Short sales are meant to help people avoid foreclosure by selling their home, when they have a true and confirmed hardship. They are not intended as a way to negotiate a loan modification. If your inlaws can afford a reasonable payment (it is understood they cannot afford the adjusted payment under their current loan) and want to stay in the home, then they should be working with their lender towards a loan modification and home retention. Lenders are very open to these types of negotiations at this time.
Now, as a direct answer to your question regarding short sales and fraud. Fraud is a legal issue and you should check with an attorney if you suspect something might be fraud. Just note, most lenders will not allow a short sale to a related party and/or will not allow the seller to remain in the home after the short sale process. These lenders will require that both the buyer and the seller sign affidavits of arms length transaction. Here is the wording from a recent document that my sellers and the buyers had to sign on an approved short sale:
"[Buyer and Seller] Hereby affirm that this is an â€œArmâ€™s Length Transactionâ€,
No party to this contract is a family member, business associate, or shares a business interest with the mortgagee. Further, there are no hidden terms or special understandings between the seller or buyer or their agents or Mortgagee.
The Buyers and Sellers nor their Agents have any agreements written or implied that will allow the Seller to remain in the property as renters or regain ownership of said property at anytime after the execution of this short sale transaction. None of the parties shall receive any proceeds from this transaction except the sales commission."
I would definitely advise that YOU check with an attorney if the short sale lender requires such an affidavit, before you sign such a document under the circumstances.
I am sorry to hear that your inlaws are in this position. They really should investigate a loan modification instead of trying to use the short sale system for something it was not meant to achieve. Loan modifications can be negotiated directly with the lender or with the help of an attorney. This, to me, appears to be the better way for them to save their home. Dare to Dream.
Real Estate Consultant
RE/MAX Palos Verdes Realty
Sheryl Arndt, Broker â€“ Loan Officer
It is not your responsibility to save your wife's family. You should advise your wife's family to just sell the house and move into a more affordable house.
Arcadia Real Estate Expert
The contract for the sale of the property is an arms length transaction, negotiated between the
customer(s) and the buyer(s) who are unrelated parties, with each party acting in their own self- interest.
The contract sales price is the fair market value of the property and is the result of fair bargaining.
The customer(s) warrants that they are not related to the buyer(s) of the transaction, by blood,
As always, hire your own real estate attorney to help you through this scenario ESPECIALLY since this is a transaction involving relatives. First of all, short sales MUST be arm's length transactions. This means the seller will be asked to sign something by the lender stating that they do not know or have any relationship with the buyers. Second, what happens if the inlaws don't want the house after the market recovers? Now you are stuck with it. Lastly, who says the housing market is going to recover in a couple of years? I see this question was posted in 2008. Looks like values are STILL dropping in California in some price ranges.
The information presented may or may not represent all of the pertinent information required to provide you with an opinion. Your best course of action, is to refer this sinerio to a real estate attorney for their input.