patrick.net

no, banks are no going to approve a short sale to related party.

You can do this - but IMHO there's no such thing as a "trusted party." I had friends who, in '04, bought a house that was well over their head. Their business partner, good friend & actual relative in some way bailed them out and bought from them and rented back. Then the boom happened - they were evicted and the woman/biz partner/relative sold for a huge profit.

They even had a contract. My friends sued and were awarded $1,000 - but by that time the biz woman filed bk and they got nothing.

Evidently, this approach takes strategic default to another level. The homeowner is capable of paying the mortgage of the overpriced house, but decides not to do so. Even better, they try to find a way to own the very same house back, with lower price. The end result is minimal credit score(who care nowadays) impact and cheaper mortgage but staying in the same house. Of course, need to find someone who can be trusted. May be mother, father or other relative. Does this sound like a working plan?

The agent representing the bank is supposed to be acting in the interests of the bank, so your buyer would have to have the best offer and financing to back it. In that case I don't know why the bank would not approve the sale. It would make no sense to turn it down.

Then again if they've got a homeowner playing hardball like this that can make the payments, the lender is probably better off just giving them the principal reduction.

MarkInSF. The trick is bank will turn the homeowner down for the request of principal reduction.

Until principal reduction becomes a norm, I think bank will stay that way. Just like walking away. Several years back, who will imagine walking away as an easy option, although it appears to be. Now, everybody does it, then it is easy to do it. I think it is the herd mentality. Everybody makes money buying a house during boom time, why not me? Everybody takes advantage of the house buying credit, why not me. When everybody gets principal reduction from bank, why not me?
I'm pretty upset, like many on this forum, when everyone being irresponsible while the responsible holds the bag. I truly believe, now, rules and regulations are created to be broken or it may lose its shine.

kimtitu says

I’m pretty upset, like many on this forum, when everyone being irresponsible while the responsible holds the bag.

If responsible people were not holding the bag, what would you think about these kind of actions? Would you still be upset?

I see nothing wrong with strategic default, or the "scheme" you describe here. However, I see a lot wrong with the government taxing the responsible to make up for the losses of lenders and investors. Two completely separate issues.

robertoaribas says

Mark, etal: this is called loan fraud. If the buyer has ANY relationship with the seller, it has to be disclosed as it is not an arms length transaction; The agent involved could lose a license, the owner doing this scheme could go to jail.

Who said anything about not disclosing the relationship? If the relative/partner of the homeowner has the highest bid, why would the bank act against it's self interest and take a lesser bid simply because it's arms length?

The bigger danger is that the selling agent does not act in the interests of the lender, but instead gives a sweetheart deal to an investor who intends to flip, while the selling agent is a partner of the investor or getting some kind of kick back. I've seen anecdotal stories about this. Those agents should go to prison.

>>The LLC enters into short sale negotiations for the property and buys it for a massive discount.

What Aribas said.

The fact that the bank does not know YET that the principals are related (in the business/law sense) imakes no difference.

The fraud is in the action of signing a contract that includes a clause where the buyer is lying about their relationship with the seller.

SF ace says

no, banks are no going to approve a short sale to related party.

My realtor short sold her own home in Anaheim, CA to her business partner.
Her business partner short sold his 2.4 million home in Hillsborough to her.

Now looking at the property tax records, both their names are on both properties.

REwhores suck the slime from the underside of the lowest crawling shit pile maggot.

It would seem to me to be hard to get approved to buy the home back if you have a short sale on your credit record. Even if you could get past that hurdle, you better spend the years until the statute of limitations on bank fraud runs looking over your shoulder. Someone will catch on to the scheme eventually, and you might just be the one they decide to make an example of.

Even without that threat, someone who would do this will eventually get what is coming to them. I firmly believe that when you act this way, even though you think you have "gotten away with it", you reap what you have sown.

Lastly, will you sleep well at night?

hottytoddy: I totally agree with what you are saying and that is what we think it is the way to be. But what we think or believe does not seem to apply to most people at wall street. Wall streeters set example to everyone now, though they are considered one of the most notorious entity in US. We have become a materialistic society. Everything is calculated based on $$.

The banks may never get into this business, but more than likely someone will somehow buy up these mortgages and/or start a business suing on behalf of the banks. It could get nasty in a few years.

pkennedy: Sounds like a good start up concept, easy and has potential. Just like who will foresee you can charge people to give advice on how to walk away hassle free. Not much R&D required. If there are VC interested in going after these short salers, banks are more than happy to have someone working for them to recover at least part of the lost due to the scam. I believe this scheme has existed for a while.

If we have access to the short sale property data, then crosscheck the buyers and relationship among the buyers, then we can come up with good case to present to the banks. Thought I don't have law degree, I'm more than happy to contribute my spare time to carry out the scrutiny. What do we need? Completed short sale transaction, access to title company information and etc.?

Sure they could, but they wont. Once the books get closed on a short sale, the next entity to look at the records will probably be aliens from another planet 1 million years in the future at an archeology dig site.
The sheer volume of sales is going to bury it.

Not if the shark smell blood in the sea of short sale. If there is money to be made, lawyers will offer their service to bank to scour all their shortsales to find any abnormally.

I'm with you Markinsf. Alot of times some disgruntled employee/partner/spouse will rat them out. Hell, if I knew somebody who was scamming I would rat them out in a heartbeat. It would be fun to see these lawbreaking sleaseballs lose their smug expressions when the judge hands down their sentences. Priceless.

IMHO ethics never exists in housing market. they work the system, deserve the freedom!

This is loan fraud, pure and simple. I would expect the Bank to refuse a short-sale to a related party, and even if it's not related, if you're ever found out, plan on spending some time in jail.

As the saying goes, if you can't do the time, don't do the crime.

Like any large and massively game changing business tactic, it will take awhile for the banks to capitalize on it. They probably will though. If they wait a couple of years, all the better. A "bonus" payment in the future, will yield great stock returns. Money from essentially nothing. The stock is hammered now along with everyone else. In 2-3 years they start suing possibly. If they've lost 200K on a house, and they know you could pay off 150K in 5 years, they'll probably settle for that. They'll push people to bankruptcy when necessary to prove points, and to ensure they aren't they aren't discriminating. But they'll aim to collect on the people who have created a little new wealth and who they can legally go after. Give it time... it's free money, they'll find it.

You only need to look at RIAA to figure out that bulk suing works.

hard to fool banks