What an arm's length affidavit is in a short sale

KW Default Solutions

Last updated October 30, 2026

If you're working a short sale and this form just landed, it matters to you. You may have to sign it.

What you'll be able to do: explain the affidavit, know who signs and spot a tie or side deal early.

011. What is an arm's length affidavit?

Ask: What is this form asking everyone to swear to?

Check: The form itself and the servicer's cover note or approval letter.

A short sale happens when a home sells for less than the mortgage payoff and the lender agrees to take less so the sale can close. The payoff is the full amount needed to pay off the loan.

The servicer is the company that handles the loan account. The investor is the company that owns or backs the loan.

Fannie Mae and Freddie Mac are two companies that buy and back many U.S. home loans. Both require this kind of affidavit on their short sales. An affidavit is a written statement signed under oath.

Fannie Mae's version is the Short Sale Affidavit, Form 191. Freddie Mac's guide calls it a short sale affidavit. Your lender may call it an arm's length affidavit. All three are the same kind of sworn statement.

Fannie Mae's form says the servicer and investor rely on these statements to reduce the payoff. In plain words, the lender takes less because it trusts the sale is fair.

Script (to your seller): "The lender wants everyone to swear this is a fair sale. Let's read it together so you know what you're signing."

022. Who has to sign it?

Ask: Whose signature does this form need before closing?

Check: The signature lines on the servicer's form, and the closing instructions.

Fannie Mae's Form 191 says all parties involved sign and date it at closing. That includes the borrower, who is your seller, and the buyer.

Freddie Mac's guide says it's signed before or at closing.

03Who signs checklist

• Each seller on the loan (the guide calls them borrowers)
• Each buyer
• The listing agent
• The buyer's agent
• The escrow or closing agent
• The transaction facilitator, if there is one
• Every signature is dated
• Each printed name matches the signature
• If you sign for your brokerage, the form shows that clearly

• Fannie Mae's form lets the servicer allow each person to sign a separate copy.
• Freddie Mac's guide accepts an agent's signature for the brokerage. The guide says that capacity must be "clearly identified."
• Some closing agents can't sign by law. The closing agent can ask the servicer to waive that signature. The waiver comes with a promise: the closing agent won't close a later sale of the home within one year.

Neither source defines "transaction facilitator." If you aren't sure who fits that line, ask the servicer.

Script (to the buyer's agent): "The servicer needs both agents to sign the arm's length affidavit. Can you plan to sign at closing?"

043. What are you swearing to?

Ask: Which statements am I personally signing?

Check: Each lettered line on the form, one at a time.

Fannie Mae's Form 191 has ten lettered statements. Here they are in plain words:

1. The sale is arm's length. The seller and buyer aren't related by family, marriage or business.
2. There's no deal for the seller to stay as a tenant or get the home back later. A short stay of up to 90 days to help the seller move is allowed.
3. The seller and buyer won't get any money or commission from the sale. The seller may get a payment the servicer offers and the investor approves.
4. The listing agent has presented every offer to the seller. No offer was held back, hidden or delayed.
5. Every agreement about this sale or a later sale has been disclosed to the servicer.
6. Every payment to anyone has been disclosed, approved and shown on the closing statement.
7. Everyone understands the servicer and investor are relying on these statements.
8. A signer who makes a careless or deliberate false statement agrees to pay back the servicer and the investor. That covers any loss caused by the false statement. It can include the amount the payoff was reduced.
9. These promises last after closing.
10. A false statement can lead to civil or criminal liability.

The form says each person signs "under the pains and penalties of perjury." Perjury means lying under oath.

Each person signs to the best of their "knowledge and belief." So ask your questions first.

Freddie Mac's guide lists the same kinds of statements. It says a misrepresentation "may subject the party making the misrepresentation to civil and/or criminal liability."

Script (to your broker): "The arm's length affidavit came in. Can you review it with me before I sign?"

054. Which ties and side deals must be disclosed?

Ask: Is there any tie, extra payment or side deal in this sale?

Check: Ask your seller and the buyer's side early, before you write or accept an offer.

Freddie Mac's guide names three kinds of ties: "family, marriage or commercial enterprise." Fannie Mae's form uses the same words. Some examples below go past those words. When in doubt, disclose it and ask the servicer.

Go through this list with your seller and the buyer's agent. If any answer is yes, tell your broker and the servicer.

06Relationships and deals to disclose

• Family: the buyer is related to the seller.
• Marriage: the buyer is the seller's spouse, ex-spouse or in-law.
• Business: the buyer and seller share a company, job or other business tie.
• Staying on: the seller plans to rent the home after closing.
• Buying back: anyone plans for the seller to own the home again later.
• Money to the seller or buyer: any cash, credit or commission outside the servicer's approval.
• Side agreements: any deal about this sale or a later sale that the servicer hasn't seen.
• Extra payments: any money to anyone, including other lienholders, not shown to the servicer.
• Held offers: any offer that wasn't presented to the seller.

