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Can a Family Member Buy a Short Sale?



A family member cannot buy a short sale. 

With housing markets falling and more and more homes going underwater, people are looking for ways to get out of upside-down mortgages. A short sale is one option and is when the lender agrees to accept an offer of less than is owed on a mortgage from a potential buyer.

The banks do have rules and regulations set up that limit who the owner of the house can sell the property to. Selling a house to family member constitutes mortgage fraud.

One of the rules of short sale is the seller cannot benefit from the sale of the house. Many owners try to sell to a family member who then transfers the title back into the seller’s name. This is mortgage fraud because the seller got the property back for less than they owed on the mortgage. If the bank had wanted the owner of the house to benefit, they would have agreed to a loan modification.

Qualifications for a Short Sale

There are several things that need to happen for a homeowner to qualify for a short sale.

  • The home’s market value must have dropped severely.
  • The mortgage is in or near default.
  • The seller cannot have any assets.
  • The seller must have fallen on hard times. Examples include:
  • Unemployment
  • Divorce
  • Medical emergency/sudden illness
  • Bankruptcy
  • Death
  • The seller cannot have any assets.

Short Sale Consequences

Short sales have several factors and consequences. They are dependent on a buyer making an offer the bank with accept. The bank is under no requirement to allow a short sale; in fact they benefit more if they get to foreclose of the property because they have your money and the house to resell. If the bank chooses to accept a short sale offer they have the option of issuing the seller a 1099 for the shorted difference of the sale from the original mortgage agreement. A short sale also affects your credit report even though the house sold. Missed payments and the house going into pre-foreclosure all show up and remain on your credit.

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