It's a short sale fraud or it's legal?

Question

Agent was doing short sale for almost two years, finally she got approve from the bank. Then she found what property title was transfer by owner to other person by quick claim deed. The new guy start remodeling the property. Previous owner became tenant in the property with two years lease agreement.
Question:
What kind of strategy new owner is using and why he is doing remodeling if bank will take property anyway or I am missing something? 
The property will go to trustee auction next week.

Thank you

Marius

Dion DePaoli · Answer

The owner either knows the impact of what happened or they do not.  You would have to talk to the owner to find out.

That said, the owner QCD the property to the new guy subject to the existing mortgage.  If the rent payment is less than the mortgage payment, foreclosure can take place as I doubt the new owner is paying the full mortgage payment.  If the new guy is paying the mortgage (which I really doubt), the old owner is paying for the mortgage debt anyway and he made a bad deal.

The QCD event is inferior to the mortgage, so it essentially didn't happen.  The old owner is still fully responsible for the mortgage debt and the new owner has an inferior interest in the property, so all the repairs they are making can end up being lost money if the bank forecloses, which is within their rights for lack of payment.  The new owner would have no recourse to recoup those monies from the property since their interest is inferior to the mortgagee.