Generally it means you aren't buying from a relative or other party where there is a previous relationship or undue influence may be involved. I've included a link to a site with a more complete explanation. I hope this helps.
On a short sale, the lender normally requires the buyer and seller and realtors to sign an Arms Length Transaction disclosure. Often you have to go before a notary to sign. Basically the lenders just want to ensure there isn't an "insider" buying the property at a discounted price.
Hope this helps.
David Jaffe-SRES, CDPE
What a great question. You must be involved in a short sale~
When short sale approval comes in, one of the documents that the bank requires is an Arms Length addendum. It assures that no one involved in the contract is ralated and most specifically that the seller is not receiving any funds from the sale of the property. In Arm's length, no one, even the Realtor, can not be related to the seller.
Debbie Albert, PA
Keller Williams of the Treasure Coast