Home Buying in 95111>Question Details

Goldfish, Home Buyer in 95111

Short Sale: Seller has condition of rentback. Denying all offers if no rentback in place. Any way to get around this? Am buying home to live not rent?

Asked by Goldfish, 95111 Mon Sep 5, 2011

I've found a short sale house that I like. According to listing agent, short sale has been approved by lender,
Issue is seller wants to stays; asking for a rentback. I don't know who the lender is but likely will be Arms Length Affidavit to sign. I like the house, but refuse to go to jail for mortgage fraud.
Is there some way to get around seller's condition of rentback? I don't understand how seller can get away with having terms of conditions on this short sale.
House has been on the market for 224 days-obviously, these people aren't in any hurry to sell and the seller stated he's basically only accepting offers if someone rents him back the house.
My other question: can seller do this? can they legally refuse an offer because it doesn't meet their condition of rentback and not send it to the lenders? Any way around that? Can I somehow send my offer to the lender? It seems fraudulent of the seller to decline offers without letting the lender know.

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Answers

9
Sometimes you get involved with agents who aren't well versed in the short sale rules and processes. As many others here have opined, you might want to avoid this one with the rent back condition.

Main reason? You and the seller can both go to jail! By law, the transaction must be 'arms length': you WILL sign a declaration attesting to that fact in any short sale. It is also specifically stated the new owner may not sell or rent the home back to the current owner. Period. It would appear the listing agent isn't aware of this caveat if he/she actually wrote the listing that way. Ask your agent to report this listing if the listing agent doesn't change it. The seller may not even be aware of this rule. Offered a chance to correct the listing, they may just do so. They cannot legally offer this same condition to any other buyer either, so they may as well entertain your correctly submitted offer. Good Luck!
0 votes Thank Flag Link Fri Sep 9, 2011
I would move on. Your agent should prequalify properties before you see them to make sure you are not getting involved with a seller that has unrealistic demands. The sellers lender will most likely NOT approve the contract if there is an agreement in place that might be considered favorable to the seller. Don't waste your time with this one. Make sure your agent is only showing you homes that have a chance of closing. There are specific questions that should be asked of a listing agent; if they can't answer them, then the listing does not have a realistic chance of taking place.
0 votes Thank Flag Link Fri Sep 9, 2011
Suggest you think thru the risk vs reward. Often they will not pay or pay on time, to get them evicted will take much longer than it is worth.
Web Reference: http://sam.shueh.net/
0 votes Thank Flag Link Fri Sep 9, 2011
In some cases, whenever I encounter ridiculous conditions like that, I'll make an offer anyway just to test the resolve of the seller. I'd make an offer with a lease-back where the seller would be required to prepay 100% of the rent (which would be 200% higher than the market rent [assuming that wouldn't exceed any possible rent caps]) with no automatic renewal built into the lease agreement; I'd require the seller to pay my rent while waiting for him/her to vacate; I'd include an overstay clause with extremely stiff penalties; and I'd further discount my offer for the inconvenience.

Additionally, I'd include another, cleaner offer without the lease-back.

I'm pretty sure that the seller would balk at my ridiculous set of conditions too; yet, I do this to help soften the seller. I've had some sellers to rightly point out that I had countered with a set of ridiculously outrageous conditions, and I leveraged their feelings to express my feelings about their outrageous terms. Some sellers respond well to this, and I say "NEXT" to the rest.
0 votes Thank Flag Link Mon Sep 5, 2011
Hi Xxxbambixxx,

The seller is still the 'owner' of the house - until it goes to foreclosure and the bank then owns it. That said, you have to submit your offer to the seller/owner. Since this is a short sale, the seller/owner then has to get their lender(s) approval of the short sale. You cannot submit your offer directly to the seller's lender(s) until it is their property (foreclosure/bank owned).

If you don't want to do a rent back, don't do it. Either submit your offer to the seller/owner without a rent bank in the offer or don't submit an offer and find a different property (one without all the unfavorable conditions attached).

If you agree to do a rent back, make sure it is stated in the offer (so the seller's lender(s) is aware of it - they most likely won't approve it) and make sure the terms are clearly stated (i.e. rent per day, length of rent back, penalties, etc.).

Short sales can be time consuming and much patience is needed by all parties. Are you sure you don't just want to move on to another property and possibly a short sale that may ba a little less complicated? Or, have your Realtor keep an eye on this property if you really, really want it and wait for it to possibly go to foreclosure and make an offer on it then.

Good luck.

Shanna Rogers
SR Realty
http://www.RealtyBySR.com
0 votes Thank Flag Link Mon Sep 5, 2011
This is frustrating, I know, and your agent should be answering these questions for you.

In a short sale the property still belongs to the seller not the bank and, yes, the seller can request a rent-back, or any other conditions they wish, they don't even have to put it on the market at all.

The Arms Length Affidavit has nothing to do with the seller putting conditions on the property, it is stating that you are acting independently of the seller - for example, you are not a relative.

In a short sale, what the bank agrees to is to accept less money for the mortgage than they are owed. If the seller does not find a buyer to meet their conditions, then the bank could foreclose and take the property back in which case the bank would then own it.

From the information you have given, it would not be mortgage fraud to agree to a rent-back, it's legitimate and often done, frequently to give the seller time to pack and move out. There should be conditions on the rent-back, like a deadline and penalty if the seller does not move out.

Because the property still belongs to the seller, there is no way for the lender to accept your offer directly, it would have to have the seller's acceptance.

Talk with your agent and if you don't want to do the rent-back then move on and find another property, there are other good properties out there, maybe even better than this one.

Good luck and feel free to contact me.

Barbara Hunt, Realtor, Keller Williams Realty
408-921-6495 cell
barbarahunt@kw.com
http://www.SiliconValleyHomeSales.info
DRE# 01126864
0 votes Thank Flag Link Mon Sep 5, 2011
You're right to be concerned.

I agree with Walter. It'd probably be best to move on.

You could submit an offer without the rentback and see what happens. Most likely, it'll be rejected . . . but you never know. So, I guess I'd try that first.

The other option would be to include the rentback in your offer. Then it presumably would stand a better chance of being approved by the owner . . . but would be rejected by the lender. And you wouldn't be able to sign the arms-length affidavit. And do that only if you're really willing to rent it back. I'd very strongly advise against that. It's a really bad idea.

You can't send your offer to the lender . . . yet. The property still belongs to the individual seller. But the way it's going, it sounds as if it'll end up in foreclosure. If you're willing to wait, then--when it's listed by the lender--you'd send an offer straight to them.

Hope that helps.
0 votes Thank Flag Link Mon Sep 5, 2011
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
Contact
So there's no way I can send my offer to the lender and have the lender deal with this stubborn seller? The house has been on the market for 224 days; I'd imagine the lender would want to close a deal asap.

I don't want to rentback, I want to live in this home. Guess there's nothing left to do but to walk away?

My agent is telling me to rentback to them for at least a year but I can imagine a lot of hassle when the time comes for them to leave.
0 votes Thank Flag Link Mon Sep 5, 2011
Hi Bambi,
The contract to purchase the property is between the buyer and the seller. The lender is not a party to the contract. Yes, the seller can make this a condition of sale. That said, the lender may not agree to the short sale and may ultimately foreclose. I would suggest you move on and find another home.
Best of luck,
Web Reference: http://ocnorth.com
0 votes Thank Flag Link Mon Sep 5, 2011
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