The reason that short selling lenders cannot legally enforce their restrictive affidavits has four basic legal components. I will address each in a separate blog because of the length of each component.
The Four Components
1. The restrictions are required without legal “consideration” and are therefore invalid;
2. The restrictions are voidable because there is no “privity” of contract;
3. The restrictions cloud title (some states formally prohibit the restrictions);
4. The restrictions violate the spirit and intention of Uniform Commercial Code
I. Legal Consideration. In order for a promise (or in this case restriction) to be legally enforceable, there must be something of value given in exchange for the promise (or you have to surrender a right that you have). In the case of the short sale affidavits and the restrictions contained therein, there is no legal value given in exchange for the requirements. With respect to the short seller/owner, one could argue that the restrictions are a condition of the approval and therefore enforceable with respect to the home owner. Fair argument. However, there is no consideration given to the buyer in exchange for restrictions placed upon the buyer. The buyer did not default on the loan; the buyer does not owe anything to the lender and so on.
An example of this argument is that Bob promises to write a blog every day for Jim. Jim will clearly benefit from this (especially if the blog is on Active Rain)!!! Bob fails to write blogs or writes a few and stops. Jim has now suffered a loss. He is now deprived of the benefit of having Bob write the blog.
In this scenario, Jim has no legal recourse against Bob (unless Jim is from Jersey, in which case there is plenty that he can do – LOL). In the same manner, how can the short selling lender believe that they can enforce restrictions against a buyer??? IMHO, they cannot. I am not aware of any of these restrictions being tested in court. They certainly will!!!!