In the June 2012 edition of the Broker/Manager Risk Management Update, Michelle Lind, AAR’s General Counsel and Assistant CEO, wrote an article, Understand the Risks of Short Sale “Arms Length” Affidavits. Summarizing various points, Michelle discusses Fannie Mae’s and Freddie Mac’s versions of the affidavit and AAR’s and NAR’s roles working with the GSEs to eliminate at least some potential liability for the broker/agents, e.g. removing some potentially harmful language from the affidavit. Also mentioned are reports from members that some of the previously removed liability and indemnity clauses are making their way back into the affidavits. Michelle, along with Holly Eslinger in a related article, suggests careful review by the broker prior to their signed acceptance.
The ink was scarcely dry on the first article before more information was received describing affidavits that, on a cursory review, appeared to have the same language as a Fannie Mae or Freddie Mac short sale arms length affidavit. They were so similar to the more familiar affidavits, in fact, as to mirror much of same language they contain. However, when the document was scrutinized more closely, additional language had been incorporated. For example, one such affidavit stated that none of the signatories had knowledge of any offers to purchase the [subject] property for a higher purchase price than the accepted offer currently ready to close. If a seller and broker received multiple offers initially, and one or more of the offers was for a higher amount than the one ultimately accepted, would the seller and broker have knowledge of a greater than offer? Carrying the question further, have there been subsequent offers received and reviewed by the seller and broker, for higher than subject offer, while this transaction was in escrow? Again, would the seller and broker have knowledge?
If the affidavit is not received far enough in advance of the closing to allow the broker proper time for review, what possible ramifications could there be for acknowledging the affidavit incorrectly? When a copy of the affidavit is forwarded to a broker the day of closing, the broker is not allowed proper time for review. If a broker were to receive the affidavit in advance of closing, allowing time for complete review, there may be options to discuss the affidavit with the provider and possibly allow for alterations to the document. It should be reiterated, receipt of the affidavit earlier in a transaction, rather than later, is of extreme importance in order for a broker to make an informed decision as to the potential liability being assumed in signing the arms length affidavit.