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Arms Length Transaction

Mortgage Library: Ask a Mortgage Related Question: Answers: Arms Length Transaction

Question:

Non-Arms Length Transaction. What does this mean?

J.
Los Angeles
California

Answer:

Hello J.,
 
An "arms length transaction" is defined as:

Arm's Length Transaction
A transaction in which the parties are dealing from equal bargaining positions, neither party is subject to the other's control or dominant influence, and the transaction is treated with fairness, integrity and legality. If discovered by a taxing authority, the absence of an arms length transaction may result in additional taxes incurred resulting from transfer at less than fair market value.
I got this from this site: www.small-business-dictionary.org

In general, when applying for a loan, a transaction is not "arms length" if the property is being sold between two relatives, i.e. husband sells the house (not transfers) to his wife or child.

Hope that helps!

Hal Weinshank
Mortgage Partners, Inc.
(866) 497-LOAN


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