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!
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.
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.
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
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.
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.
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,