Question about Short Sale after BK?

MyFico_704 · ‎08-17-2012

Hello,

We filed BK that was discharged in May 11'. Earlier this year we tried to SELL our rental property to a relative but unfortunatly and NOT surprisingly it did not appraise and the deal went dead. It's been 4 months now and I thought about doing SS. Balance 130k; appraisal value 105k (this past May).

Since relatives didn't qualify the spent a little bit of their $ for down payment and do not have enough for the 5% down.

It is my understanding that SS could take upto 6 months to get approved, if at all. Relatives will have $$ in maybe 2 more months. And the attempted regular sale was only 4 months ago..

Because the regular sale was only a few months ago.. Can we move forward with SS when relatives have $$ for dp?

How long should we wait if it's too soon?

Thank you in advance.

StartingOver10 · ‎08-18-2012

@MyFico_704 wrote:
Hello,

We filed BK that was discharged in May 11'. Earlier this year we tried to SELL our rental property to a relative but unfortunately and NOT surprisingly it did not appraise and the deal went dead. It's been 4 months now and I thought about doing SS. Balance 130k; appraisal value 105k (this past May).

Since relatives didn't qualify the spent a little bit of their $ for down payment and do not have enough for the 5% down.

It is my understanding that SS could take upto 6 months to get approved, if at all. Relatives will have $$ in maybe 2 more months. And the attempted regular sale was only 4 months ago..

Because the regular sale was only a few months ago.. Can we move forward with SS when relatives have $$ for dp?

How long should we wait if it's too soon?

Thank you in advance.

You won't be able to sell your rental property to your relatives as a short sale at all.

Under the terms and conditions of every short sale, it has to be an Arms Length Transaction. All the parties to the deal (buyer, seller, and agents) have to sign an affidavit attesting that it is an Arms Length Transaction. The banks are firm on this aspect. This means you can't sell to any relative, friend or even co-worker. It is considered loan fraud and the banks are on the lookout for it with each transaction (its part of their analysis).

You can sell to a relative (or friend or coworker) if the deal is not a short sale. That means you (or the buyer) has to bring the rest of the funds to closing to clear the loan.

MyFico_704 · ‎08-19-2012

I'm familiar with Arms Length Transactions.. however given my situation where I've already tried to sell the property as a regular sale but the appraisal did not come in and the deal fell through. (selling pricess 135k but appraisale came in well below at 105k.

Given the circumstance... does the arms length rule still apply? The SS would be at current market valuations.. (4 months ago 105k.. today would probably be the same still...).

**Keep in my.. rental property was IIB, I've tried to sell the property at current market prices but appraisal shortfalls are out of my countrol.

Here's an article I found about "arms length affadavit" - http://homebuying.about.com/od/shortsale/f/arms-length-affidavit.htm

MyFico_704 · ‎08-19-2012

Are there any exceptions to Ams Length rules?

Further information on my sale - This rental property was purchased in our name ONLY bc the inlaws did not have established credit and stable job. But they had the $$ for down payment.. We thought it was easier to buy it as a rental, rent it to them giving them time to establish and build their credit. NOTE - They've been paying for the mortgage straight out of their checking account (direct withdrawals) from inception.

Unfortunately when they were finally ready to buy.. did the whole P&S agreement, they applied for the mortgage... however the house did not appraise..and we had filed BK.

Given the circumstances.. are there any exceptions to this rule?

Thanks.

@StartingOver10 wrote:
@MyFico_704 wrote:
Hello,

We filed BK that was discharged in May 11'. Earlier this year we tried to SELL our rental property to a relative but unfortunately and NOT surprisingly it did not appraise and the deal went dead. It's been 4 months now and I thought about doing SS. Balance 130k; appraisal value 105k (this past May).

Since relatives didn't qualify the spent a little bit of their $ for down payment and do not have enough for the 5% down.

It is my understanding that SS could take upto 6 months to get approved, if at all. Relatives will have $$ in maybe 2 more months. And the attempted regular sale was only 4 months ago..

Because the regular sale was only a few months ago.. Can we move forward with SS when relatives have $$ for dp?

How long should we wait if it's too soon?

Thank you in advance.

You won't be able to sell your rental property to your relatives as a short sale at all.
Under the terms and conditions of every short sale, it has to be an Arms Length Transaction. All the parties to the deal (buyer, seller, and agents) have to sign an affidavit attesting that it is an Arms Length Transaction. The banks are firm on this aspect. This means you can't sell to any relative, friend or even co-worker. It is considered loan fraud and the banks are on the lookout for it with each transaction (its part of their analysis).

You can sell to a relative (or friend or coworker) if the deal is not a short sale. That means you (or the buyer) has to bring the rest of the funds to closing to clear the loan.

StartingOver10 · ‎08-21-2012

No, there are no exceptions to the Arms Length transaction rule the banks have set.

You don't have control over the appraisal, but you do have control over the timing of your sale. Since your relatives are paying the mortgage why don't you continue to allow them to pay your iib mortgage? You could do a "contract for deed" or a land contract for the sale. You will need to work with a real estate attorney to write the contract and complete the sale. Make sure the attorney is versed in these type of contracts.

In a few years, the value might be great enough to clear the mortgage without a short fall to the lender. Then they can refi into their name and the deed would then transfer to your relative.