Short Sale of a Home to a Relative

Get Legal Help Today

secured lock Secured with SHA-256 Encryption

Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

Full Bio →

Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Jul 16, 2021

Advertiser Disclosure

It’s all about you. We want to help you make the right legal decisions.

We strive to help you make confident insurance and legal decisions. Finding trusted and reliable insurance quotes and legal advice should be easy. This doesn’t influence our content. Our opinions are our own.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.

There is no law outlawing short sales to a relative per se. There are obstacles, however. The issues you will have to face are two-fold:

1) Assuming you want the bank to approve the short sale in a manner that you do not have to pay any remaining balance on the loan, you’ll need to convince the bank that this is a good deal—probably the best it can expect to receive (the same as you would for any short sale). The natural assumption will be that you are giving your relative a break. As a result, it will be more difficult to get the bank to approve a short sale to a relative than it would an ordinary short sale—and those are hard enough to get approved as it is.

2) If the bank suspects collusion—such as the relative kicking back some money to you under the table—then they may accuse you of fraud and possibly either sue you for damages and/or refer the matter to law enforcement.

Therefore, what you will need to do is to prove to the bank that this is on the up and up; that your relative is getting the same terms that a stranger would get in an arm’s length transaction. Transparency and documentation are key. For example, you will want to document comparable sales in your area even more carefully than you would for a “regular” short sale, to show that the amount being offered you is market rate for your home.

You should disclose up front that the relative is a relative—if it comes out later, the suspicion will be that you tried to hide the fact for fraudulent purposes.

You should also document all of your financials and your situation very thoroughly, as you would for any short sale. You have to show real hardship and need before a bank will consider this.

Also, be aware that certain behavior will be viewed with suspicion. If any otherwise unaccounted for payments or assets show up when your financial situation is reviewed, the bank may think these are proceeds from additional consideration for the sale.

In short, pretend you’re running for President and assume that any hint of impropriety will be pounced on—then make sure there is no hint at all.

Get Legal Help Today

Find the right lawyer for your legal issue.

secured lock Secured with SHA-256 Encryption