Short Sales Among Family Members . . . what next?

I actually encourage distressed homeowners who want to stay in the home to ask friends or family to step up to the plate, buy the home at a discount, and then rent it back. This isn't an arm's length transaction, and problems can arise if the Buyer and Seller share the same last name.  

As a preforeclosure counselor, I try to keep the homeowner and family intact by first seeking a loan workout.  If a sale is the only feasible alternative, I'll always see if a friend or family member could step in. If the Buyer was paying cash, having the same last name as the Seller wouldn't be such an issue. It's usually the Buyer's mortgage lender who has the problem with the transaction... viewing it as a foreclosure bailout.

I would think that it is a type of "MORTGAGE FRAUD" whether or not the mortgage company finds out about it and would not be part of a transaction like that!  You did the RIGHT thing by listening to your REALTOR SIXTH SENSE and walking away from this one!

I can tell you from years of experience that the bank will say NO. This is a sstraw purchase and if the family was doing the "right" thing they would work out the loan with the lender and $$$ from the family. Banks frown on this and frown on the agent trying to do this.

Stella you did the right thing by turning it down. I've recently (this past summer) turned one down myself. Best of luck.

In my opinion, that is FRAUD to the bank.  The homeowners owe the money to the bank.  Why should they be able to stay and get a less of a mortgage?  The family member/friend is not doing anyone a favor.  Where is the hardship if there is a family member/friend who is willing to bail them out?

I have sold a few REO properties that ask on their addendum's if the buyer is related to the previous seller.  If they are, they will NOT accept the offer. 

I would defiantly stay clear of this type of transaction.  1 commission is not worth losing your reputation and possibly your license over

Stella,

Thanks for asking such a great question. I've thought about this myself. This type of transaction where selling to a family member is running through a grey area here, especially if they have the same last name. This may seem like a nice deed to do but the only thing is that these buyers and sellers might come back to haunt us should the deal fall through.

Based on what everyone is saying, it seemed like the safest thing to do is avoid these type of transaction between family members since they are not really arms length.

Dave 

Sounds to me like the fraud would be on the part of the purchasing family member -- owner-occ loan app with no intention of living there.  But if that fear can be eliminated, does it really hurt to fully disclose the details of the proposed transaction to both lenders and seek approval?  The worst that can happen is a "no."  Lender 1 may be looking at another REO or ~$.60 at foreclosure.  Just a thought. --Tom

Agreed that if you can determine that the whole point of their involvement of a real estate agent is to make the transaction appear to be arms-length when it is not, absolutely get out.  But you typically would not know that up front.  --Tom

Stella, I had the exact request a couple of months ago, I too, turned it down. In my opinion and others I've spoken to, it sounds like Mortgage FRAUD!  Although, I guess if you disclose it as mentioned in this string, who know's? I can't see the bank agreeing to it though.

I wonder what would happen in a situation where it is a daughter's fiance who wants to buy it from the daughter's parent. How about a situation where it is the daughter's boyfriend?

Technically, in this case, it would be considered an arms length transaction. There is no familial relationship at this point since they haven't officially tied the knot. I would think that in a case like this that the banks would accept it and it would not be considered FRAUD if one is to participate in putting this together.

Dave