buying back your home?

Question

Here's a question.
After a sale can the homeowner buy back their home? For example after being unemployed, and then getting a job. I found one firm doing audits then buying the discounted note and arranging for the homeowner to lease option it back. Can a home owner buy their own note then, and what's the best way to do it.
Thank you

James Hamling · Answer

Jake, I have your answer, and that scenario is a really good point and way to illustrate it.

The best way to see it all to know if it is legal or not is focus on attachment to value. What I mean by that is if person A, call him Bob, becomes attached to a property in some legal form for say 100K value, then Bob has an attachment at that value. If Bob forecloses, sells, what ever, and then the property is brought to come back into his possession at a lower value (remember Bob has that 100K attachment) then Bob could have some explaining to do, AND the ones who conveyed that transaction.

It falls under the umbrella of equity stripping and fraud. The thing is there is a lot of gray area for a city, county, state attorney to interpret.

In your scenario, the son CAN legally purchase the property but ONLY if he does NOT rent to the mother or convey any interest current or future to the mother for a certain length of time. ALTHOUGH he could be questioned on it, AND if he allows the mother to live there he almost certainly will be prosecuted. the son would have to hold complete seperation from the mother in the transactions, meaning she couldnt give him 10 cents to help with a down, give him a fridge, nothing, complete seperation. Even then, he could face charges, although if completly seperated from the mother he would have a strong case.

It is a matter of degrees of seperation. When a discount happens there can be no conveyance in any form or fashion either in interest OR use of the property back to the one who recieved the discount action.

Jake Kucheck · Answer

Ophelia,

In your answer, I see a lot of rhetoric and no facts.  What law does that break?  I'm trying to determine if the laws behave similarly to SDIRA laws, in that you or your lineal descendents (or ancestors) cannot receive any direct benefit, or if the laws apply only to the borrower specifically.

It seems, on the surface at least, we can all agree that foreclosing on a borrower and selling the property to a different borrower is completely legal.

I just don't know where the line is drawn to establish who is and is not a "different borrower".  For example, what if instead of a son, it was a roommate that was paying rent?  Would that be illegal too?  If so... why?  Because they were living there, or because they were paying rent?  In the case of the son, was it because he was living there or because it was her son?  What if he wasn't living there before, but was still her son?  Could he then legally buy it or not?

You see, there are a number of different scenarios that I was looking for factual answers to, not rhetoric about market values and moral hazard.

Account Closed · Answer

Yes I would like to know too?

Eddie P. · Answer

So can this happen?

http://www.wsvn.com/features/articles/investigations/MI131673/

Harry Hallows · Answer

I know a guy that got to make license plates in Florida for 2 years at $.25 per hour.

William D. · Answer

I think the second question by Bill was whether or not you could purchase the note itself. Pretty interesting scenario.

Off the cusp, you may run into some merger issues whereas you now own the first position mortgage and have a fee interest. Generally, the lesser interest (mortgage) merges into the greater interest (fee) and the mortgage is extinguished.

So, in your example above, lets say you pay 50% FMV for the note and along with it get assigned the mortgage. You now have the right to enforce the note, and the right to foreclose comes with it. However, because you also are the fee owner the rights under the mortgage (not the note) will merge into the fee. Thus, you will now have an unsecured note (which you shelled out a chunk of change for) and your only recourse is against yourself. Further, any other encumbrancers would be elevated in priority so it's possible that a second mortgage would now become a first and fully secured by the equity you paid for.

The only way around merger is to structure if though entity ownership and such. This is where the fraud will most likely come in.

Ophelia Nicholson · Answer

Jake,
 I'm gonna jump in and answer your question- It is not legal, Yes I know on the outset of it that it sounds pretty legal however it might look as if was a buy and bail situation- the mother owned the house prior at a DIFFRENT market value and obviously could not afford it that it fell into foreclosure.

If someone buys it and resells to the son who was always living in the property then the lender got defrauded because the occupants haven't changed but the mom is now free of the debt and in this environment instead of owing say $150k the son may only owe $70k because todays fair market value is diffrent from when the mother original bought it.

If the son can afford the house at fair market why couldnt he help the mother so the house didn't go into foreclosure.

I know there is alot of talk about strategic default and these horrid big banks but I believe this transaction is not legal. The lender the bank- got defrauded. Even if it was not in the original plan to sell to the son it could appear that way to someone looking from the outside that this person merely came in and handled the transaction so it wouldn't appear arms length.

Jake Kucheck · Answer

James,

Since you seem to be on a posting rampage right now, I'll go ahead and take the opportunity to hijack the OP's original thread with a hypothetical of my own.

Scenario: Borrower, a single mother, lives with her adult son, but qualified for the loan with her now divorced husband.  The son does not pay rent, per se, but helps out with bills around the house and contributes when he can.  They've fallen on hard times, went through the loan modification cluster%8&!, and ended up in the FC process.  Then, a buyer bought the property at Trustee Sale, and upon legally attempting to procure occupancy of the property, thought it would be easier to sell the property back to the former occupants than to fix and flip the property.  Notice, I said occupants, not borrowers.  If the son, who now qualifies for an owner occupied loan on this property, can buy it at fair market value (but an increased amount from what the property was purchased for at trustee sale), would this be a completely legal and ethical transaction, or would you have a problem with this too?

James Hamling · Answer

I need to add because I know many not in the know will argue.

The key is "at a discount".

If you sell your home to Bob, just a straight up fair market value sale, and then a year later say "hey Bob, I want it back", so you buy it from Bob for FAIR MARKET VALUE, it is 100% legal. But I can all but guarentee you you WILL be questioned on the transactions, maybe even audited. Reason is it looks like money laundering, or other money hiding fraud actions.

If there is a DISCOUNTED rate ANYWHERE in the mix, it IS ILLEGAL. And yes, I know of prosecuted and convicted cases in my state.

James Hamling · Answer

If you buy a property from someone in shortsale or foreclosure, at discount, then sell it back to that home owner in any way shape or form including renting, it is an express ticket to club fed!

Even done to a home NOT in one of those statuses, by getting it at discount then recycling it to the original homeowner, is called FRAUD.

Lots of people have done lots of things, and years later gone to prison for a very long time. Sorry, that is a very clear cut, highly illegal thing to do, in many ways. Equity stripping for one, fraud for two. I would run, not walk away from that.