Legal Question in Real Estate Law in California

Re: real estate

All it takes to put together a sale is a willing buyer and a willing seller. Nevertheless, it sounds to me as though you are asking the following, in which case working out a deal seems very unlikely:

(1) I owe $400,000 on my house;

(2) The current market value of my house is $350,000;

(3) Can I "short sell" it to my lender for a $400,000 credit, i.e., forgiveness of the loan, then buy it back for $350,000?

There is no law that gives you an absolute right to a short sale or a right of repurchase. A lender may agree to let you do a short sale to it, but only becuase that's better for the lender than the alternatives.

Similarly, selling back to you is something the lender is not required to do, and if has better alternatives such as but not limited to selling to someone else, turning the property into a rental, or tearing the house down and building a new one, it will probably do so.

In short, the answer is MAYBE, but you will have to work out the whole contract in advance.

By the way, what are you going to use for money to buy it back? In a short sale, you don't receive any cash, and a lender that has just endured a loss on its previous loan to you is unlikely to extend any credit, nor is any other lender. That leaves you as a cash buyer, and if you had $350,000 cash available, why are you being foreclosed upon?

Finally, the proposed deal would have several tax implications, including the inevitable 1099 you'll be getting for the forgiven debt, but when property has gone down in value the property and capital gains tax consequences may not be all that serious. Still, you should ask a tax advisor.

Re: real estate

Mr. Whipple [I am sure] and I were assuming that you were honest with everyone involved; if you are lying to them, then it indeed could be fraud.

Re: real estate

Mr. Whipple's answer, as usual, is very thorough and accurate. The lender will probably require that you make nothing from the short sale an dno one will lend you the money to buy the house back. You would pay taxes on the forgiven debt and at least the price it goes for at the short sale, so you lose money. Legally it can be done, practically it is to no one's advantage to do it.

Re: real estate

No; that is fraud. This is no "brainstrom" and this scheme and variations have been tried before numerous times. At a minimum, you face a civil suit by the lender who agreed to the short sale, and potentially criminal violations if you fail to disclose the facts in any new loan you make in order to "buy back" the house. In addition to this scheme, buyers have had relatives/friends buy the property "for them" and have had relatives and friends do "friendly foreclosures, etc.--it is all fraud.