Expert: Dick Dennis - 6/16/2011

Question
We would like to help a family member who has a mortgage that is considerably larger than the value of the home.  We are told that if it goes to a short sale, family members are not permitted to buy the property.  We would like to buy it and then rent it to him.  Is there any way to do this legally?  Can Realtor A list it, and then Realtor B buy it and resell it to us a month or 2 later (with an agreement of course).  We can afford to pay cash but only at the "value" number and not the mortgage number.  In Arizona.  Any suggestion how to accomplish this?  He can also walk away, and we can just buy a different house for that dollar.  But he likes the house he is in.  Thanks.......

Answer
As a broker, Nomi, I cannot make any suggestions that may smack of illegality. However, the family member certainly can buy his house this way . . . if the bank will cooperate. This is going to take some REAL negotiating and trusting the family member.

First of all, get a legiitimate valuation from a VERY knowledgeble Realtor. For example, if the unpaid balance of the loan is, say, $150,000, but the value is $100,000. Put $100,000 in the family member's bank account. A couple weeks later he should go to the bank (most likely the servicer to whom he has been making his payments) and tell them he is prepared to pay off the mortgage COMPLETELY . . . but at no more than $100,000 (providing the value is $100,000--he wll have obtained a valuation from a broker by then).

After they give him a negative response, he then tells them that they are about to receive his house back as a foreclosure . . . and that he will stop making all payments to them. They will not believe him because he has shown that his payments have been on time and two months later after he has indeed stopped making his mortgage payments, they will send him a letter or maybe a phone call. The family member has to play this tactic like he has nothing to lose. Yes, his credit will be damaged . . . if it isn't damaged already.

He tells the bank that he will stop maintaining the property (no painting, landscaping going to pot, etc.)  and by the time they do foreclose on him, the house is going to be a money-losing mess. The point he is trying to make is that instead of taking over a foreclosure with which the bank is going to lose approximately $50,000 in repairs and other assorted costs anyway, he wants to emphasize that he will pay off the mortgage at what the property is worth. Hopefully, at $100,000 or whatever figure you think you can help him with.

After the loan is paid off and now his property is free and clear, he will go to a real estate attorney and have him create a mortgage (note and trust deed in AZ) for the amount that you lent him. He will make payments on that mortgage (trust deed in AZ) and you will have accomplished what you want. Other than this idea, Nomi, I dare not cross any illegal lines. I do wish you well.

Dick Dennis
dixiedee13@aol.com