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Short Sales Among Family Members . . . what next?

By Stella Barbour

Real Estate Broker/Owner with NoVa Brokers LLC 0225 094634 VA/ 643686 MD

October 01, 2007 08:43 AM

I was curious if other agents are experiencing what I am experiencing and that is homeowners approaching me to do a short sale, then asking if their brother, mother, father, sister, etc... can put in an offer because they don't have any intention of losing their home but to reduce their mortgage through family. One family member trying to save another family member's home.

I have been approached several times about this type of inside "short sale" and I am not comfortable doing this type of sale and have declined to service them in that way. If other offers come in on the listed short sale property, then the homeowner will not want anyone else to buy the home, because they really are not moving out.

I have been hearing other stories of this happening and agents doing it. One that I did turn down was picked up by another agent and the property was listed on the MLS and showed active for a few days and now has a contract contingent for 3rd party approval.

Just curious if others have experienced this also with homeowners.

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David Petrovich

S.P.O.C.H. a 501c3 Charitable NP - Oakhurst, NJ

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.

Oct 02, 2007 11:24 PM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

David,

Can a short sale be successful among family members with the same last name, because it seems like a homeowner just shaving off part of the total mortgage, like trying to deceive the mortgage company? I suppose if the "hardship" is really there?? I have been staying away from those with the same last names, but maybe I will take a second look at some of those.

Oct 03, 2007 12:46 AM

David Petrovich

S.P.O.C.H. a 501c3 Charitable NP - Oakhurst, NJ

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.

Oct 03, 2007 03:43 AM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Thanks David for your input. This helps me in one of my seller's situations.

Oct 03, 2007 04:37 AM

Mike Klijanowicz

Cummings & Co. Realtors - Perry Hall, MD

Associate Broker @ Cummings & Co. Realtors

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!

Oct 04, 2007 02:45 AM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Michael - Thanks for your opinion on that - it gets scary out there when you are working with people you don't know and what motives they may have.

Oct 04, 2007 05:10 AM

Paul Moye

Benchmark Realty - Franklin, TN

Broker, GRI, SRES

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.

Oct 07, 2007 08:45 AM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Paul, Thanks for your input. I have suggested that the family try to work out the loan with the lender. I have not heard back from them.

Oct 08, 2007 01:13 AM

Vicente A. Martinez

Prudential Douglas Elliman Licensed Real Estate Salesperson - Woodhaven, NY

Realtor, Brooklyn - Long Island - Queens Homes

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

Oct 15, 2007 05:44 PM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Vincent - I am glad to hear I am not the only one getting these. Thanks for sharing that.

Oct 16, 2007 01:55 AM

Joe Leksich

#1 Advantage Realtors - Fort Wayne, IN

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

Oct 16, 2007 05:18 AM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Joe - Thanks for your comment. I stay clear of doing these type of deals.

Oct 16, 2007 12:08 PM

David Dee

RMX REALTY - Alhambra, CA

Real Estate - San Gabriel Valley (L.A.) & N. Orang

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

Dec 11, 2007 04:39 PM

Tom Gimer

Century Auction Group - Annapolis, MD

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

Dec 11, 2007 10:33 PM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Dave - I have been avoiding these completely.

Tom - most lenders have the buyer and the seller sign a form disclosing that they are not related and not affiliated in any way. But what if we don't know they are family members? The problem I come across is that if I list the home as a short sale, someone puts in an offer, not everyone is honest and that person could be related in some way. There are people out there trying commit fraud.

Dec 12, 2007 12:50 AM

Tom Gimer

Century Auction Group - Annapolis, MD

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

Dec 12, 2007 05:20 AM

Mike Mitchell

Kee Realty - Saint Clair Shores, MI

REALTOR (R)

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.

Dec 12, 2007 05:26 AM

David Dee

RMX REALTY - Alhambra, CA

Real Estate - San Gabriel Valley (L.A.) & N. Orang

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

Dec 12, 2007 03:08 PM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Yes, I have seen that done before because a "Boyfriend" is not considered family member to the banks. This has been approved.

Dec 12, 2007 11:55 PM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Tom - Sometimes people are not honest with us. I know an agent that was doing a short sale and both seller and buyer were indeed related but did not disclose that.

Mike - Good for you turning it down because if things go wrong, who do you think they will go after, blood thicker than water.

Dec 12, 2007 11:58 PM