My friends want to buy my short sell houseto help me and intend to deed back the house to me in 5years

Will my friends and/or I have Tax consequences when they deed the house back to me? Will I have any problem with the lender of the short sell when they know I get the house back?

Asked on May 16, 2009 under Real Estate Law, California

Answers:

J.M.A., Member in Good Standing of the Connecticut Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

I suggest that you do this as follows:

Have your friend represent to the bank doing the short sale that he is buying it.  they dont care if he is renting it out or living there himself.  the bank does not need to know that.  Before the short sale you and your friend should execute a 5 year lease that contains an option for you to buy the house.  this way, you can secure the house (i.e. continue to live there for 5 years) and if you later decide you dont want to buy the house, you dont have too.  When you go to buy the house, your friend will pay taxes on the house (capital gain treatment) on the proceeds above 250K. You should have a lawyer draft the lease with the option to buy.


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