Can the bank short sell to me??

Question

I am a builder and I have one house left in inventory. I have been paying the construction note for 3 years. My uncle is now renting the house but due to a tax lien, the plan of him buying in a short sale has fallen through. The bank is willing to do in the words of the banker, "whatever it takes to not get the house back". I can get a mortgage no problem for what is owed and just rent it to my uncle who is a very solid tenant. The problem is, I owe 227k and its only worth about 195k. From my understanding, the bank cant short sell it to me because in the words of my lawyer, its not an "arms length transaction". I would gladly take 195k mortgage and rent it to him until its paid off but I have no interest in the house at what I owe. Any suggestions?

Jon Holdman · Answer

Why do the short sale at all?  You're only slightly underwater, less than 15%.  Just hold on to it and keep renting to your uncle.  Maybe things get better in a few (or five or ten) years and you can sell without taking the loss.

Perhaps you could convince the bank to reduce the principle on the loan and in exchange you take a personal long from them for all or part of the difference.

If you're just trying to eliminate the excessive debt over the value, you're going to take some pain and your uncle may end up having to move.

Michael Quarles · Answer

If no interest then walk... Unless.

If wanting to save your credit rating as much as a short does then dont walk..

Youre going to have a difficult time shorting it to your uncle if the lenders requirement is an arms length transaction.. DONT LIE.

As close as this is ecomonically it make make financial sense to figure out a way to do the deal. 32k may not be enough to screw up the lenders relationship.. However if already gone... get out of there if you can

Here are the typical terms of an Arms Length

1.	That this is an “Arm’s Length Transaction” and that no party to this contract is a family member, business associate, or share a business interest with the mortgagor.

2.	Further, there are no hidden terms or special understandings between the Seller or Buyer or their Agents or Mortgagor.

3.	That neither 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 any time after the execution of this short sale transaction.

Eric Mieles · Answer

Yes please be careful selling it to anyone they can trace back to you. As Michael said you will have to sign an arm length affidavit and in violating the terms it could be considered fraud.

Maryann L. · Answer

I like John's answer.  Try a pricipal reduction first and if not, just short sell it to someone you're not related to.  Some other builder may scoop it up.

Jason Green · Answer

#3 is the problem. I am the company. They were going to short it to my uncle for 195k and write off the rest. He has a tax lien so obviously they won't loan him the money. If I just give it back then they will foreclose and not sure what will happen to him. My credit score is the least of my concern. The option they posed to me was hold a mortgage for my uncle that way I am at least reducing principal but it would be 10 years or more before I was right side up. My point with the arms length transaction is that I don't think they can short sell to me something that I already own. I guess since they are doing it completely in house they could do a principal reduction.

Can the bank short sell to me??

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