BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Short Sale Arms-Length Transaction Certificates
Q: I am representing a buyer on a short sale and the seller’s lender has forwarded to me a document that they are requiring my buyer, the seller and both agents to sign. In signing this document, I am being asked to certify:
- That the sale is an “arms-length transaction” and that the buyer is not related to the seller.
- That there are no side agreements which have not been disclosed to the lender.
- That there is no agreement for seller to rent back after the close of escrow.
- That there is no money or other consideration being paid to seller.
- That all of the above is true and that I will indemnify the lender if any representation is not true.
I am concerned because I have no knowledge what the listing agent might be doing or agreeing to. Also, while I know of no relationship between the seller and buyer, I have no way of knowing if they are related in some way that has not been disclosed to me. What do I do?
A. These types of “Arms-Length Certificates” have been around for a while; but recently lenders have been adding additional representations, and even adding the indemnity provisions that you mention.
It would be dangerous indeed to sign such a certificate because you are in essence making a declaration as to matters of which you have no knowledge, and may, in fact, be agreeing to indemnify the lender if any such matters turn out not to be true.
PRACTICE TIPS
1. When being asked to sign such a document in a short sale, as either a listing or selling broker, READ IT IN DETAIL. If the declaration contains statements of which you have no first-hand knowledge, add the following just above your signature line:
“Signed to the best of my knowledge and belief.”
2. If the lender then requires you to sign this document without such a qualification, discuss that with your manager or broker before proceeding.
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