CLTA News Express
An Express Article from the California Land Title Association
Freddie Mac Modifies Arm’s Length Short Sale Affidavits in Response to Title and Escrow Industry Pressure
Bulletin 11/12-51 - November 21, 2011
CLTA is pleased to announce that Freddie Mac has agreed to revise its requirements relating to their short sale form “Arm’s Length Transaction Affidavit.” In short, they will be revising this form to add the phrase “to the best of each signatory's knowledge and belief” to lessen the exposure to title and escrow professionals acting as closing agent on short sales. This revision will be effective on January 1, 2012, but Freddie Mac is encouraging their servicing agents to implement the changes immediately.
It is crucial to note that the provisions include the authorization by Freddie Mac for a servicer to amend and incorporate its own requirements into the affidavit form as long as the minimum requirements indicated by Freddie Mac are met.
These changes have come about because of the involvement of American Land Title Association (ALTA), the CLTA, the California Escrow Association (CEA), and the American Escrow Association (AEA). A very collaborative effort from all of these organizations resulted in our feedback and comments being taken seriously by the Freddie Mac staff after several months of negotiations in Washington D.C. In addition, the ALTA enlisted support from other organizations such as the National Association of Realtors in their efforts.
While the elimination of this affidavit form was the ideal outcome, CLTA believes that these changes address a substantial portion of the objections raised by CLTA members and other members within this coalition of opposition. CLTA is aware that there are other arm’s length affidavits and instructions that still exist that create problems for our members and we will continue to work with ALTA, CEA, AEA and other coalition members to hopefully modify or eliminate those provisions as well.
While we recognize that this announcement is short of eliminating these provisions entirely, this change in policy by Freddie Mac appears to be the best outcome possible at this point in time.
The text of the new affidavit appears on the following pages; changes have been noted in italics.
For further information on the revised servicing guidelines, we offer the following links:
- Freddie Mac Bulletin 2011-23 (11/18/2011)
- Freddie Mac Single-Family Seller/Servicer Guide (choose the AllRegs link)
[Source: Freddie Mac Single-Family Seller/Servicer Guide, as revised by Freddie Mac Bulletin 2011-23, November 18, 2011]
An "arm's length transaction" is a transaction between parties who are independent of one another, and unrelated and unaffiliated by family, marriage or commercial enterprise, other than the purchase and sale of the Mortgaged Premises between the Borrower(s) and the purchaser(s) that is the specific subject of the proposed short sale as disclosed to the Servicer. This affidavit is to be executed before or at the time of closing of the sale of the Mortgaged Premises by all Borrower(s), purchaser(s), real estate brokers representing any of the parties, the escrow/closing agent performing the closing of the sale, and the transaction facilitator facilitating the sale (if any) certifying under penalty of perjury that to the best of each signatory's knowledge and belief:
(a) |
The sale of the Mortgaged Premises is an "arm's length" transaction, between parties who are unrelated and unaffiliated by family, marriage, or commercial enterprise; |
(b) |
There are no agreements, understandings or contracts between the parties that the Borrower will remain in the Mortgaged Premises as a tenant or later obtain title or ownership of the Mortgaged Premises, except to the extent that the Borrower is permitted to remain as a tenant on the Mortgaged Premises for a short term, as is common and customary in the market but no longer than ninety (90) days, in order to facilitate relocation; |
(c) |
Neither the Borrower(s) nor the purchaser(s) will receive any funds or commissions from the sale of the Mortgaged Premises. The Borrower may receive a payment if it is offered by the Servicer, approved by Freddie Mac and reflected on the HUD-1 Settlement Statement. |
(d) |
There are no agreements, understandings or contracts relating to the current sale or subsequent sale of the Mortgaged Premises that have not been disclosed to the Servicer |
(e) |
All amounts to be paid to any party, including holders of other liens on the Mortgaged Premises, in connection with the short payoff transaction have been disclosed to and approved by the Servicer and will be reflected on the HUD-1 Settlement Statement |
(f) |
Each signatory understands, agrees and intends that the Servicer and Freddie Mac are relying upon the statements made in the affidavit as consideration for the reduction of the payoff amount of the Mortgage and agreement to the sale of the Mortgaged Premises; |
(g) |
A signatory who makes a negligent or intentional misrepresentation agrees to indemnify the Servicer and Freddie Mac for any and all loss resulting from the misrepresentation including, but not limited to, repayment of the amount of the reduced payoff of the Mortgage; |
(h) |
The certification will survive the closing of the transaction; and |
(i) |
Each signatory understands that a misrepresentation may subject the party making the misrepresentation to civil and/or criminal liability |
The affidavit must contain the name of the Servicer, Servicer loan number for the subject Mortgage, the mailing address of the Mortgaged Premises and the date the sales contract that is the subject of the short sale was ratified by the parties.
All signatures to the affidavit must be notarized and dated. The affidavit must contain the printed name and signature of each signatory. The signature of a real estate agent or settlement agent signing in a representative capacity for the brokerage or settlement service provider is acceptable so long as the representative capacity is clearly identified. The Servicer may modify and integrate its own requirements into the affidavit form so long as the minimum requirements contained in this section are present. The short sale affidavit must be a separately identifiable document, distinct from other closing or pre-closing documents, such as the sales contract.
In the event the closing agent to the sale is prohibited from signing the affidavit by applicable local, State, or federal law, the Servicer may waive the closing agent's signature requirement upon request. The Servicer must condition the waiver upon the closing agent's agreement that it will not also act as the closing agent on a subsequent transaction involving the Mortgaged Premises within one year of closing the short payoff transaction. In all other circumstances, signatures from all parties identified above are required as a condition to Freddie Mac's agreement to accept a short payoff of the Mortgage.
If a party reveals an agreement, understanding or contract relating to the current sale or subsequent sale of the Mortgaged Premises that indicates the transaction is not an "arm's length" transaction, that the purchaser intends to re-sell the Mortgaged Premises in 120 days or less without having substantially refurbished or added value to the Mortgaged Premises, or otherwise indicates bad faith, collusion or fraud on the part of the parties, the Servicer must withdraw agreement to the short payoff of the Mortgage and immediately notify Freddie Mac at mortgage_fraud_reporting@freddiemac.com.
