Zillow Advice: Home Buying - Buying your own short sale...sorta

socalhopeful - Banks will ...

Sat, 09 May 2009 14:05:00 GMT

socalhopeful -

Banks will want any short sale transactions they approve to be arms-length transactions. This will disqualify any relative from buying the home. The reason for this is the greater opportunity for fraud and trying to lower the purchase price.

Talk to your divorce attorney, who may refer you to a real estate attorney, to determine if there are any options for you here.

From a lender's perspective, ...

Sat, 09 May 2009 05:23:00 GMT

From a lender's perspective, the most important thing is sales price vs. actual property value. If the bank is confident that you're buying the place near today's market value, the arms-length issue takes a back seat (assuming legal issues don't cause trouble).

Of course each lender is different. The best approach (as Michael said) is to explain the entire scenario to your lender. You'll have much better luck getting legitimate consideration by submitting the scenario in writing - likely as a cover letter for a short sale submission.

You may also consider working with a short sale listing specialist in your area - an agent that's experienced with your particular lender can make life a lot easier. All of my short sale transactions taught me that it's all in the delivery (package submission, that is).

-Johnny

No, it would not be ...

Sat, 09 May 2009 05:01:00 GMT

No, it would not be allowed.

If you were to attempt this ...

Tue, 05 May 2009 03:04:00 GMT

If you were to attempt this purchase, please make sure the lender is clear as to what you are doing and your relationship to the seller. Transparency is a must in this kind of transaction. But I wouldn't do it, myself. Generally, you need an arms length to the transaction.

What may trip your ex up (even if the lender agreed to the sale) is the IRS may disallow the capital gains forgiveness. Typically you are required to pay capital gains on the amount the lender forgives in a short sale. But the IRS has been forgiving those capital gains. They may not though if they feel the transaction was fraudulent, even if the lender agreed to the deal.

I understand your desire ...

Tue, 05 May 2009 00:49:00 GMT

I understand your desire to stay but it may be dicey if the two of you are divorcing. The bank may refuse due to the risk for loan fraud. They would want to make sure that it was a square deal and not like insider short sale trading. I am sure that the lenders would be able to tell you for sure how they would view it, but I am not sure that the bank would allow it.