In its Nov. 18, Single-Family Seller/Servicer Guide, Freddie Mac made amendments to its short sale affidavit requirements. These changes will alleviate concerns from members of the title industry that they will be subject to increased liability for short sale transactions.
“By clarifying its guidelines, Freddie Mac removes an unfair liability that was imposed on closing and title agents,” said Michelle Korsmo, chief executive officer of the American Land Title Association, which worked to have the changes made. “It is unreasonable to have closing agent certify that a transaction is arm’s length because in most cases they cannot know if any of the parties are in collusion to flip property.”
In the bulletin, Freddie Mac said that it is revising its short sale affidavit requirements to “clarify that statements made in the affidavit are made to the best of the signatory’s knowledge and belief and that each signatory is liable for his or her negligent or intentional misrepresentations, but not those of other signatories to the affidavit.”
Before this revision was made, members of the title industry were concerned that they would be put on the hook for fraud, that the agent would be required to affirm the transaction is arm’s length, there are no side deals, there are no familiar transactions and that the agent would be held liable if anyone lied.
These concerns were brought to the attention of ALTA and the National Association of Realtors (NAR) who worked to get the revisions made.
“We are very pleased with the changes announced in Freddie Mac’s recent bulletin,” Korsmo said. “ALTA has been heavily engaged in trying to get Freddie Mac to understand our members’ concerns regarding the short sale affidavit, which inappropriately transferred liability of fraud to closing and escrow agents.
“This change to Freddie Mac’s Servicing Agreement was possible because ALTA members were quick to tell ALTA staff of their concerns with the affidavit and ALTA staff created a strategy to address this issue with FHFA and Freddie Mac, NAR and Mortgage Bankers Association,” Korsmo said.
“Like Freddie Mac, ALTA has zero tolerance for fraud. Under existing practices, closing agents already take on the duty of disclosing known or suspected fraud in appropriate circumstances. These duties provide protection for Freddie Mac to ensure that the closing agent will report known fraud to the servicer. ALTA believes industry standards and best practices should be developed as industry partners work together to combat mortgage fraud,” Korsmo said.