Double Closing a Short Sale

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Someone approached some of the investors I work with for a "favor." Long story short, Person A is attempting to buy his parent's house from them. (They have dementia and weren't making payments, now the house is in a short sale situation). The lender told Person A that family is not eligible to buy the home. Someone recommended to them that they have Investor B buy the house and then double close so it's Investor B selling to person A.

Is this a legit strategy? I have always heard of restrictions on reselling short sales within a certain time frame, but I'm having a hard time finding legitimate documentation on this.

Typically only reverse mortgage short sales allow family or friends to buy the home. The family member told you they don't qualify due to arms length reasons and is asking you to circumvent that. It's illegal. Do people do illegal things though? Sure. Do they get caught? Sometimes.

Research arms length affidavit. Most short sales have verbiage similiar to this somewhere in the paperwork or approval letters. 

It is NOT illegal. Illegal refers to criminal laws, this is not a Federal or state statute, just a purchase qualification put forth by a seller.  However, the seller will probably insist that the buyer, at closing, sign an affidavit that he will not be flipping the house to any parties related to seller. If the buyer signs the affidavit and does complete the flip, then he will have committed fraud.  

So, the act of purchase to flip to a relative by itself is not illegal, it is the signing of the affidavit and the act then is fraudulent.