Legal Short Sale Loopholes

As many short sales that I’ve done over the years, one stands out among the others for its uniqueness and surprisingly happy ending. The situation was this: the Trustor’s (the ones in trust to pay back the loan) were behind on payments and notice of default was filed. A reasonable loan modification was not an option because the husband had taken a major pay cut due to business down-sizing. They were referred to me and after looking at their options we realized their only chance to save some credit (if any) was to try for the short sale approval. This is where the Lender is asked to reduce the amount owed by the Trustor in order to sell the property. The house debt was in the $900K price range and was short selling for $450K. You need to understand however, that the lender (note holder) generally only manages the account whereas an investment group or individual normally purchases the note. Usually the investor would not agree to take such a large hit on their investment, but they will if they foresee taking a larger hit in the future.
After speaking at length with my clients, I found they really wanted to stay in their home because of schools, close friends, a previously built pool, landscaped back yard and so on. I started questioning my clients about their parents or possible friends/investors interests. Come to find out their parents were looking for an investment property! After meeting with their parents I inquired whether or not they would be interested in buying the home, therefore, keeping their daughter and son-in law as tenants and possibly selling the house back to the children at a future date. The parents were excited about the idea.
At this point I am wondering what I’ve gotten myself into with potential disclosures to the lender, lender fraud allegations, misrepresentation and the list went on. I ran this scenario by CAR (California Association of Realtors) attorneys, my own attorney and a couple of other lenders in the field. The resolution was this: no disclosure was required under those circumstances and the lender did not care who bought the property as long as the property was bought. The appraisal price came in at $450K which is what we sold it for and my clients and their parents were elated with the outcome. The point of this story is there are so many potential avenues with the short sale process; you only need to look at all the possibilities. Knowing when to move on and let go can be very difficult, but (not to sound cliché) if there is a will there can sometimes be a way. Don’t give up!