I am asked this question or a variation of this question all the time. Strictly speaking, the answer is no. Banks and investors generally will only approve a short sale if it is an arm’s length transaction. What does arm’s length mean? According to the Wells Fargo Banks’ Arm’s Length Affidavit that they ask the buyer, seller, and real estate agents involved to sign, it means:
No party to this contract is a family member, business associate, or share a business interest with the 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.
Basically, if they are taking a loss they don’t want to see the defaulting homeowner gaining. So, they want to make sure that there is no agreement to sell the house for less than what it is worth. After all, you might cut your sister a deal, right? And, they want to make sure there is no arrangement to allow you to rent the home and then buy it back at a later date. And, your sister might agree to let you do that. Now, I know what you’re thinking. “What about my 3rd cousin by marriage? Can he buy it? I don’t even like him.” No, not even your cousin could get by this Affidavit. And, Chase Bank’s affidavit is even more detailed.
Of course, you could make a disclosure to the bank and see if they will allow your sister or cousin to buy the house. If there is any kind of conflict with the short sale buyer and the seller, I advise my seller to disclose it right up front to the bank. And, they could allow it to go through – it is within their discretion. However, as a practical matter, we may not get an answer as to whether they will waive the conflict until you are so far into the process that your options may become limited. If the lender rejects your sister or your cousin as the buyer at the 11th hour, and you haven’t been making payments, and you cannot get another acceptable offer to them quickly — as a practical matter you may end up in foreclosure because you tried to sell your sister the house. That is a gamble that most homeowners in distress do not want to take.
If you are considering a short sale of your Santa Maria, Orcutt, Nipomo or Arroyo Grande CA home, you should seek out an experienced short sale agent to guide you through this process. There are many pitfalls that can be avoided with the right upfront advice. If you would like a short sale consultation, please call my office today to schedule one at (805) 938-9950. You can also review the materials on my website: www.SantaMariaShortSales.com.
Tni LeBlanc is an independent Real Estate Broker, Attorney, Short Sale Agent and Certified Distressed Property Expert (CDPE) serving the Santa Maria, Orcutt and Five Cities area of the Central Coast of California.
*Nothing in this article is intended to solicit listings currently under contract with another broker. This article offers no legal advice – it is for informational purposes only. Those considering a short sale are advised to consult with their own attorney for legal advice, and their tax professional for tax advice prior to entering into a short sale listing agreement. Not affiliated with the government. A lender may refuse to change a loan.
Copyright © 2011 Tni LeBlanc *Can My Sister Buy My Santa Maria Short Sale?*