Transcript: Bank fraud and flipping fraud now that, this comes, it can happen but mostly as a result of foreclosures. So, So, what do mean by bank fraud what do we mean by flipping fraud, we'll the first thing we need to talk about is the arm's length affidavit, that's typically what comes up the most. A lot of times the question I get asked often is "Well can we do a non arms length transaction?" Can I short sell this property to my brother to my parents, my whatever relative, to my friend, to my neighbor? I'm going to give you a little bit of an unconventional answer, I think the answer is yes you can do a non arms length short sale, as long as you disclose it to the lender.
Here's a couple of quotes from an arms length affidavit, every bank is a little bit different, I believe this one is from Chase. The definition of an arm's length transaction, unrelated and unaffiliated by family, marriage or commercial enterprise, no agreements that have not been disclosed, and in this particular one, the buyer cannot resell the property within 30 days. Now the thing that makes this fraud, the thing that makes this improper if this is a non arms length transaction and the parties sign the affidavit, is the inducement, the signing of the affidavit is consideration for the bank to accept the short sale proceeds.
That's the danger of doing an non arms length transaction without disclosing it to the bank, and it does carry a criminal penalty. It carries a criminal penalty of up to 5 years. So it is possible, and I've done non arms length short sales before. I've disclosed them to the bank, and when I've disclosed the particular facts and circumstances the banks in some cases have been okay with it, in some cases have not. and we have to another route. When clients typically ask "How do I describe an arms length transaction?" There you go.