbers game-even our govt. has limited resources. 


Just my opinion and not meant as legal advice.

Posted by Dara Tancredi (Southern Utah Development) over 4 years ago

Definitely try to exempt yourself sooner rather than later. I don't know about Fla. but in Cali. it could get real ugly. Remember the age old adage "Ignorance Is No Scues"

Posted by John DL Arendsen, Gen Cont, Factory Built Const & Dev, RE Brk, INVS. (TAG Real Estate Sales & Investments, ON THE LEVEL General Contractor, Crest Homes Factory Built Housing Dealer & Developer) over 4 years ago

I would call your legal hotline for direction and secondly disclose to the proper authorities that you are now aware of the transgression and we were previously unaware. 

Joe Woutersz

Posted by Joe woutersz over 4 years ago

I would call your legal hotline for direction and secondly disclose to the proper authorities that you are now aware of the transgression and we were previously unaware. 

Joe Woutersz

Posted by Joe woutersz over 4 years ago

I was sucked into this by Ardell (#183) above posting this on her Facebook page.  I agree with post #184, that Ardell is twisting the facts and/or not doing any real analysis.


I agree with Joe Woutersz in #193 about consulting a legal hotline, or even paying an attorney to give you an opinion.  I did just that back when I was practicing law and thought I had to turn in a former client.  And I did so even though the rules applicable to attorneys on this type of thing were much clearer than the rules applicable to agents.  If you do take action here, that very well could have very negative impact on a former client, and you want to be on firm legal footing prior to taking such action.

Posted by Kary L. Krismer over 4 years ago

Some very interesting and intense posts here. I for one, have never encountered any of this in a short sale. However, is it the agent's job to go back and drive around the neighborhoods to see if past clients are not being deceitful, or violating the terms of their purchase contracts? As long as you know at the time of the signing of the document, that you do not know of any side agreements, and as far as you know it is an Arms Length transaction, then you should be set.

You can't control what other do. To try would be an exercise in futility.

Posted by Eugene Lew (RE/MAX equity group) over 4 years ago

In Washington under our standard contracts the seller doesn't have to be out until 9:00 pm, and closing is usually between noon and 5:00 p.m., so they are often not even be out of the house at closing.  While it is true they should be moving, many actually move the day of closing so even if you saw no moving activity that morning it would give you very little time to act.

Posted by Kary L. Krismer over 4 years ago

Kary, you are so funny. Is that the Pacino line. "Just when I thought I was OUT they PULL me BACK IN!" :)

Posted by ARDELL DellaLoggia (Sound Realty) over 4 years ago

Bryant, I've actually managed to read most the posts here a couple of times now, and I'm impressed at the percentage of agents which advised you to get legal assistence.  I hope you took that advice, and I hope you stayed away for the advice of those here who suggested taking action that might be adverse to your former client prior to getting legal advice  (e.g. contacting the bank before contacting an attorney).

Since I'm not authorized to practice law in Florida, and haven't seen the entire contract, I'm not going to give any legal advice here.  In fact, I wouldn't give specific legal advice on this even if it were based on Washington. Instead, I'm going to give an English lesson.  The language at issue is:

There is no agreement, whether oral , written, or implied, between the Seller(s) and the Buyers and/or their respective agents which allows the Seller(s) to remain in the Property as tenants or to regain ownership of the Property at any time after the consummation of this sale transaction.”

As many have noted, that is written in the present tense.  The "at any time" language refers to the time the seller rents or regains ownership, not the time of the creation of the contract to do so.

Some people here interpret it as being:

“There is and will be no agreement, whether oral , written, or implied, between the Seller(s) and the Buyers and/or their respective agents which allows the Seller(s) to remain in the Property as tenants or to regain ownership of the Property at any time after the consummation of this sale transaction.”

I won't go into the legal reasons why a court might not interpret it that way, in part because I'm not at all familiar with Florida case law.  What I will point out though is that the bank is actually interested in is making sure the original contract did not include a favorable lease-back or option that might have affected the funds to be received by the bank.  They really don't have any interest or even care about where the seller lives after the fact.  Of course, if the seller moves away it's better for everyone for many different reasons, including that there is no question that a favorable leaseback or option exists, and if it does exist, no question as to when it was created or whether it affected the price. But the concern of the bank is over price, not over where the seller lives.  That very well could be the reason the language used is present tense.  Pure speculation.  It could also be drafting incompetence if they did mean something more, and there is some evidence of incompetence.  For example, the use of "Seller(s)" but not "Buyer(s)."  Also the use of the word "consummation," unless maybe they think one party is being screwed.  ;-)

Again though, I hope you get legal advice and look forward to your reporting back what that is if it's favorable and your attorney agrees it's okay to post that information here.

