Definition & Meaning of Short Sale Arms Form
A Short Sale Arms Form, also known as an Arm's Length Affidavit, is a legal document used in real estate transactions, particularly in short sales. This form serves to confirm that the buyer and seller are unrelated parties, thereby ensuring the transaction is conducted fairly and transparently. The primary purpose of this form is to protect lenders from potential fraud by verifying that no hidden agreements or collusion exist between the parties involved. The form asserts that the sale price reflects the fair market value, even if it is less than the outstanding mortgage balance.
Key Elements of the Short Sale Arms Form
Several critical components make up the Short Sale Arms Form, including:
- Unrelated Parties: This section confirms that the buyer is not a family member, business partner, or close associate of the seller.
- No Hidden Deals: It affirms that there are no undisclosed agreements or side deals between the buyer and seller.
- Fair Market Value: The form states that the sale price is representative of the property's true market value.
- No Undisclosed Benefits: It ensures that neither party receives undisclosed funds or commissions from the sale proceeds.
- Lender Protection: This element protects the lender by ensuring they are not accepting a loss due to fraudulent arrangements.
How to Fill Out the Short Sale Arms Form
Filling out the Short Sale Arms Form involves several steps to ensure accuracy and compliance. Begin by gathering necessary information about the transaction, including:
- Property Details: Include the address and legal description of the property being sold.
- Seller Information: Provide the full name and contact details of the seller.
- Buyer Information: Include the buyer's full name and contact details.
- Sale Price: Enter the agreed-upon sale price, ensuring it reflects fair market value.
After completing the form, both parties must sign it in the presence of a notary public to validate the document.
Who Typically Uses the Short Sale Arms Form?
The Short Sale Arms Form is primarily used by homeowners engaged in a short sale, real estate agents facilitating the transaction, and lenders reviewing the sale for approval. Homeowners facing financial difficulties may opt for a short sale to avoid foreclosure, while buyers interested in purchasing properties at a discounted price may also utilize this form. Real estate professionals often assist in preparing and submitting the form to ensure compliance with lender requirements.
Legal Use of the Short Sale Arms Form
The legal use of the Short Sale Arms Form is crucial in maintaining the integrity of the short sale process. This form must be submitted to the lender as part of the short sale application package. By signing this form, both parties affirm their commitment to a legitimate transaction, free from any fraudulent intent. Failure to accurately complete or submit this form can result in delays or denial of the short sale request by the lender.
Steps to Complete the Short Sale Arms Form
Completing the Short Sale Arms Form involves a series of steps to ensure all necessary information is accurately recorded:
- Gather Documentation: Collect all relevant documents, including the purchase agreement and financial statements.
- Complete the Form: Fill in the required fields with accurate information about the buyer, seller, and property.
- Review for Accuracy: Both parties should review the form to ensure all details are correct.
- Sign in Presence of Notary: Both parties must sign the form in front of a notary public to validate the document.
- Submit to Lender: Include the completed form with the short sale application submitted to the lender.
Examples of Using the Short Sale Arms Form
Consider a scenario where a homeowner, John, is facing foreclosure and decides to sell his home through a short sale. He finds a buyer, Sarah, who is unrelated to him. To proceed, they complete the Short Sale Arms Form, confirming their independence in the transaction. This form is then submitted to John's lender as part of the short sale application.
In another case, a couple selling their investment property may also need to use the Short Sale Arms Form. If they sell to a friend, they must ensure that the transaction is documented correctly to avoid any implications of collusion, thus protecting both themselves and the lender.
Why Should You Use the Short Sale Arms Form?
Using the Short Sale Arms Form is essential for several reasons:
- Fraud Prevention: It helps prevent fraudulent transactions by ensuring all parties act in good faith.
- Lender Assurance: Lenders require this form to approve short sales, as it protects their interests.
- Clear Documentation: The form provides clear documentation of the transaction, which can be beneficial in future legal matters.
By utilizing the Short Sale Arms Form, all parties involved can navigate the complexities of short sales with greater confidence and security.
