New Jersey / New York probate and refi confusion

[Keith Anderson]

I have run across a head scratcher....

A property owner in New Jersey dies and wills the property to his son who lives in New York. The property is valued at $450k. There are two mortgages totalling $160k in the father's name. The property is in early foreclosure. 

The son and his attorney in N.Y. want to refi the property (obviously) and the executor wants to sell the property to the son for the sum of the notes. ( $160k ) This is what I suspect is the correct way to do it. Since this would be a purchase transaction Lenders want money down even though sale is well below appraisal. 

Anybody run across something like this before? Figured I would pick BP brains before more lawyers get called in.