Posted by Kary L. Krismer over 4 years ago

Great response Kary. I did seek legal advice. My opinion is that banks have way to many real issues to spend time and money worrying about my sellers staying on in their old house while they decide where to go. I'm not the occupancy police for the lender.

Posted by Bryant Tutas, Broker/REALTOR, Tutas Towne Realty, Inc (Bryant Tutas-Tutas Towne Realty, Inc) over 4 years ago

After reading Richard's comments I knew that it was a fashin statement. Also, I do not think in this case there was any prosecution because what is the damage? It would be differetn if the Sellers used a trick to basically repurchase a home for pennies, then there would be fraud. but if they stay and pay rent, what is the difference to the bank who pays rent to the new owner?

Posted by Jon Zolsky, Daytona Beach, FL, Selling Daytona paradise for heavenly good prices (Daytona Condo Realty, 386-405-4408) over 4 years ago

One more thing on this topic.  When I said above that there are "reasons why a court might not interpret it that way" I was referring generally to rules of construction.  The problem is though that the rules of construction used by courts often conflict with one another, and the courts often pick and choose the rules to get to the result desired by a particular judge or group of judges.  Thus, there is no assurance that if this matter were litigated that the court would recognize the language used is present tense, and it is likely that any attorney advising a real estate agent about this would warn them of that possibility. Thus, by going to an attorney it's unlikely you're going to get an opinion that you're 100% safe, unless maybe that attorney can find a recent binding decision.  Even so, I still recommend getting that legal opinion.

Posted by Kary L. Krismer over 4 years ago

Boy, what a can of worms.

I commend you for doing what appears to be the right thing all around.

I think that speaking to an attorney was a smart move, if only to confirm that you had not done anything wrong.

I TOTALLY agree with your decision to document the goings on via email. There's nothing like written, verifiable exchanges if the need arises.

Good for you in doing the right thing!!! We need more agents like that!

Keep up the great work!


Posted by Edith Schreiber, Dallas Area Real Estate (Luxury Homes, Move Up Buyers, 1st Time Homebuyers, New Construction) over 4 years ago

Thanks Edith.

I think the sellers are now working on moving. They have read all of these comments.

Posted by Bryant Tutas, Broker/REALTOR, Tutas Towne Realty, Inc (Bryant Tutas-Tutas Towne Realty, Inc) over 4 years ago

FWIW, I asked a very respected real estate attorney up here in Washington, and her response was that you had no duty to do anything to disclose, but that you also couldn't make any statements that might further any misrepresentations, if any, that might have been made.  It was via an email exchange, so I don't exactly know how she thought someone might further a mistatement after closing.  I guess if the bank knocked on your door and asked you a question?

Posted by Kary L. Krismer over 4 years ago

I think you had better start lifting weights and practicing taking quick showers!

Posted by Wayne B. Pruner, Tigard Oregon Homes for Sale, Realtor, GRI (Oregon First) over 4 years ago

It sounds like you did your part. However, someone might have bent the rules on their part. I could see this happening as any investor is going to try to get a hold of the tenant it is just a matter of when they do it. Hopefully after it closed.

Posted by Patrick Henry, PMZ (PMZ) over 4 years ago

I think "WOW" sums it up pretty well!  It is scary to think all of the legal things that we as real estate agents are liable for. However, I do agree that as long as you were "not in the know" about everything then technically you should be ok. I don't know about the people who say to report the sellers and buyers because unless you know the entire complete scenario that occurred after Closing you could just be stirring something that was entirely coincidental.

As a former Kissimmee resident I also wanted to let you know that when it comes to sellers in your neck of the woods or buyers that I work with that are headed your way from North Carolina I will send you the referral! I love to read your posts!

Posted by Krista Abshure (Fathom Realty) over 4 years ago

It's amazing what you see go down these days. I think a lot of folks just look out for numero uno and don't look at what they sign or what they promise

Posted by Sandy McAlpine, Search Lake Norman Homes For Sale - Lake Norman NC (McAlpine Properties) over 4 years ago

Bryant, I have yet to hear a story where a lender pursued any legal action against a buyer or seller for fraud or misrepresentation regarding the arms length affidavit.  In most cases, I think it's the servicer protecting their butts against possible litigation from the investor who owns the note...in case something fishy was discovered down the road.  I've even had buyers refuse to sign them, and the bank still moved forward with the sale. 

I don't think the banks are policing it that closely, so I can't imagine any repercussions for your seller.  This is an old post, so I'm sure you've already dealt with it and come to a resolution/final opinion, but a very intriguing post nonetheless.  Thanks for sharing!

Posted by Matt Robinson, www.professionalinvestorsguild.com (Professional Investors Guild) about 4 years ago

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