Is it Legal for the Homeowner to buy back the property?

My investor wants to buy a house on a short sale. The homeowner wants to buy her property back from my investor. Is this legal in New Mexico? I realize you are all in different states, but I don’t know if this is a State decision or Federal decision.


Yes, you can buy it back your own house legally only if you are short selling your house to a nonprofit organization. Refer to the Supplemental Directive Nonprofit Initiative HAFA Program ( SD 11-02,issued on March 30, 2011, Chapter IV,7.3 MHA Guideline Handbook).

BUT, proceed with caution - if you signed an “arm’s length transaction agreement” when you did the short sale you can NOT buy the property back. Many of the short sale agreements have a clause that says that the transaction must be arms length. This would also include leasing the property back to the owners.


There are a lot of individuals and companies who will eventually be investigated and charged for violating laws concerning exactly this topic, don't get involved!

I have been saying for years that when a buyer approaches an underwater seller and say’s “I can save your home, lease it back to you and give you an option to buy it back” this transaction just went from arms length to a fraud as the buyer is now paying the seller by providing a service “Saving and Leasing it back” which now makes the original owner a party to excepting a bribe, fraud and the transaction becomes “Non Arms Length”!

The potential buyer and seller are just as guilty as they offered something of value “Stay in your house”, seller saves moving cost’s, and although original owner is not someone the buyer would normally rent to because they have just defaulted on payments to get into a notice of default, and the buyer is getting the owners cooperation strictly because they offered a to “Save the house, Save seller from moving, Provide a lease on better than market terms and offered a to provide an option to purchase the home back” which is highly illegal as the transaction is no longer “Arms Length”!

I would bet in the next 3 to 5 years we start hearing about both buyers and sellers charged with both Federal and State violations of laws amounting to felony charges and convictions sending unknowing sellers and greedy investors off to jail or prison!

Don’t do this!


I’m noticing in short sales the banks now have clauses that you cant even sell to your relatives. Be careful. Hafa has new refinance systems that might be a better option.

Yes you can, and not only buy your house back legally,also stay in your house until you are ready financially and credit wise to qualify for another mortgage loan to buy your properly back.


Alliee your absolutely correct if you sold your home at arms length and moved, were transfered or just moved up or down in home size you may come back at any future time and re-purchase your home. 

If you own a home and are behind in payments and your lender filed a “Notice of Default” against your property then you need to be careful as you can catch up your payments or modify your terms with your lenders concensus, legally sell your home for FMV if you have equity, you can ask your lender to agree to a “Short Sale” or you will end up in an unwanted consiquence of a foreclosure.

Now you can sell your home for FMV and then be offered or ask about an opportunity to rent it, however if you are trying to “Short Sale” your home be very careful!!

If you are behind in payments and your lender filed a “Notice of Default” and you pleaded your case to accept a “Short Sale” you have effectively asked and been granted permission to sell your home for the best possible “Short Price” you can get. Now if you got a realtor and listed your property and are guided in the sales process by a independant professional who is responsible to get a fair price for the property your in a good position.

Federal law say’s that a “Short Sale” shall be a “Arms Length Transaction” between two parties! This means when your short selling your home you are supposed to get the best priced offer in good faith for your lender!

Now when someone approaches you and say’s “I can help you short sale your home, allow you to rent / lease it and give you the option to buy it back in 3, 4 or 5 years” What just happened??? Well nothing if you turn around and walk away!

But let’s say you listen and then except this offer; you have now destroyed the “Arms Length Transaction” as you just excepted an offer because you were promised to recieve something in exchange for an agreement to buy your property at “Thier Price” now you present this offer to your lender but what you fail to tell your lender is the little part about being told “I can help you short sale your home, allow you to rent / lease it and give you the option to buy it back in 3, 4 or 5 years” and agreeing to it.

You see although currently the state and federal government are not prosecuting these transactions they could turn around and start doing so at any time and although the federal statute of limitations is 5 years, the state statute of limitations is 7 years.

You see if I offer you something in spite of both state and federal law prohibiting a homeowner from recieving compensation in a short sale I effectively offered you a bribe and asked you to except my offer in light of my bribe is fraud. This negates the transaction from being “Arms Length” as your recieving something to except my offer!!!

As a real estate investor I do not want to violate state and federal law but if I offer something (Save Home, Rent / Lease and Option to Repurchase Home) I just effectually paid you to agree to my short sale offer even though my offer is for less than market value and under normal circumstances you would probable counter or decline the offer as being to low, but when this is excepted and you send it to your lender and they approve it as “Probable the best offer available” they do so without the disclosure information that the buyer has told you that you can rent / lease it and have the option to buy it back!

In this situation the real estate investor and the property owner conspire to defraud the lender! The investor offer’s to save the home and rent / lease it back to the original homeowner with an option to purchase it back down the road, this offer has value however the state and federal law in every state say the seller can not recieve any additional payment in a “Short Sale”!


GR…nice well written reply.

Two things I am aware that they are beginning to vigerously prosecute.

  1. Non-Arms Length Transactions/Lender Fraud…such as you described.

  2. Bid Chilling…where one guy pays the other bidders NOT to bid at the foreclosure auction.

Both are now beginnng to gets lots of attention.

Be very careful…or…your cell number will have NOTHing to do with a phone.


What happens instead of asking to lease and sell the property back to the original homeowner, but you say that if the homeowner does the short sale then you will buy their chair or art on the wall for $5,000?

That would seem to be illegal, but hey, all you are doing is making a bad decision to pay too much for a chair or painting. I’m not saying to do this, but would you be held accountable as “paying off” the homeowner in this case to do the deal?

You can put lipstick on a pig,but its still a pig. It would be obvious the 'chair sale" was a sham,