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.