Personally, I would talk to a RE Lawyer on how you might structure a â€œfamily financing agreementâ€ on how to keep your sisterâ€™s home and keep the property current on its existing mortgage.
In a Short Sale the Lender(s) require an "Affidavit of Arm's Length Transaction". An example of the text is as follows:
"SELLER AND BUYER EACH REPRESENT THAT THE SALE IS AN " ARMS LENGTH" TRANSACTION AND THE SELLER AND BUYERS ARE UNRELATED TO EACH OTHER BY FAMILY, MARRIAGE OR COMMERCIAL
ENTERPRISE. THE BUYER AGREES NOT TO SELL THE PROPERTY WITHIN 90 DAYS OF CLOSING THIS SALE."
Including the Seller, the property may not be sold to anyone the seller has a close personal or business relationship with including family, friends, or in some cases, even neighbors. Expect the probability of an exception to this rule to be extremely low and hovering just above non-existent!
While Short Sales have increased as a remedy for distressed sellers (Freddie Mac short sales have raised from about 4%of completed workouts in 2000 to nearly 14% in 2010) Short Sale fraud has also increased leading lenders to be more vigilant. As an example, my last Short Sale required that both the Selling Agent and Listing Agent sign the "Affidavit of Arm's Length Transaction". Loan officers are also now being asked to sign these.
Hereâ€™s a few example of Short Sale Fraud that has been taking place (from the Freddie Mac website):
1) Falsely indicating on a new short sale listing that there is an offer on a property in order to discourage legitimate offers and protect an accompliceâ€™s planned low bid.
2) Manipulating the short sale listing price by making the house look more distressed than it really is (â€œreverse stagingâ€), inflating repair estimates, or using similar tactics designed to obtain an artificially low home value on the Broker Price Opinion. (Our requirements prohibit the buyer, buyerâ€™s agent, buyerâ€™s attorney, or a third-party short sale negotiator to be the contact point for the agents preparing the BPO.)
3) â€œFlippingâ€ schemes where the fraudster â€œbuysâ€ a house at a short sale without putting down any of his own money and then sells it a few hours (or days) later to a legitimate buyer at a much higher price. These are complex multi-step schemes that use falsified title and/or loan documents to fool a lender into approving the ultimate buyerâ€™s mortgage, which the fraudster uses to settle the earlier closing on the house he â€œacquiredâ€ at the short sale for a much lower price.
4) Manipulating the HUD-1 settlement statement so the fraudster can skim away net proceeds from the sale for himself or other parties in the transaction without the sellerâ€™s or investorâ€™s knowledge. (The HUD-1 is the document that itemizes all fees, charges, and other funds involved in a home sale.)
Again, speak with a Louisiana RE lawyer regarding options as Louisiana is unique among the 50 U.S. states in having a legal system partially based on French and Spanish codes and ultimately Roman law, as opposed to English common law.
There are many options available, seek out a good local real estate attorney who can help you save the property.
Most, if not all, lenders have all parties involved in a Short Sale sign paperwork that it is an 'Arms Length' transaction. If all parties sign and this is NOT the case (Arms Length), it is considered Fraud. Does your sisiter (and other possible parties) want to be involved in Fraud and all that it entails - possible fines and prison time?
Eli Givoni, Director
Short Sale Department, LLC
Serving all 50 states
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Short Sale Department, LLC is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit.
I am sorry to hear about your sons situation.The answers below are all correct. I will add that if your realtor knows that this is not an arms length transaction he or she should refuse to continue the transaction. If they do not know or decide to continue even though they are aware of the situation, you may be putting them into a legal situation that could cost them money and or their license. Look at all of the options. Go speak to a real estate attorney immediately. Time is crucial in these situations. Below is a link to short sale information that I have made available. I hope it is of value to you.
I would be VERY careful in proceeding. I understand and respect your efforts to help, but tread carefully.
I am not sure how far back they will look in terms of the family tree and where the cut off line is. Something you also need to consider, if you are purchasing the home so that your sister can remain in the property, be careful what you sign because as part of that addendum "the arms length transaction" you will be agreeing NOT to rent the property back to the current owner i.e. your sister. So even if you could buy it, whether it is a family friend (unrelated) or not, your sister will likely not be able to remain in the home per the bank addendums.
Q: By the seller signing an affidavit that says they are not related to the buyer. There may even be one that the buyer signs as well.
My question to you is... do you, your sister or your son want to get into legal trouble?