A lienholder is anyone else with a legal claim on the home, like a second mortgage lender.

Freddie Mac's guide covers a hidden deal that comes to light. Say it shows the sale isn't arm's length. Or say it shows bad faith, collusion or fraud. Then the servicer must withdraw its agreement to the short sale and notify Freddie Mac. Collusion means a secret deal to cheat. Fannie Mae's guide says the servicer must flag any evidence of fraud or misrepresentation to Fannie Mae.

So disclose early. If the buyer and seller are connected, ask the servicer what's allowed before you write the offer. Don't count on a related-party sale being approved.

Script (to your seller): "Do you know this buyer? Family, marriage or business ties all count, and so do side deals."

075. What if the servicer's form looks different?

Ask: Is this the investor's form or the servicer's own version?

Check: The form title, the investor named on it and any version date.

The form may look different from one servicer to the next. Fannie Mae loans use Fannie Mae's Form 191. Freddie Mac lets servicers use their own version if it covers Freddie Mac's minimum statements. Freddie Mac also says the affidavit must be separate from the sales contract.

Fannie Mae's Form 191 has a line for the investor's name. Loans backed by other investors may use other forms with other wording.

Sign only what's true. If a line doesn't match the facts, don't sign it as written. Talk to your broker first. Your seller may want a real estate attorney to read it too.

Script (to the servicer): "The seller has a 60-day rent-back to help with the move. Where on your form do you want that disclosed?"

08Worked example: one short sale, six signatures

This example is fictional. The names and numbers are made up.

Ana and Ray Diaz have a Fannie Mae loan. They're selling their home in a short sale for $250,000. You're the listing agent.

The buyer is Kim Lee, who doesn't know the Diazes. Kim has a buyer's agent. An escrow officer is closing the sale. There's no transaction facilitator.

The math: 2 + 1 + 1 + 1 + 1 = 6.

The Diazes ask to stay 60 days after closing so they can move. That's within the 90 days the form allows. You make sure it's in writing and shown to the servicer.

Fannie Mae also limits a quick resale. The buyer's deed must bar any sale for 30 days. Until day 90, it bars a sale above 120% of the short sale price. Freddie Mac loans carry the same 30 day and 120% limits.

Here, 120% of $250,000 is $300,000. So Kim can't resell for more than $300,000 until 90 days after closing.

What an arm's length affidavit doesn't do

• It doesn't approve the short sale. The servicer and investor decide that.
• It doesn't end at closing. The form says the statements survive the closing.
• It doesn't cover your broker's review. Have your broker read it before you sign.
• It isn't legal advice for your seller. If they're unsure about a line, they can ask a real estate attorney.

Naming traps

• "Arm's length" isn't about distance. It means the parties aren't tied by family, marriage or business.
• "Borrower" and "seller" are usually the same person in a short sale. The forms use both words.

Practice: what would you do?

Here are six fictional situations. Decide what you'd do, then check the answer.

1. The best offer is from the seller's sister-in-law. What you'd do: That's a tie by marriage. Tell your broker and ask the servicer before you accept anything.
2. The buyer offers to let the seller rent back for six months. What you'd do: The form allows up to 90 days. Talk to your broker and the servicer before anyone agrees.
3. A cash buyer offers the seller an extra $5,000 outside closing to move fast. What you'd do: Present the offer to your seller. Explain that the affidavit doesn't allow the side cash. The seller gets no money except a payment the servicer offers. Then tell your broker and disclose the offer to the servicer.
4. A new offer comes in after you sent one to the servicer. What you'd do: Present it to your seller. The listing agent swears every offer was presented.
5. The escrow officer says state law bars them from signing. What you'd do: Have the escrow officer ask the servicer for a waiver. It comes with a promise not to close a later sale of the home within one year.
6. You want to buy the short sale yourself. What you'd do: Talk to your broker first. Then disclose it to the servicer and ask what's allowed before you write an offer.

Next step

If this affidavit has you stuck on a short sale, we're happy to help. The KW Default Solutions (KWDS) team can help you keep the file moving. Reach out to the KWDS team

Who we are

KW Default Solutions (KWDS) helps Keller Williams agents find and handle listings tied to default. That includes homeowners behind on the mortgage, short sales, bank-owned homes and homes owned by companies or investors. We also train agents to do this work. Most of our opportunities are for Keller Williams agents.

General U.S. real estate education, not legal advice. Each servicer's form, your broker's rules and state law can change what applies. All examples are fictional. Talk to your broker and a local real estate attorney about a specific file.

Sources:

• Fannie Mae Servicing Guide: D2-3.3-01, Fannie Mae Short Sale
• Fannie Mae: Form 191, Short Sale Affidavit
• Freddie Mac Single-Family Seller/Servicer Guide: Section 9208.2, short sale affidavit