Home Selling in King County>Question Details

Mau, Home Buyer in King County, WA

Is it legal for a short sale seller to buy the house he/she is selling on short sale to reduce his/her mortgage loan??

Asked by Mau, King County, WA Sat Jan 1, 2011

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“No party to this contract is a family member, business associate, or share a business interest with the mortgagor. Further, there are no hidden terms or special understandings between the seller or buyer or their agents or mortgagor. 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 to the agents representing the buyer and seller”

Lenders are on to this type of tatic and will have all parties to a transaction (Seller, buyer, and agents) sign an Arms Length Transaction Clause when purchasing a short sale. Chances of being able to buy back your own short sale are slim to none.
2 votes Thank Flag Link Sun Jan 2, 2011
No, the banks will not allow you to short sale your house to yourself. It must be an arms length transaction. If you want to stay in the home, you should call your lender and ask for a loan modification. The banks are often willing to lower the payments, but it is more difficult to get them to lower the principal balance, especially to a market value level.

Please call us and to discuss the specifics of your situation. We would be happy to answer any of your questions and explain the process to you.

Short Sale Department, LLC
1 vote Thank Flag Link Sun Jan 2, 2011
Good Morning Mau;
All parties to a short sale must be at "arms length...Thus the buyer (and their agent) cannot in anyway know or be related to the seller (and their agent).
So your lender will not allow your scenario to occur.
Web Reference: http://www.321property.com
1 vote Thank Flag Link Sun Jan 2, 2011
If you were able to qualify to purchase your home at short sale, you wouldn't likely be qualified to sell short. Short sales in large part are built on the seller having a hardship. The fact that an owner may be underwater alone is not considered a hardship.
What you should investigate is a loan modification, it essentially the same thing you are considering. I've attached a link to the Making Home Affordable website so you can look into this option.
1 vote Thank Flag Link Sat Jan 1, 2011
In a short sale, the bank is doing the owner a favor by allowing a short sale to take place. Thgere are two things in a short sale, one is the release to allow a short sale to take place and the 2nd is a satisfaction letter. The question really is under what conditions will the bank issue a satisfaction letter. You will probably be on the hook for part or all of the difficiency and what you describe is a go directly to jail, do not pass go type of situation.
0 votes Thank Flag Link Fri Jan 21, 2011
No. That is considered fraud and there are harsh penalties.
0 votes Thank Flag Link Tue Jan 4, 2011
The answer isYES. As long as everything is disclosed accurately to all of the lien holders. They won't go for it but they could, the loan is the asset of the lien holders. The answer is always Disclose, Disclose, Disclose.
0 votes Thank Flag Link Sun Jan 2, 2011
No, and family members or relatives can not buy the home either
0 votes Thank Flag Link Sun Jan 2, 2011
NO! As others have mentioned, it must be an arms length transaction. Neither the seller, nor his immediate family may benefit in any way from the short sale.
Web Reference: http://www.sallygrenier.com
0 votes Thank Flag Link Sun Jan 2, 2011
Sally....are you saying it's against a state or federal law or it is a mandatory part of all short sale transactions? I have been told it's up to the bank or lender to decide if they are going to require an "arms length transaction" letter signed. I have an interesting situation that the lender is aware and I think they may not require one.....haven't approached them yet though. Any help or advice would be greatly appreciated.
Flag Thu Sep 3, 2015
Legal? That's for a lawyer to answer. But I'm not aware of any law that forbids it.

Practical? No. As noted, the purchase must be at arm's length. Further, on the one hand the seller has told the lender that he/she can't afford to make payments. It's possible/probable that the seller has missed several mortgage payments. It's very likely the seller would be unable to get financing for the repurchase, and nearly certain that the lender wouldn't approve the sale.

As others advise, if one wishes to keep living in a home but would like payments reduced, the most likely step is an attempted loan modification. Or, if there's equity in the home and the current mortgage rate is high, a refinance would work.

Hope that helps.
0 votes Thank Flag Link Sun Jan 2, 2011
Don Tepper, Real Estate Pro in Burke, VA
A mortgage is a contract that is legally enforceable in a civil court. You agreed to make your mortgage payments and if you do not make the payments the bank can foreclose and take the property, sell it and use the money to pay off the debt. The bank can also decide to approve a short sale instead of foreclosing, but they are not required to do this. They could just foreclose, which would be bad for you as it would wreck your credit for a long ti me. They could also obtain a deficiency judgment and require you to make up the difference between what you owed and what they got when they sold the home.

If the bank decides they will save more money by approving a short sale than by foreclosing, that is their choice. They are completely in charge, however, since they are basically doing the homeowner a favor. And the bank will NOT leg an owner buy their own property back in a short sale, in fact most of the time they will require everyone to sign an affidavit swearing that no one involved in the transaction are in any way shape or form related to one another and that this is an 'arms length' transaction. And if anyone lies on that affidavit they could be found liable (in civil court) for bank fraud.

And none of this has anything to do with criminal court, which is what most people are referring to when they ask if something is 'legal'.

Dan is absolutely correct, if you want to reduce your mortgage payment and stay in your home, you need to look into a loan modification. Government programs are wonderful, however they are not the only programms available, so if you do not qualify for HAMP or HAFA don't give up. Find out what other programs are available to modify the loan. You may even consider hiring someone, a lawyer or a modification specialist, to represent you as this can be a long and arduous process and confusing to the average person. And if you can't get a loan modification, then definitely work with an experienced and qualified realtor to do a short sale. But, whatever you do, do NOT try to purchase back your own property in a short sale..it will only make matters worse.
0 votes Thank Flag Link Sun Jan 2, 2011
Hello Mau, in addition to what Dan said most banks prior to closing of a short sale will require what's called an arms length addendum. It states you're of no relation, a business partner or going to lease the home back to the owner doing the short sale.
Web Reference: http://www.homes77.com
0 votes Thank Flag Link Sat Jan 1, 2011
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