Investment Property Modification (Short Payoff by Relative)
March 4, 2012
Question: I have a rental property that is rented by my sister. She wants to buy it but I have to do a short sale in order to sell it. Am I allowed to sell it to her? I have an FHA loan.
Answer: No. You would think the bank wouldn’t care who gave them money to buy the property but they do! One reason is that many times when a family member buys a property on a short sale from another family member it is an attempt to “shave debt.” The family member buys the house and resells it back to the original owner for the new, lower amount.
There may not be any hidden agreements between you and the family member however the bank probably prefers to avoid any chance it would be the case by banning it all together.
Here’s what the FHA acceptance Form 90045 states with regard to selling your property to a family member: