What Is An Arm's-Length Transaction In A Short Sale?

This question of what is considered an arm’s length transaction in a short sale is something that is very important when considering an offer for the bank to approve. By definition it is a transaction in which the buyers and sellers of a product act independently and have no relationship to each other. The concept of an arm's length transaction is to ensure that both parties in the deal are acting in their own self-interest and are not subject to any pressure or duress from the other party. in a Real estate transaction the bank will have both parties sign a form stating that this transaction is an arm’s length transaction. They are looking to protect their interest in the transaction of the house. Sellers and buyers always ask me why? The answer is really simple. The bank is willing to accept less than the house is worth and allow the seller to walk away from the remainder of their financial obligation. They do not want a situation where the seller is looking to cheat the bank. Suppose, you are selling your home on a short sale. you owe $200,000 on the house and the bank is willing to accept based on the current market conditions $150,000. They do not want the seller having a family member or relative purchase the house and then the seller is applying it back through the family member just to reduce the principal amount they owe on the house. If you are considering short selling your house and a family member says i want to buy it when you find out what the bank will accept politely tell them you cannot sell them the house.... Dave diCecco Realtor/Broker www.davedicecco.com